00:00The buzzword this earnings season appears to be resilient.
00:03I think it would be unfair just to call this resilient.
00:05It looks strong, sir.
00:06Paul, where is that strength coming from?
00:11Well, good morning, John.
00:12Thanks for having us.
00:14You know, this quarter was a really strong one for us,
00:16but I think that resiliency word works really well.
00:19It's something that we've demonstrated for the last several years,
00:22whether it was the chip crisis or tariffs or inflation.
00:25I think the teams responded really well.
00:27And this quarter was no exception when you look at some of the challenges
00:30that we faced around inventory levels.
00:33The go-to-market team did an outstanding job dealing with the traffic
00:36that we saw in the stores, which continued to be strong and steady
00:40and has continued through April.
00:42So we feel good about the quarter, and, you know,
00:45we're able to take up our guidance as a result of the IEPA tariff accrual
00:49that we took in the quarter.
00:50And, you know, so far it looks like we're able to handle some of the pressure
00:54that we've seen in inflationary items, primarily resulting from energy prices.
01:01Well, Paul, let's talk about that.
01:02It's an important topic.
01:03Your supply chains have been battle-tested, battle-hardened.
01:07The pandemic, the tariffs, and now this.
01:10What challenges are you working through as a team at the moment?
01:16Well, I think right now, obviously, the team has done a really strong job
01:20of maintaining it through even some of the DRAM memory chip issues
01:24that we saw in the middle part of last year.
01:27I think a lot of that has calmed down.
01:29But what we're really seeing across the board right now
01:31is inflationary effects in raw materials, aluminum, steel,
01:35just overall transportation and logistics costs.
01:37We're calling out about $500 million of pressure
01:40that we've added to our forecast for the year.
01:42So despite our beat, we're not taking up our guidance
01:45by nearly as much as that beat,
01:48primarily because we're continuing to adjust the business.
01:51But we feel good that we're a little bit ahead of it right now,
01:54but we are cautious about how long this might last.
01:57How much were you able to pass along those extra costs, Paul,
02:00to consumers in the face of already relatively high prices
02:04but a very strong consumer demand?
02:09Yeah, so we came into the year saying that price was only going to be up by about a half
02:14a percent,
02:14which really was the annualization of model year 26 price increases.
02:19We haven't built any significant price increases into our models.
02:23In fact, what we're seeing is the industry discounting a little bit more.
02:26There's some competitive pressure out there, but our team has held up well.
02:30I think when you look at the GM portfolio, we've really got a vehicle for every consumer out there.
02:36We're known for our trucks and our SUVs,
02:39but we sold over 700,000 vehicles last year with a starting price of approximately $30,000 or less.
02:45So we've got that portfolio.
02:47The Chevy Trax is hitting record levels for us last quarter.
02:51So we feel like we're in a good spot depending on where the consumer might be.
02:55Has there been any pushback against some of the large vehicles, the SUVs, the pickups,
03:00in the face of higher gasoline prices, or have you seen no ramifications whatsoever?
03:09You know, we really haven't seen any changes.
03:11In fact, our light-duty pickup sales were up about 8 percent year over year in the quarter.
03:16And like I said, traffic has been strong.
03:18If anything, we probably were a little bit light on inventory coming into the quarter
03:22because we had such a strong December and with the weather in January and so on,
03:27we had difficulty making up those inventory levels.
03:30So we're down quite a bit from where we were a year ago.
03:33It gives us an opportunity to replenish that stock
03:35and make sure that we've got product in the stores at our dealers for customers when they come.
03:41But so far, traffic has remained steady.
03:43Paul, when it comes to the tariffs,
03:44how is it going in terms of getting the refunds back from the U.S. government?
03:51So, you know, we're exposed a lot differently.
03:56I think many companies out there are principally focused on IEPA.
04:00Many of our tariffs are under Section 232.
04:03And there's been a pretty robust process.
04:05We haven't had any challenges with the offsets
04:09and making sure that we're getting the accounting right with the government
04:13to make sure that the cash is flowing efficiently.
04:16With IEPA, with the Supreme Court decision that was somewhat unexpected,
04:20we took the accrual.
04:21We have not moved our free cash flow guidance like we did our EBIT
04:25because we're not sure when that refund is going to come.
04:28We haven't applied for anything yet.
04:30But, you know, we're going to work through that with the government in partnership
04:33because I think that partnership has worked really well
04:36as we've adjusted and tried to benefit the U.S. auto industry the best we can.
04:40Well, how deep is this partnership?
04:42A few weeks ago, there was a report that the Pentagon is talking to General Motors
04:47and other auto companies about making munitions and helping in the war effort.
04:52Is that accurate?
04:53And where are those conversations now?
04:57Well, I can't comment on anything specific,
05:00but we do have a growing GM defense business,
05:03particularly with the infantry squad vehicle,
05:04which has been great for the troops and for the department as well.
05:09But this is taking advantage of really strong U.S. manufacturing.
05:14And that's where we lead the way, I think, as automakers and do a great job.
05:19So, you know, while we would rather not be paying tariffs across the board,
05:23we understand the environment that we're in.
05:26And we're making sure that we can pivot the business the best we can to adjust to that reality.
05:31And I think the team's done a good job when you look at the consistency of our earnings over the
05:35last several years.
05:36The earnings speak for themselves, Paul, at a difficult time.
05:39And we talked all throughout this interview about the challenges on the horizon.
05:42How does that inform your approach to capital returns for the year ahead?
05:49Well, you know, our capital allocation policy starts with investing in the business.
05:53We'll put $10 to $12 billion in.
05:55Much of that this year is actually onshoring work that was previously done internationally.
06:01We're bringing that in as a result of our tariff response.
06:04The second pillar of our capital allocation is making sure we've got a strong balance sheet.
06:08And when you look at where our balance sheet is, how funded our pension plans are,
06:13we're in a really, really strong position.
06:15And what that's allowed us to do is take some of that free cash flow and allocate it back to
06:20shareholders
06:21to reward them for their confidence in the GM story
06:25and make sure that they're generating the returns for their customers as well.
06:29During the quarter, we were able to repurchase about $800 million worth of stock at about $75 a share,
06:35taking advantage of some of that dip and continuing to be very, very consistent about the way we apply our
06:41capital allocation.
06:42Paul, when you look forward at the potential priorities of General Motors,
06:46how much do you see EVs as playing a bigger part just because of some of the questions around oil,
06:53as well as, of course, autonomous driving?
06:59So while we did take a number of charges, special item charges, last year and even in the quarter
07:05as we continue to right-size our EV footprint as a result of the new regulatory environment,
07:11unlike many of our competitors, we're sticking with our models.
07:14You know, we discontinued the bright drop van for very specific reasons,
07:18but we're not impairing any of our other EV programs like some of our competitors.
07:22We continue to believe that we can make EVs work through our winning platform.
07:27They're not affordable, are not profitable at these levels right now,
07:31and that's something that we've got to work on.
07:33So we've got a number of battery chemistry, architecture initiatives coming in over the next couple of years
07:38that are going to get the costs down and where we think we can take and continue our leading role.
07:43We're already number two in the U.S. in EVs,
07:46and I think we can continue that and continue to grow it in the future.
07:50Paul, before we go, Inquiring Minds wants to know, the Corvette behind you,
07:54what kind of money do we need to come up with?
08:00It's definitely in your price range, John.
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