00:00The GM CFO Paul Jacobson joins us now for more. Paul, welcome to the program and congratulations
00:05on the result. It's a beat and a raise. I'm intrigued by the raise, Paul, so let's start
00:09there. What powered that raise this morning? I'm sure. Well, good morning, Jonathan and team.
00:16Thanks so much for having us today. You know, we're here to celebrate in large part the
00:20accomplishments and achievements of the GM team across the board. And I think the theme for the
00:25day is consistency. The team has really executed well over the last few years. Our go-to-market
00:31strategy, our inventory discipline, our incentives remain below the industry average across the
00:37board. The consumers remain resilient across the board as well. And we've seen some good
00:42tailwinds coming in the form of continued warranty improvement, our EV profitability journey, as
00:48well as a pretty significant ramp in our digital revenues across the board. So when we look
00:52at that and measure it against even some of the macro headwinds that are out there, we
00:58felt confident raising our full-year guidance by another $500 million, effectively taking
01:03our outperformance in the first year and banking it, and really continuing to drive those results.
01:09But incredibly proud of the team and what we've been able to accomplish.
01:12I can see that this morning. Paul, also the pricing power. Let's just sit on that just for
01:15a beat. The pricing power is impressive. We see gasoline prices back to $4 a gallon for the
01:20first time in something like a month. That problem has persisted through Q2 into Q3. You've got great
01:26experience of dealing with energy prices in your time over at Delta. It's different in the same seat
01:30over at GM. But can you describe how this works? When you see gasoline prices push up the way they
01:35have, what is the relationship between that and sales for General Motors?
01:40Well, certainly the airline industry has a lot more ups and downs than the auto industry does as it
01:46relates to oil prices. But what we look at is, where is the health of the consumer? Where is the
01:52demand? And our full-size truck sales are up 4% year-to-date. We expect that to be flat
01:57for the
01:58year, mainly because of production, because we're cutting over to the next generation of trucks, which
02:03we're really excited about. It'll be the most capable pickup truck we've ever produced with a brand
02:08new Gen 6 V8 engine, as well as diesel options across the board. So the success that we've seen in
02:15the
02:15last year of a generation of trucks is really unprecedented. And we've held in on price and
02:21demand as well. And that's remained consistent. So as we look at the overall energy price environment,
02:27it hasn't really impacted us. We're still selling full-size SUVs as quickly as we can make them.
02:32But we have a much broader product portfolio. We like to talk about here that when you look at our
02:38crossover portfolio, the profitability is up 4x from where it was just in 2020.
02:44So we've gotten much more efficient at a broader portfolio to be able to meet customers wherever
02:48they are.
02:49Paul, there's a line in the statement this morning from Mary, and it reads as follows. Just a short
02:53quote. We have multiple engines of margin expansion. Can we just sit on the margin expansion as well?
02:59I think this is really important. You know what we're like, Paul? We sit around this table every
03:02morning and we worry for three hours about a bunch of risks. You have to execute. We've spoken this
03:07morning about higher prices for chips, higher prices for energy, the prospect of increased
03:12tariffs. How do you make sure that you've got that cost discipline to make sure you've got the
03:17flexibility as well to see those margins and that margin performance continue, even with that price
03:22pressure coming from all directions?
03:24Well, if you're pros at worrying, that might set you up to be a CFO someday. So keep at it
03:30because we
03:30have to worry a lot in our desk as well. But we've really also got to focus on what is
03:36that playbook
03:37that we can execute to overcome. And I think what the team has really done is we don't make excuses.
03:43We're out there trying to find productivity where we can, enhancements across the board. So when you
03:49look at what the team is doing with quality improvement and we've increased our warranty savings
03:54year over year from a billion, which we came out at the beginning of the year, to one to one
03:58and a
03:59half billion dollars. Our digital revenue, which we're really excited about, will be over $3 billion
04:04this year. And we expect to add a million new subscribers to our digital channels. So
04:09the team is really executing. And I think that's what's really different. When you look at
04:1410 years ago, we were producing about $3 to $5 billion a year in free cash flow. Today, we're
04:20producing over $10 billion a year in free cash flow. And it's driving that efficiency in spite of what
04:26everybody would argue is probably a more challenging macro environment than where we were a decade ago.
04:32So we're really proud of these results. And we're continuing to execute and expect that the market
04:37is going to continue to see that. Building on Jonathan's point, though, when it comes to TSMC
04:42this morning, we're looking at 10% higher prices next year for their chips. Do you at some point have
04:47to start passing chip costs specifically down to the consumer?
04:51Well, we look at it in the entire equation. So coming into the year, we talked about a billion
04:56to a billion and a half dollars of inflationary pressures. We took that up after we saw the Iran
05:03conflict. Some of that is chip inflation as well. So our supply chain team is out there sourcing
05:09everything that we can. The first and most important thing is that we don't impact production.
05:15And we've been very, very consistent in that space. So while we are seeing some inflation,
05:21the opportunities and the tailwinds we have elsewhere in the business have been more than
05:25enough to overcome it. And that's why we've been able to get back into our 8 to 10% margin
05:30range in
05:30North America, despite $3 billion of tariff headwinds and other inflationary pressures as well. And
05:37you know, we think many of those opportunity sets that we have are going to carry us in with even
05:42more momentum into 2027 and beyond. I'm glad you mentioned tariffs. I know you've done a lot to
05:47try to reduce the tariff bill, but are you having some PTSD this morning when you wake up and you
05:52see the president is talking about Canadian tariffs once again, which is key for your supply chain?
05:57Well, there always seems to be something happening the day before earnings. But, you know,
06:02in this circumstance, this isn't anything that is impacting us. These new tariffs that were
06:07announced don't fall under Section 232, which is what covers autos. And, you know, and I think,
06:13you know, if if we could encourage the parties, we would love to be able to get the deals done
06:18with Canada and Mexico. Mexico seems to be a little bit ahead of Canada right now. But, you know,
06:24I think a good trading block that meets all of the country's needs is really important for us
06:30competitively. We've got a lot of capital that we've been putting in place, almost $6 billion
06:35into the United States to onshore production of both vehicles, full size trucks, as well as the
06:41new Gen 6 engines that are coming in. We're increasing production across the board. We'll
06:46have over 2 million units produced in the United States when all this is said and done. So, you
06:51know, I think we've been able to make adjustments, but, you know, consistency is helpful, especially
06:56when you have a multi-year planning cycle. Paul, I don't want to put words in your mouth,
07:00but is that the frustration for you and the team, for the executive team, for the whole team at GM?
07:05You just want to know the rules and you'll get on with it. Well, I wouldn't classify it as
07:11frustration, Jonathan. I would just simply say, you know, there's a lot of volatility in the world.
07:15And if it wasn't tariffs, it might be energy prices. It might be global conflict or geopolitical
07:20issues. And that's why I say we as a team, we don't sit around and make excuses. We look and
07:26figure out what is that playbook that we're going to execute? We're going to where are we
07:30going to continue to try to find the opportunities to expand margin. And what the team has done is
07:34pretty remarkable. And it's now three years straight that we've delivered these types of
07:39results and feel very, very optimistic about our ability to weather the storms wherever they
07:44might come from. Well, it's a beat and a raise this morning. It's impressive. Paul,
07:47we appreciate your time. You're always generous with it. Thank you. Paul Jacobson there,
07:51the GM CFO following a beat and a raise and a raise of $500 million for the profit forecast this
07:57morning.
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