General Motors Company (GM)

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General Motors (GM)

Q3 2012 Earnings Call

October 31, 2012 10:00 am ET

Executives

Randy Arickx - Director of Investor Relations - General Motors

Daniel F. Akerson - Chairman, Chief Executive Officer, Chairman of Executive Committee and Member of Proxy Committee

Daniel Ammann - Chief Financial Officer, Senior Vice President, Member of Proxy Committee and Director of Opel

Stephen J. Girsky - Vice Chairman of Corporate Strategy Business Development Global Product Planning and Global Purchasing & Supply Chain, Interim Head of Opel/Vauxhaull Unit, Chair of European Opel Brand, Director, Board Member of European Opel Brand, Member of Proxy Committee, Member of Finance and Risk Committee and Member of Public Policy Committee

Chuck Stevens - Chief Financial Officer for North America

Analysts

John Murphy - BofA Merrill Lynch, Research Division

Adam Jonas - Morgan Stanley, Research Division

Timothy J. Denoyer - Wolfe Trahan & Co.

Itay Michaeli - Citigroup Inc, Research Division

Brian Arthur Johnson - Barclays Capital, Research Division

Rod Lache - Deutsche Bank AG, Research Division

Christopher J. Ceraso - Crédit Suisse AG, Research Division

Ryan Brinkman - JP Morgan Chase & Co, Research Division

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the General Motors Co. Third Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, Wednesday, October 31, 2012. I would now like to turn the conference over to Mr. Randy Arickx, Executive Director of GM Communications and Investor Relations. Please go ahead, sir.

Randy Arickx

Thanks, operator. Good morning, everyone. Thank you for joining us as we review our third quarter 2012 results. A press release was issued earlier this morning, and the conference call materials are available on the Investor Relations website. I would also like to mention that GM is broadcasting this call live via the Internet.

Before we begin, I'd like to direct your attention to the legend regarding forward-looking statements on the first page of the chart set. As always, the content of our call will be governed by this language.

This morning, Dan Akerson, GM Chairman and CEO, will provide opening remarks; followed by a more detailed review of the financial results with Dan Ammann, Senior Vice President and CFO, who will be joining us by phone. Steve Girsky, Vice Chairman, will also provide an update on our plans in Europe. Dan Akerson will then conclude the remarks portion of our call with some closing remarks.

After the presentation portion of the call, we will open the lines for questions from the analyst community. Also, in the room today we have Nick Cyprus, Vice President, Controller and Chief Accounting Officer; Chuck Stevens, CFO of North America and South America; and Jim Davlin, Vice President, Finance and Treasurer, to assist in answering your questions.

With that, I'll turn the call over to Dan Akerson.

Daniel F. Akerson

Thank you, Randy, and thank you to everyone on the call. It's been a tough week. Before I get down to business, I want to say a word of thanks on behalf of GM to all the first responders, relief teams and volunteers who are doing so much to help people who lost family, friends or their homes in the storm of the past week. I'm sure all of us in the room and on the call know someone whose life has been changed by this disaster, and they are in our prayers. As someone who has roots in the East Coast, it makes me glad to see so many people and companies pulling together to speed the recovery. It will make a big difference for many people.

All right. Let's get to our results. This was a solid quarter for GM in almost all respects. As you can see this at just a glance by looking at all of the green up arrows on Slide 2. I won't review Slide 2 line by line. Instead, I'd like to draw your attention to 3 key indicators.

The first is our global EBIT-adjusted of $2.3 billion. This is about $100 million better than a year ago despite the ongoing negative impact of the European sovereign debt crisis on our business and the industry.

The second point I'd like to make is that 4 out of 5 -- our 5 business units, were profitable. It's true both for the quarter and for the year-to-date, and it stems from our geographic diversity, strong brands and the financial rigor we are instilling in the business.

Finally, we generated $1.2 billion in automotive free cash flow. While it's not on the chart, this brings free cash flow to $3.2 billion for the year-to-date, which is $1 billion better than a year ago.

What's important about this metric is that it's net of spending on new products, plant and equipment, which is set at roughly $8 billion annually, up from about $6.2 billion last year. In fact, we've kept our capital spending stable at this high level. While some competitors pulled back, we're not about to do that. We're here to create a sustained competitive advantage in the marketplace, and we can afford to invest in a straight-line basis because of our fortress balance sheet, solid profitability and global footprint.

As we invest, we're also confident that we will continue to improve our margins by mid-decade. It will be a function of volume growth, even stronger brands, less complexity and lower SG&A and product cost, all of which is built into our business plan.

If you turn to Slide 3, I'll review some of the third quarter operating highlights that show how we are executing against this plan. Let's start with the overall portfolio. We have continued to invest in new Opel and Vauxhall products even as we work harder to reduce our breakeven level. In fact, there are 23 new vehicles coming by 2016, and the 3 newest have been generating a tremendous amount of interest among our dealers and consumers months before they hit the showroom.

For example, the Mokka, which will be the first vehicle in its segment from a German brand, already has more than 45,000 orders, with particularly strong interest in Germany, the U.K. and Russia. About half of the orders are for the top-of-the-line Cosmo series and 70% of those orders are equipped with 4-wheel drive. In addition, the Adam, which goes on sale early next year, was the hit of the Paris Motor Show. It will be produced in our plant in Eisenach, making us the first manufacturer to build a vehicle in this segment in Germany.

With the addition of the Cascada convertible, which also launches in early 2013, we'll have 3 new vehicle segments where we didn't compete before, which is a foundation for us to sustain and grow the top line of Opel.

Turning now to Chevrolet. The brand is clearly on a roll. Chevrolet dealers delivered 1.25 million cars, trucks and crossovers worldwide in the quarter, which made it the brand's eighth consecutive quarter of record global sales. What we're seeing is a convergence of customer needs around the world, needs that Chevrolet is able to satisfy with highly functional and very desirable global vehicles like the Spark, Sonic, Cruze and Colorado. Nowhere has the impact of this global convergence been more powerful than the United States, where small cars have helped drive a 63% increase in consideration for Chevrolet passenger cars since the fall of 2010.

Increased consideration translates into a 56% increase in U.S. mini, small and compact car sales in the third quarter versus a year ago. But even as sales of smaller vehicles increased, so did our pickup trucks' ATPs. They were up by $2,200 per unit, thanks to strong sales of new -- of the crew cab and heavy-duty models and lower incentives.

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