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General Motors Corporation (GM)

January 2007 Sales Call

February 1, 2007 2:00 pm ET

Executives

Paul Ballew - Executive Director, Global Market & Industry Analysis

Analysts

Robert Barry - Goldman Sachs

John Murphy - Merrill Lynch

Chris Ceraso - Credit Suisse

Ronald Tadross - Banc of America Securities

Rod Lache - Deutsche Bank

Scott Merlis - Thomas Weisel Partners

Jon Rogers - Citigroup

Brian Johnson - Lehman Brothers

Bryce Hoffman - The Detroit News

Kate Merx - Detroit Free Press

Tom Krisher - The Associated Press

Rick Popely - The Chicago Tribune

Jui Chakravorty - Reuters

Terry Kosdrosky - Dow Jones Newswires

Neal Boudette - Wall Street Journal

Greg Bensinger - Bloomberg News

Presentation

Operator

Ladies and gentlemen, thank you for standing by and welcome to the General Motors Monthly Sales Conference Call. During the presentation, all participants will be in a listen-only mode. Afterward we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded, Thursday, February 01, 2007. It is now my pleasure to turn the conference over to Mr. Paul Ballew, Executive Director, Global Market & Industry Analysis. Please go ahead sir.

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Paul Ballew

Thank you very much and good afternoon everyone. As always we appreciate you guys taking some time with us. This time we'll have quite a few questions as is the norm. Always fun with the January results to start off and we'll spend as much time as we can, so chime in today and we'll try to answer everything we can.

As we talk about January, its normal, I want to start off with the industry and then doing so, I always feel like I need to start talking about industry results in January with a bit of a disclosure. It is always a challenging month to get a reading on always noisy, always one of those months you look back on and kind of shake your head on. In fact if you think about year ago levels, we were talking about a selling rate in January that was about 18 million units, which of course it would have been a nice round-number for us to actually achieve in 2006, and we didn't quite get there.

Generally, what happens for those of you who are not familiar with the industry, is we get the paybacks from the yearend sales push, as the industry, we are close [to get] winter weather and then we get fleet timing as all factors which impact the top-line results and impact the challenge we all have in interpreting those top-line results. I would also note that this year we have a couple of those factors, clearly on display, notably the significant decline in rental fleet sales and as we will talk about on our results and I am sure Ford talked about in their results, we are planning for significant declines in the first half of the year and we had a very significant decline in rental fleet sales in January.

We also had to deal with some year-end dynamics this year that are pretty unique, we of course had the big push in the medium and heavy duty truck market last year as we are dealing with regulatory changes. So we had a very strong year, in fact a record year in the heavy duty business and that will impact us, as we try to get through the top-line results as well for the month.

Once again there are distortions that distort the month of January and make it tough to try to make sense of those results. So what I thought I'd do today, to kick-off the call, also spend a little time trying to breakdown the pieces in a couple of areas and give you our perspective on what we will see happening, really getting below the top-line decline that you will see, which will be in the range of somewhere around 10% on the selling day adjusted basis and a decline of somewhere around 5% or 6% in a non-selling day adjusted basis. So we are going to try to break that down in two areas; first, what are we seeing in terms of underlying strengths or the [life] thereof in vehicle demand coming out of the January results. And then secondly the corresponding issue that's always very relevant as we talk about the industry and that is what we are seeing with regards to vehicle mix and vehicle pricing.

First, as we look at underlying demand and again trying to sort out this 10% decline in the month of January, how do you interpret it? Well, again you're dealing with fleet, you're dealing with medium and heavy duties and so on and so forth. As we filtered through that, I would conclude that January was certainly not a stellar month, but it's certainly better than what one would conclude with the year-over-year decline. The fleet reduction we are seeing are a very significant factor and they are really going to distort things, not only in January, but likely in the first half and given what we are seeing from some other manufacturers may distort things in some months in the back half of the year.

For us, honing in on retail sales, I would describe the industry to be flat to probably down slightly versus year-ago levels. But I think more importantly than that the retail selling rate for the month is actually okay. We are estimating that the retail industry probably came in at an annualized running rate of about 13.7 million units, which was very much in line with what we saw in calendar year of 2006 and may actually prove to be a slightly stronger selling rate than what we saw in the second half of last year.

Now in all fairness, that running rate is not great. It's not at levels we saw in 2004 or 2005, but we're not seeing signs and we certainly don't interpret January results as providing any confirmation that there is further erosion occurring in terms of underlying retail sales in the industry or demand on the retail sales side in the industry. Despite that factor, yes, we and other manufacturers are worried about the correction in the housing markets and the corresponding impact it has on big-ticket purchases.

Bottom-line for us, in the second half of last year, we saw retail demand pretty stable, below levels we would like to see in the industry. As we look at January and I think once we get these final results and can sort them through, we'll probably see retail sales, again pretty similar to the second half of last year, if not slightly better. So not a great month, but I wouldn't conclude that we are seeing further deterioration on that side of the business. What you are seeing obviously, is a very significant adjustment in the fleet business, notably with regards to daily ramp.

Secondly, I would describe mix for the month is okay as well. Always tough here, in terms of dealing with January, because you have some categories that have big yearend flurries, mainly luxury vehicles and some large truck categories. That tends to dampen what we see happen in the month of January in those sales categories. Overall though, when we look at the industry, it looks like ATPs were up slightly versus a year-ago, trucks are inline with year-ago levels, if not on a retail basis, slightly better than what we saw in January of 2006, and we are seeing a more normal return to content models, if you remember back last spring when we were dealing with $3 a gallon gas, we had to wrestle with a number of negative mix effects on the industry, the shift from trucks to cars. The ongoing movement on the power train side, and lower displacement engines and then of course, what we saw from a content standpoint, on some vehicle lines from overall trend and mix perspective.

Bottom-line for us is, we got through these numbers and certainly for GM, mix was very favorable in the month of January once again. If we look at the industry as a whole, I would say pretty normal. Some paybacks from Q4 again in those categories, that get the big push in the year, and namely luxury and some of the large truck categories. But overall, not that bad month in terms of mix, looks like we are going to be pretty close to expectations from an industry standpoint.

So, and breaking down January, again if you are selling data [adjusts], you are probably going to report out in industry somewhere around down 9%, 10%, a selling rate that looks like its down about 1 million units from what we saw year-ago January, roughly around 17 million units total, probably 16.6 on the light vehicle side.

Having said that, again as with any January, you have to sort through the noise and then sorting through the noise, we have some unique circumstances this year, primarily on the rental side of the business. So as we breakdown those results, I would say we are confirming what we thought we would see for the year and our expectations are unchanged. Once again, we are assuming the industry will come in around 17 million units. We'll see better mix leap and GM we'll see better quality of [ship there] and consistent with our restructuring plan. And the year should be okay, it shouldn't be a great year. We don't expect to return the trend, probably until we get beyond 2007 and we get some of these headwinds from [holding] behind us, but as long as we are generating jobs, wages and salaries are growing. We shouldn't see [retards] and then stay at the levels we saw in the second half of 2006, if not, begin to improve as we move into Q2 and Q3 of this year.

Turning your attention to our performance; as with the industry, a challenging month from the top-line prospective, in fact even more so, because of what we are doing on the daily rental side. We talked a little bit about this last week and gave the journalists, the members of media, an early heads up, that we are going to have a very significant reduction in our rental volume and we did. We were down about 40% year-over-year, that's consistent with our aggressive reduction plan that we began two years ago. This is a reminder. We have been targeting -- declining by at least 200,000 units, and in fact we may be down more than that over a couple year window, as we take down the rental portion of our business. This reduction accounts for about three quarters of our sales decline during the month, and quite simply there is more to come in future months. So as you look at February and subsequent months, there are going to be some months where we are going to have very significant rental volume declines. And as we look at the top-line results, I understand you have to report on those top-line results, but I just encourage you as well to think about why we are doing this and why this has been such an important part of our overall restructuring plan in North America and getting the business back on a healthy and sustainable basis.

As we look at it, we are beginning to see the benefits of this discipline on rental and taking volumes down. We were the only manufacturer and in total head residual values up amongst the majors, Q4 to Q4. We are seeing some very significant gains on our resale values and residual values on some vehicle lines. And quite simply as we take down rent, we expect to accrue more and more of those benefits going forward.

Turning to the retail side of our business, I would certainly not frame the retail side as a great month, and in fairness, we were modestly below where we expect it to be. We expect it to come in comparable. We actually ended up down about 15,000 units year-over-year. And in retrospect, as we assess that performance, I would say we probably dialed back our incentives a bit more than what we planned and a bit more than what our competitors were doing. Our incentives were down about $500 a unit. On a year-over-year basis, we were down about $600 a unit versus or a vehicle versus December. The industry was actually up, January versus December but we did probably pull back a little bit.

Having said that, the key for us is to continue to keep an eye on what we are attempting to do and that's mainly stabilize our retail sales and our retail share. I think it's important to note, we've done that over the last six quarters. I think it's also important to note that in the last six months, our retail sales were actually up about 4%. Legitimately, month-to-month this is going to be a delicate balance between executing our long-term plan and remaining competitive in the marketplace, and January was a good example of that. We were continuing to focus on executing our go-to-market strategy by reducing rent, by providing the best value in the industry, and by being very surgical on our incentives, while some competitive activity was certainly more aggressive and hurt us in some segments and some categories.

Going forward, we are going to maintain our competitiveness. You are going to certainly see some more aggressive activity from us in February and March, but we're not going to go down the path we've gone down in the past, by which we just threw incentive dollar after incentive dollar at this mark in a very inefficient and unproductive manner. It is a delicate balancing act and we have to continue to do so, and certainly making those trade-offs going forward and we feel like [comparing] last year and certainly over the last six months, we have done a pretty good job of doing that.

In terms of sales highlights, I would point out we continue to do well in terms of mix, our ATPs were up about 4% year-over-year continuing the trend. We really saw the -- the gas came down in the early summer months of last year. We are continuing to sell down our large pickups very well and start up our new pickups very well, both for Silverado and Sierra being up versus year ago levels. And we're having a solid start in some other key launch vehicles namely the GMC Acadia and the Saturn Outlook.

(Inaudible) for us, not a great sales month, but we're doing okay in terms of our performance and I think more importantly we continue to execute our plan in the marketplace, consistent with the overall North American restructuring plan and to get this business on a healthy basis going forward.

Few other housekeeping items, inventory levels were flat year-over-year, we're at above $1.50 million at the end of January. We continue to be focused on balancing our inventory, as we go into the spring selling season. We are announcing additional guidance from the production standpoint, and have about 40,000 units coming out of schedule, based on the guidance standpoint and that reflects the aggressive custom rental, as well as the fact that we're tweaking inventories in some vehicle lines that are a bit higher than what we would like at this point. I would point out that that does not include large trucks, we're in very good position in terms of large truck inventories, [Buick] was selling down the 800s as well as the rev in our large utility inventory given the fact that our selling rate has picked up and that we took some production actions in the fourth quarter.

Few other housekeeping items, incentive spending right now, as I mentioned we're down about $500 year-over-year. We're down about $600 versus December. In this year right now, we're estimating it was up about $100 a unit versus year ago.

So wrapping that all up, again industry is always noisy in January, I know many of you that have been with us year in and year out have heard my warnings previously that January is always a tough month to sort through. This year is particularly noisy, because of what's happening on the rental fleet side, for ourselves and Ford, as both manufacturers are pulling back pretty aggressively. As you sort through all of that, I would describe the industry is okay, certainly not recovering back to where we were a couple of years ago, but not showing any additional signs of falling-off. I'd also say that mix is more normal now, than it was a year ago or certainly when we look out into March and April of 2006.

With regards to GM results, top-line numbers are being impacted by the play we're making on rental. Retail sales is a bit below expectation, it's fair to say. Having said that, we look at last three months, last six months and our retail sales are right around where we expected them to be and right around where we need them to be consistent with our North American restructuring plan.

So with that by the [way of my] introduction let me pause there and we will open it up for questions or comments. Operator?

Question-and-Answer Session

Operator

Thank you. Ladies and gentleman, we will now proceed with the analyst portion of the question-and-answer session. (Operator Instructions). One moment please for the first question. Our first question comes from the line of Robert Barry with Goldman Sachs. Please proceed with your question.

Paul Ballew

Hey, Bob Barry, how are you?

Robert Barry - Goldman Sachs

I'm good, thanks. How are you?

Paul Ballew

I'm doing okay.

Robert Barry - Goldman Sachs

Did you say during your comments that the large Ute's were gaining momentum?

Paul Ballew

Well, what we've seen in terms of our selling rate on large Ute's since last spring has been a very good performance. We're right on our sales mark. We're down a bit in the month of January. Again, we're selling out our 800 to a year ago at this time. Having said that, our selling rate in January, when we seasonally adjust, retail was identical to where we were in December. So, we're feeling pretty comfortable there. And again, we've been right on that mark, really since about August-September of last year. We also feel pretty good about the category, because we've been able to dramatically reduce incentive spending in large Ute's, our incentive spending since mid-year, on the 900 has almost been cut into half.

Robert Barry - Goldman Sachs

Okay. So our mix was adjusted based on -- you said that, it was about flat?

Paul Ballew

About flat. Yeah, there is -- what has happened with large Ute's over the last few years is we've had a very interesting seasonal pattern developed in the large trucks business. Last year got distorted a little bit because, of course, we were pushing hard to get rid of the old 800's at this time. But we see very strong demand in the fourth quarter and then we get a seasonal slump in the early part, and they're behaving more like luxury vehicles in terms of their sales. So if you look at those -- even the Escalade which was up, and our large Utility numbers were up in the month of January versus year ago. If you compare them versus December, they are down quite a bit, because of that seasonal pattern. Having said that, incentives are down, the selling rates have been right where we wanted to be, mix has been tremendous, in fact we've really been wrestling to trying to meet the demands with regard to richer mix on the large Ute's, moving Denali mix up to about 50% of Yukon build and then really struggling to keep up with Escalade demand in the marketplace. It’s been very tough. Escalade and ESVs in particular, and of course, both of those are very profitable vehicles.

Robert Barry - Goldman Sachs

Since I remembered at the end of -- I think it was third quarter you took the over time shift off of some of the large Ute production. Do you think you might have to add that back on?

Paul Ballew

We've been making some tweak to the schedule to put some large Us back in and that’s really a reflection of the fact that demand has been slightly stronger than what we thought, especially, on the short wheelbase, interestingly enough. But I wouldn’t say we've gotten to the point where we are going to make a dramatic change from production standpoint. We'd like to balance the inventory levels roughly where they're out right now. We've got them back down about 100,000 units in inventory. That’s a good balance for us, given the number of entries and the mix we have there. So, we'll keep an eye on it. Really no concerns on the large truck side of the business right now, unlike last year at this time, certainly where we were in the spring of 2006.

Robert Barry - Goldman Sachs

And then just a housekeeping item. Could you tell us what percent of sales in the month was fleet and what percent of that was the daily rental?

Paul Ballew

Sure. We were 32% fleet. We were 39% a year ago, so you get the big January push on the fleet side. And from a rental standpoint, rent for the month just after pull-through a quick calculation on where we are at on rent, we did 56,000 rents or about 25%, 23% to be precise. We're down significantly in the rental volume, by far it was down 30,000 units year-over-year.

Robert Barry - Goldman Sachs

Okay. Thank you.

Paul Ballew

You are welcome.

Operator

Our next question comes from the line of John Murphy with Merrill Lynch. Please proceed with your question.

Paul Ballew

Mr. Murphy.

John Murphy - Merrill Lynch

Hey, Paul how you are?

Paul Ballew

Doing, okay. How are you?

John Murphy - Merrill Lynch

Good. I just want to dig into free pullback here a little bit, because it sounds like it's sort of a push in this year from both yourselves and Ford. But in reality, it looks like the production cut we're seeing here, is 38,000 units reduction in pass car production. So it seems like it is actually something going on a demand side for passenger cars, particularly in a rental market. I mean is this just because of your initiative to reduce rental fleet or is there something going on in the rental market that's causing lower demand?

Paul Ballew

I'd say demand from rental car companies remains pretty strong, because travel and tourism has been healthy. But we made a decision going back two years ago that we needed to aggressively reduce rent to get the business healthier in North America, and therefore, we've been pulling this down. Now, the dynamics for us from a financial standpoint of the rental business have improved over that period of time. But, all in, we need to do this, we are going to do this, and we've stuck to our guns for two years and there is more tough marathon coming on the rental side because it actually have to happen.

John Murphy - Merrill Lynch

So that 38,000 units you are pulling out of the schedule on the pass car side, is that just a timing issue, or is it just beginning to getting more aggressive right now in pulling back on fleet?

Paul Ballew

It's a combination of things. We need to manage our inventories on the retail side as well, so it's not just a rental -- a part of what we are doing right now and the retail side is trying to get balance from a pricing incentive standpoint and underlying demand. And then on the rental side, our rental cut this year is very front-end loaded. It's all in the first six months of the year.

John Murphy - Merrill Lynch

Okay. And then just quick housekeeping, what's the car/truck inventory split? I may have missed that.

Paul Ballew

It would be pretty close to our sales mix, two-thirds/one-third. So, we were 1070 in total inventory, trucks were about 700 in that and cars were about 375.

John Murphy - Merrill Lynch

Thank you very much.

Paul Ballew

You’re welcome.

Operator

Our next question comes from the line of Chris Ceraso with Credit Suisse. Please ahead with your question.

Paul Ballew

Hi Chris.

Chris Ceraso - Credit Suisse

Thanks. Hi, Paul. Just a couple of quick ones. Just to make sure we've all the numbers here, can you give us year-over-year percent change in retail and for fleet in both car and truck?

Paul Ballew

Sure. Fleet was down 33%. Retail was down 11%. Retail cars down 14%, retail trucks down 10%.

Chris Ceraso - Credit Suisse

And the fleet car/truck?

Paul Ballew

Fleet cars were down 35%. Fleet trucks were down 39%.

Chris Ceraso - Credit Suisse

Okay. And you mentioned that this is mostly front-end loaded, is there a particular month or set of months where the [comp data] for the deliveries are particularly weak that we're going to see really deep year-to-year changes?

Paul Ballew

Well, you're going to have a series of months as the fleet plan rolls itself out on the first car to the year where we'll get 28,000 unit fleet declines. And whether or not we can fully offset that on the retail side is -- let's see how things play out. What we're doing is we're trying to encourage everybody to legitimately get behind our results, and really ask any question you want to ask about retail and the quality of our business and so on, because its rental hit and the first-half of the year is going to make our top-line results look poor. Well, in many cases, they are not, and in most cases is not -- in all cases they're right in line with what we're attempting to do in North America. So, as I look at anywhere what happened in the fleet side is exactly what we thought and what we've been preparing for. What we saw on the retail side was a little softer than what we'd like to see, but I will tell you, we dialed back incentive so much, that I can account for almost all of that miss because of what we did on the pricing side and again it's January. So I don't get too worked up about January under any circumstances.

Chris Ceraso - Credit Suisse

Is GM still targeting 3 million annualized rate on a retail basis?

Paul Ballew

That's correct.

Chris Ceraso - Credit Suisse

And you would have been below that, you're saying here in January?

Paul Ballew

We were below that in January. It's one of those months that some -- not happens in some months. We had some months in the second half of last year, where we were below that as well, because incentives, small cars, small Ute's, what competitors are doing out there in the marketplace. But the large lead that target on a running rate, moving average bases [unbind]. And again, I look at the last six months and we have been executing pretty well with that strategy and our mix has been very favorable. And if we can do that, we are still will [okay] about the business.

Chris Ceraso - Credit Suisse

Okay. And then the last one I am sure I have asked you this before. But can you just remind us when we will have full availability at the dealers, for both the new pickups and for the Lambda Crossovers?

Paul Ballew

With regards to Lambda, it's going to be a couple of months away. We are starting to ramp up. The key though, is the mix has to get in balance and really by the time you get to the backend of March, we will be in pretty good shape. On the light-duty pickups, the cruise and extends, you are getting close there. And in fact, we saw in the last month on the light-duty side, that almost half of our light-duty sales were the 900. And that was about 33% of our pickup deliveries for the month. For the heavy duties, we will not see real availability until we get into probably May which is 30% of our volume.

Chris Ceraso - Credit Suisse

Okay, thanks a lot.

Paul Ballew

Well certainly in July, Chris.

Chris Ceraso - Credit Suisse

Okay.

Operator

Our next question comes from the line of Ronald Tadross from Banc of America Securities. Please go ahead with your question.

Paul Ballew

Mr. Tadross, how are you?

Ronald Tadross - Banc of America Securities

Great Paul. Happy New Year.

Paul Ballew

Same to you.

Ronald Tadross - Banc of America Securities

Retail sales, can you hear me clear?

Paul Ballew

I can hear you.

Ronald Tadross - Banc of America Securities

Okay. The retail sales rate, looks like it was closer to about 2.6 million units and for the month?

Paul Ballew

2.7 million for the month.

Ronald Tadross - Banc of America Securities

So what happens if it stays at this level, or even gets to be little worse? Do you guys need to cut prices or do you need to cut more capacity what do you do?

Paul Ballew

We evaluate our options and we would evaluate our option, and we will see. I think the comforting thing for us coming out of 2006, Ron, is a couple of things; number one the retail industry last year underperformed our expectation, but I think the expectations of observers and [retrofits] had a surprise, $3 a gallon gas, the housing adjustment, all those variables were there. But we still hit that number and we've been able to maintain a running rate, right around that number. So we feel pretty comfortable about it. Secondly of course, our product came in pretty strong this year, which gives us an advantage. Having said that, if the industry is weaker than that or some competitive activity occurs, we will take a look at the different levers available to us, there are levers, notably price that you can do tactically in the marketplace. There are things you would have to do, maybe on the cost side or so on. But we don't have to cross that bridge today. So we are staying on top of it, we are monitoring it, we were assessing it all the time. Everyday we have our fingers on the pulse, on where we think the business is at and we will see what happens.

Right now we are feeling pretty comfortable with our capacity plan, with our outlook for sales. What happened in the month of January is -- when you dial back incentives to the amount we did, we overcorrected a bit in some categories. And if you look at our mix on sales, a lot of it was in price sensitive lower end categories, where competitors stepped up, we had Ford and Toyota stepping up in small parts for instance during the month and that's a dynamic. That's always a trade off between matching them and dealing with the financial implications. We had Ford very aggressive in small utilities. And so there is trade-offs going on all the time, I am not going to react to January, let's see how the next few months play themselves off.

Ronald Tadross - Banc of America Securities

So the revenue and the incentives go up a little bit from January to February?

Paul Ballew

Well they normally do anyway. And we have been planning for them to do and we are not melting and re-pouring our base level plans. When we look at January though, coming off December, and we look at January certainly on a competitive standpoint, we are probably a bit more restrained than we otherwise would have been. But okay, it's January again, it's the lowest month of the year, it's a month for the industry. Sales of whopping 800,000 retail units. So I would be more concerned about this if this were March or June or August, the months that really matter in the industry.

Ronald Tadross - Banc of America Securities

Right. Okay, one last thing, that is dealer inventory program. You guys rolled out earlier this year to help the dealers pay for their inventory floor plan. Can you just tell us why you did that and what the costs maybe and where are you accounting for that?

Paul Ballew

Well the cost is certainly manageable, and it shows up in the incentive budget. It's a way of helping dealers manage their floor plan. It is not giving them a whole bunch of free days, which is the most costly thing you can do. But we, along with other manufactures are trying to balance this thing versus where we were a few years ago. The number of free floor plan days any dealer in the industry receives today, versus where they were, has dramatically reduced as interest rates went up. Dealer floor plan expense went way up. So it's an ongoing balance for us to try to maintain inventory levels with dealers that we think are appropriate and consistent with our strategy this year of how we want to maintain inventory.

Ronald Tadross - Banc of America Securities

Is it just a couple $100 a unit. Like -- it seems like over 60 days is really where the change was of inventory, I mean you -- is it a couple of $100 a unit is it a $100 --

Paul Ballew

It's not very expensive because of the way it is structured and the way it pays out. It is a very inexpensive program versus other incentive lovers that are out there.

Ronald Tadross - Banc of America Securities

Okay. Alright, thanks a lot.

Paul Ballew

You are welcome.

Operator

Our next question comes the line of Rod Lache with Deutsche Bank. Please proceed with your question.

Rod Lache - Deutsche Bank

Good afternoon, Paul.

Paul Ballew

Hello, Mr. Lache how are you?

Rod Lache - Deutsche Bank

Good, how are you?

Paul Ballew

I am doing okay.

Rod Lache - Deutsche Bank

Did you say that 60% of your pickup sales were with the new model?

Paul Ballew

On that half tons, on the light duty side.

Rod Lache - Deutsche Bank

Okay. So if we look at the pickups in total?

Paul Ballew

It's about 33%.

Rod Lache - Deutsche Bank

Okay.

Paul Ballew

About a third.

Rod Lache - Deutsche Bank

And what about the inventory the T800 versus 900 pickup?

Paul Ballew

We are running right now in terms of inventory levels about 44% of the 900.

Rod Lache - Deutsche Bank

Okay. In terms of looking at retail sales for the brands, do you see what the product pipeline that you guys just came off of the retail sales on a year-over-year basis stabilizing for any of the major brands?

Paul Ballew

Well, we are assuming that it certainly will, and we saw some pretty good brand performance for the year or for the month at GMC for instance. And when you get behind the numbers, there are a couple of other brands and it's pretty solid months coming off December and given where we were at on pricing, certainly the product cadence is strongest for GMC and Saturn and Chevy in the next year or so. Those are pluses. At Cadillac, it’s a big lift at the end of the year with the next generation CTS coming in. So the product pipeline is focused on our big hitters or big gunners out there in the market place and we expect all those brands to show self strength for the year.

Rod Lache - Deutsche Bank

Could you tell us what the retail year-over-year performance were for those three, the GMC, Saturn and Chevy?

Paul Ballew

GMC was up about 2%. These are selling the adjusted, so you have to keep in mind. And GMC was up about 2%, Chevy was down about 12%, and coming off big December and we were down, about 19% on Saturn. Again in fairness to Saturn, they are transitioning in the next generation view and they are just ramping up the outlook and so on.

Rod Lache - Deutsche Bank

Right. And just one last thing. Do you perceive weather too have been a factor at all? I know there is a lot of debate about. It is affecting the economy --

Paul Ballew

Yeah, I always chuckle because in doing this for as long as I've done this people always like to talk about weather, and my mentor always said, well always keep in mind, it's always cold in January and it always snows. So, it's always hard to say. I think the point we want to stress is that January is such a noisy month, and when you look at the history of January sales and ups and downs and sideways and around the bend and this year with fleet, let's not get too worked up on it. We get below the top-line numbers. It was an okay month. It was a month where mix was positive. We saw nothing to reverse our conclusions that car/trucks got back to normal levels. We like our mix. We didn’t particularly like our retail sales results, but given what we did on incentives and pricing, it's not a big surprise to us. And we'll move on and let's focus on getting a much better read on the industry and months that aren’t like January.

Rod Lache - Deutsche Bank

Good. Thank you.

Paul Ballew

You're welcome.

Operator

Ladies and gentlemen, we are approaching the media portion of the question-and-answer session. (Operator Instructions). And our next question comes from the line of Scott Merlis with Thomas Weisel Partners. Please go ahead with your question.

Scott Merlis - Thomas Weisel Partners

How are you Paul?

Paul Ballew

I am doing alright. How are you?

Scott Merlis - Thomas Weisel Partners

Fantastic. So would you say ATPs for the industry was up about 1%?

Paul Ballew

Somewhere in that range.

Scott Merlis - Thomas Weisel Partners

And General Motors?

Paul Ballew

Over 4, we are pretty close to 4.5

Scott Merlis - Thomas Weisel Partners

Well, with a lot of that’s down daily rental and lower --

Paul Ballew

That’s just retail ATP. So that’s just on the --

Scott Merlis - Thomas Weisel Partners

Okay, so its lower incentives.

Paul Ballew

Well, and better mix in new product and all those things that we have pulled through. Our ATPs have been tracking in that 4% year-over-year range since last summer. So it's been a pretty consistent month and a month of pattern for us. Our mix has been very good, the new products have helped us in terms of ATPs. And then we have been surgical; however, you want to describe that on incentives. Of course our incentive spending was down pretty significantly in December. It's down significantly in January. And as I mentioned we are trying to find that right balance as all manufacturers do on the incentive side between pricing and incentives and selling rates and so on.

Scott Merlis - Thomas Weisel Partners

Now we turn to my main question. When you look at what's working in the marketplace, how can one be surgical in terms of incentives or how does one use other types of incentives besides cash on the hood. Is cash on the hood the only thing that's working or can you do stuff with option packages and other non-cash incentives?

Paul Ballew

Well, we would argue there are two things. In the body of learning, we have all accumulated over the last decade in this incentive-crazy industry of ours. A couple of rules that you follow; number one, you can do non-cash incentives and they help in OPDs and so on. But I think more importantly as you design incentive programs, it's extremely important that within the design whether its cash or APR or a leasing that you have balance and good design. It is always best to design dealer programs that provide the important -- the appropriate compensation for the dealer as well as the benefit to the consumer. Doing many thing in excess is always bad. Going to $7,000 dealer cash, which is some of the things we saw at the end of December is extremely bad at some point. We didn't do it, but it happens in the industry. So, it's all of those things together that you have to focus on. Our incentive efficiency in the first quarter was very good. I would say our incentive efficiency was good in January as well, but our incentive effectiveness wasn't as good because we had competitors that did something that we didn't matched and in retrospect maybe we should have, but again it's January.

Scott Merlis - Thomas Weisel Partners

And just a brief follow up just an example of that. Wasn't there a -- was there a national GPS program for Cadillac, when you gave away free GPS? This was a GPS only --

Paul Ballew

No. It was national but it wasn't an either or a program and what we found was a decent take rate on it, but it was like in OPD program and it was a very effective and efficient program because the cost of that program and the attractiveness to consumers which is very, very cost effective.

Scott Merlis - Thomas Weisel Partners

Was that GPS only or all the Cadillac?

Paul Ballew

Now, that was the Cadillac lineup.

Scott Merlis - Thomas Weisel Partners

Okay and interesting. Thanks again, Paul.

Paul Ballew

You're welcome.

Operator

Our next question comes from the line of Jon Rogers with Citigroup. Please go ahead with your question.

Jon Rogers - Citigroup

Hi Paul, how are you?

Paul Ballew

Hi Jon, how are you doing?

Jon Rogers - Citigroup

Pretty well, I just have a -- most of my questions have been answered. But just as we look at the pickup trucks, Silverado basically flat and Sierra up, is there something going on there with the mix? We don't have the full, we just have the high-end 900s then and when do you think the comps there will start looking in perhaps more favorable, especially on Silverado?

Paul Ballew

Well, I would describe the Silverado, Jon and if you look at the fourth quarter, you look at the last six months is actually doing pretty well. You're right that the early mix on the 900s was very rich and it was very high-end because of crew cabs and transitioning to extend, that will get up to market rate where the majority of sales are 900 pickups. We will start getting a better lead on things, off to a good start though.

Jon Rogers - Citigroup

Okay and then -- as we have a couple of months to land the program. Is there any, can you tell where those buyers are coming from? Are you converting? Are you getting Conquest or are you converting 360 buyers?

Paul Ballew

Its too early to really conclude the Conquest rate or where they are coming from. We do believe that they will come from mid cars, mid Utes and we expect to put a good Conquest rate because it involves GMC and Saturn that are two of our better Conquest divisions. Very limited interacting early on at the large Utes, which is what clinics told us as well and when we go back to all the research we conducted it really didn't indicate very high interaction at the large facilities.

Jon Rogers - Citigroup

Okay. It's great. Thanks a lot, Paul.

Paul Ballew

You're welcome.

Operator

The following question will conclude the analyst portion. Following this question, we will proceed with the media portion of the question-and-answer session. (Operator Instructions). The final analyst question comes from the line of Brian Johnson with Lehman Brothers. Please proceed with your question.

Paul Ballew

Mr. Johnson, how are you?

Brian Johnson - Lehman Brothers

Good afternoon, Paul. Can you give us some sense of the progress on your coastal initiative to rebuild retail sales, Washington, Miami, New York, California? How does retail sales there look vis-à-vis the rest of the country?

Paul Ballew

Actually in the month of January better than the rest of country, we took a fairly big hit in the Midwest and again part of this is the incentive activity of our competitors. Beyond that I would say it's a little early. We are still putting together all of the game plans from a product standpoint and from a media standpoint. So, let us get back here in the months ahead as we start putting some resources in those markets. And we remain pretty optimistic that we'll be able to execute that strategy, through a couple of brands in particular product portfolio is much better suited, primarily on the western side of the country, the California market in particularly going robust. But it's still too early.

Brian Johnson - Lehman Brothers

Second question is around the Aura. Are you happy with the sales pace going on there to some criticism in the press perhaps for as being below plan?

Paul Ballew

I would describe the Aura very similar to what we saw with the CTS. This is about staying on message, getting the message out on a terrific product that we feel is one of the best products out there in the terms of mid cars, and its going to take a while to get the critical map up and running. We saw the same thing with the CTS, and we feel like we are executing that plan and we are optimistic about Saturn so, before people starts jumping to conclusion, I think again we should realize just the fact that it takes a while to regain your position in a very competitive industry, and we were able to execute that on the CTS, I think we will be able to execute that on the Aura. Or the advertising is growing now in earnest and highways and all those things going around with this.

Brian Johnson - Lehman Brothers

Okay. Final question is just pickup pricing environment, what Toyota is, A, how do you feel about Toyota's pricing levels, seems to be above yours? And B, do you see moves from Dodge or Ford to try to hold on the share with price given they've got all the products than you in Toyota?

Paul Ballew

If you look at the incentive spending behavior over the last few months, I would say all three of them have been throwing all sorts of hand grenades in the market. Toyota has outspent us from full size pickup for months like 1,500 hours a unit and Ford DTS of course have been extremely aggressive in full-size pickup incentives. So that's the dynamic we continued to face, I wouldn't say we didn't expect that, I would say what Toyota signaled with their pricing, they probably believe they are going to have to continue with high incentives on full-size pickups to maintain their balance. We've taken that into account in terms of our business plan. Having said that, we are just not going to throw money inefficiently in full-size pickups. We've been able to gain share last year, despite the fact that we have the lowest incentive spending in the industry there in the second half of the year. So, we will do what it takes to be competitive. I think we've got our arms around what our competitors are doing and I wouldn't say anything right now as to prices that's in that category.

Brian Johnson - Lehman Brothers

So do you see Toyota's list price is really giving them room to play incentives?

Paul Ballew

Yeah, I think one of the things we really need to be clear on with regards to full-size pickups or the market as a whole, because I know, we are all quick to annoying people, with either being the bad feed and just throwing money willingly or certain people have perceived that as being pure and not engaging in this practice. Let's just be clear, Toyota spends $3500 to union on incentivizing the Tundra. And I expect them to be more of the same, because I think they feel it's the price of [admission] in that category.

Brian Johnson - Lehman Brothers

Okay. Thanks Paul.

Paul Ballew

You are welcome.

Operator

Our next question comes from the line of Bryce Hoffman with The Detroit News. Please go ahead with your question.

Paul Ballew

Hi Bryce. How are you?

Bryce Hoffman - The Detroit News

Good. I am curious if you could give a little bit more color on the fleet issue. You guys are characterized to winning of these daily rental fleets there. So Paul, where are these sales going do you think?

Paul Ballew

Well, I think couple of things to keep in mind. First, we've been doing that for a couple of years now, so this isn't new to us. We have been walking down fleet since 2004 and where it has been doing, is that other manufacturers have stepped in and filled in the vacuum. DaimlerChrysler has jumped in, in a big way. We've seen other manufacturers, Hyundai with the Sonata. So selective actions from those manufacturers have been supporting the fleet side of the business, in fact if you look at DCX in particular, they have really increased their fleet. So they have cleaned and [poked] as we see. And that's the dynamic we have to deal with in the marketplace. I think it's any amount for that. If we exit a business, other people are going to come in and may be fill that. That's fine. We accept that as just what's happening in the industry and so it goes. We do not view that business at the levels we were at a couple of years ago, as being healthy business from a sustainable standpoint. So right now, what you are seeing is, you are seeing DCX, you are seeing Hyundai. And last year, you saw Ford. Now Ford has announced their reversing course this year. We will see who sells it, or if the market shrinks a bit or if we get longer holding periods.

Bryce Hoffman - The Detroit News

Thanks.

Operator

Our next question comes from the line of Kate Merx with the Detroit Free Press. Please go ahead with your question.

Kate Merx - Detroit Free Press

Hi, this is Katie.

Paul Ballew

Hi Katie.

Kate Merx - Detroit Free Press

I wanted to clarify one thing, the production cuts to 40,000, was that in January or first quarter?

Paul Ballew

For the first quarter, just additional guidance. We are actually going to be down about a 175,000 units in the quarter versus a year ago.

Kate Merx - Detroit Free Press

Okay. So that’s an additional 40,000?

Paul Ballew

That's correct.

Kate Merx - Detroit Free Press

Okay. And then can you give the unadjusted numbers that Chris Ceraso asked for the fleet retail car and truck for year-over-year in January?

Paul Ballew

Hey, you don't want the - selling adjusted numbers?

Kate Merx - Detroit Free Press

Just wanted the raw numbers?

Paul Ballew

You just want the raw numbers. Okay. Fleet, down 30%; retail, down 8%; total GM sales down 16.

Kate Merx - Detroit Free Press

Okay. Can you do car and truck as well?

Paul Ballew

I certainly can. On the fleet side, cars down 32; trucks down 26. On the retail side, cars down 10, trucks down 7; on the around, and then total cars down 22, total trucks down 11.

Kate Merx - Detroit Free Press

And -- that's it. Thanks for answering the questions.

Paul Ballew

Alright.

Operator

Our next question comes from the line of Tom Krisher with The Associated Press. Please go ahead with your question.

Tom Krisher - The Associated Press

Hey Paul.

Paul Ballew

Hi Tom, how are you?

Tom Krisher - The Associated Press

I am fit. The pickup trucks, do you expect the dip in the pickup trucks too? I am assuming that's not as much fleet as cars as would be?

Paul Ballew

Actually for pickup trucks, for the month, we had a pretty solid month. We are selling down our 800s. Well, our pickup truck sales for the month were quite where we thought it would be. We were up about 2.5%, that's on a selling to adjusted basis. If you don’t sell in the adjusted, (inaudible) were better than that. We were up about 7% retail.

Tom Krisher - The Associated Press

Okay.

Paul Ballew

So it's going to be good solid months for us on full-size pickups. We didn't have a blowout month, but of course we had a terrific fourth quarter and we are selling down the [old one].

Tom Krisher - The Associated Press

The overall numbers for trucks were down 14.8?

Paul Ballew

Yes.

Tom Krisher - The Associated Press

Okay. But pickups, I assume makes a blind share of that?

Paul Ballew

Pickups were up. We were down with small utilities, the truck [basement] utilities, and then the large Ute's coming off the strong fourth quarter.

Tom Krisher - The Associated Press

Okay. Thank you.

Paul Ballew

You're welcome.

Operator

(Operator Instruction). And our next question comes from the line of Rick Popely with The Chicago Tribune. Please go ahead with your question.

Paul Ballew

Mr. Popely, how are you?

Rick Popely - The Chicago Tribune

I am good Paul, how are you?

Paul Ballew

I am doing okay.

Rick Popely - The Chicago Tribune

Other than the large pickups, what other areas can you say or segments that your rivals outspending on incentives?

Paul Ballew

Oh my goodness, it was right all over the place. Full-size pickups, we were outspend in mid-utilities, that probably happened. I have to go down and look, we were outspend by some manufacturers in small cars, we were outspend by some manufacturers in small Ute's.

Rick Popely - The Chicago Tribune

Well, I guess, a question, I mean, are you going to -- are you willing to tolerate this and accept the lower sales or how do you respond?

Paul Ballew

Well, how we respond is how we've responded give and take here in the last two years or so since we've been focused on getting the business out in North America. We will respond selectively and with surgical actions and try to run our plays efficiently and effectively as we can. In fairness, if we look at January, it's one of those months where we probably dial back a little bit too much. It's not surprising. It happens. There were other months when we did that as well. That shifted delicate balance where we're trying to run right now in this business in North America and making the business healthy. The dynamic you have is that you have competitors and in some categories they remain very aggressive. And we have to take that into account. We're running our business. That doesn't mean we're going to run out and just drove money out there in the marketplace as a whole. You look at large pickups. We had a good solid month in large pickups. We spent $2,000 of vehicles, Ford spent $4,700, DCX spent $5300, Toyota spent over -- almost $3500. So, we didn't have to match on penny-for-penny. We still have a good impact in the marketplace. That's really the point, Rick. Looking back to the size of the categories, we should have been a bit more aggressive on in January than what we were.

Rick Popely - The Chicago Tribune

Okay. Thanks.

Paul Ballew

You're welcome.

Operator

Our next question comes from the line of Jui Chakravorty with Reuters. Please go ahead with your question.

Jui Chakravorty - Reuters

Hi Paul, it’s Jui.

Paul Ballew

How are you?

Jui Chakravorty - Reuters

Paul, I just -- I wanted to confirm the couple of things. One, did you say GM's ATPs were up 4% to 4.5% in January?

Paul Ballew

That’s correct.

Jui Chakravorty - Reuters

I am sorry. I apologize, I think I may have missed this, but could you talk about GMT900, what percentage of total sales they were and how they did in January?

Paul Ballew

We had a good solid month in the 900. They were about 43% of the full-size pickup delivery, almost 20,000 units for the month.

Jui Chakravorty - Reuters

Thank you.

Paul Ballew

You're welcome.

Operator

Our next question comes from the line of Terry Kosdrosky with Dow Jones Newswires. Please go ahead with your question.

Terry Kosdrosky - Dow Jones Newswires

Thanks. Hi, Paul, how are you doing?

Paul Ballew

Terry I am alright. How are you?

Terry Kosdrosky - Dow Jones Newswires

Okay. Two quick questions. Did you say you ran over those unadjusted numbers pretty quick, did you say your retail on adjusted was down 8% for the month?

Paul Ballew

That’s correct.

Terry Kosdrosky - Dow Jones Newswires

Okay. And that’s overall.

Paul Ballew

That’s correct.

Terry Kosdrosky - Dow Jones Newswires

Okay. Alright. And did you expect more of a retail pop from the 100,000-mile warranty offer. I mean, is that -- has it been a response from the marketplace like you expected?

Paul Ballew

I think the point I would stress to everybody in terms of our results as well as programs and how we gone to market is our retail sales in the last six months were up about 4%, any market that --

Terry Kosdrosky - Dow Jones Newswires

Including this January?

Paul Ballew

Including this January in those results, and I think it’s important to keep in mind just how weak the industry has been in that environment. And the fact that we have done that. We have stuck to our plan, we got incentive spending, we had some months where we slashed incentive spending. So, there is a lot of about our go-to-market strategy inclusive of the warranty pledge, the rolling back on prices, doing everything. We are doing this to try to make this healthy, so it's -- I can't say that retail sales are surging, but the fact that our retail sales are up almost 4% in that window of time, makes us feel like we are doing the right things in a very competitive market place.

Terry Kosdrosky - Dow Jones Newswires

Okay, thanks.

Operator

Our next question comes from the line of Neal Boudette with Wall Street Journal. Please go ahead with your question.

Paul Ballew

Hi Neal.

Neal Boudette - Wall Street Journal

One quick one and then one complicated one.

Paul Ballew

I won't answer the complicated one there.

Neal Boudette - Wall Street Journal

I'll try to ask.

Paul Ballew

I am just kidding.

Neal Boudette - Wall Street Journal

Easy one. What was the inventory at the end of January and how does that compare year-over-year, and where do you see the inventory going as you move through '07?

Paul Ballew

We read about a $1.70 million which is flat with where we were last January. It's almost identical. We would expect inventories to build up a little bit further in Q2. But by the time we get to the end of the year, we will be -- a bit below current levels would be our expectations. A million units is always where would like to be at the end of the year.

Neal Boudette - Wall Street Journal

Okay. And then we just saw some -- just the other day some pretty good GDP numbers showing the worst economy and then the Q4 was not doing too badly at all. Do you think may be GM or even the big three together are not benefiting as much from this economy may be, because the people who are prospering are on the coast and you tend to be strong in -- or at least Chevy and your big volume brands are little bit stronger in the middle of the country who are the people at higher income levels who have the money for cars these days tend to be -- tend towards luxury brands or imports?

Paul Ballew

No, I would actually say that the key for us is our retail share has been stable, around 22%. So, we have been getting our share of it. But if you look at overall industry demand, the vehicle market went through -- I don’t know how you would describe it, a mild contraction is probably the right way to describe it in 2006, and it's probably rolling into the first part of 2007. So, the vehicle industry has underperformed. Last year, it was the first time in 15 years that revenue in the industry actually declined. We, of course saw a negative mix midway through the year, and then we saw a unit sales for the overall industry in the second half down a bit. So, we are holding on to our share of those customers, and in fact we do well with large trucks. We do increasingly well with Cadillac, with higher income and demographic customer groups. But in fairness to us the industry as a whole has underperformed a bit. And if you think about it, it's not a surprise. $3 a gallon gas and then the correction in the housing market have taken some wind out of the sales of the industry from a retail sales standpoint.

Neal Boudette - Wall Street Journal

But it just seems -- I mean Toyota, today they are up 9%, it’s a real contrast from [you or the Ford is] and most of the luxury brands. Mercedes had a huge month in January. I am trying to reconcile that with your numbers, Ford's numbers, and the GDP and the other indicators that we see showing a pretty good economy?

Paul Ballew

Sure. I think as you look at the performance of other manufactures in this business, it's really a mixed bag. Toyota and Honda, of course, are the two stars that jump up. They benefit from higher gas prices, they are not harmed by it. So, they tend to buck the trend in the industry. Toyota as well has a very aggressive strategy in the U.S. If you look at other results coming out, you had Hyundai down 12% on a selling day adjusted basis. So there is a [up for a] name plate that of course leveled off last year. Had to have a big December surged, we would be up year-over-year after the record numbers they have been posting previously. So, it gives you some sense that too many Toyota in particular is the outlier in an industry that it is been a bit weak and they sit out there on an island right now with a lot of momentum and they put a lot of the product and made some very substantial investments. And if anything they tend to be counter-cyclical because of gas prices. They have a positive U.S. this year when gas prices go up, have been interesting position for them to have.

Neal Boudette - Wall Street Journal

But do you see any connection to GDP showing that overall the U.S. economy is going well? So how does that connect to the auto industry is it that -- the economy they are doing well in the coast and you are in the middle or the automakers are having a hard time, and their suppliers are having a hard time. Several people were I mean --

Paul Ballew

I would say that eventually, it always connects positively for us as an industry. And that one of the things we have had assumed in our business plan is that the second half of this year will be stronger than the first half of the year for the industry and that by 2008, 2009 we are going to get back up some trend their normal levels. The dilemma we have is we've incurred a couple of extraordinary shocks or external shocks in the last year that it had been heavily concentrated in the vehicle market. We get hit more by gas prices not surprisingly.

Neal Boudette - Wall Street Journal

Okay.

Paul Ballew

And we do also get deemed as an industry more by housing because the relationship on big ticket purchases and housing has always been strong. But then this home equity extraction issue is there, where the use of home equity credit to finance vehicles has been an important variable. So bottom line for us is the retail industry is a half a million units from where it was. And we in the heartland have suffered a bit more than others but there is other parts to this industry that its certainly been the NGC marginal players such as Mitsubishi over the last year struggling against that. We've see Nissan last year struggling against that and what you find is that Toyota and to a lesser extent Honda find themselves in a better competitive position in the U.S. market.

Neal Boudette - Wall Street Journal

Okay. And just to confirm one more time on the production, you're expecting Q1 production to be down 175,000 units versus a year ago and that's 40,000 more than you had previously planned?

Paul Ballew

That's correct.

Neal Boudette - Wall Street Journal

Okay, cool. Thanks a lot.

Operator

Our last question comes from the line of Greg Bensinger with Bloomberg News. Please go ahead with your question.

Paul Ballew

Hi, Greg.

Greg Bensinger - Bloomberg News

Hi. Just wanted to confirm if you are still on the page for that 120 fleet rental production in the first six months?

Paul Ballew

We will be right in that range by the time it gets done. Yeah.

Greg Bensinger - Bloomberg News

Okay. And still planning to be relatively flat in the second half?

Paul Ballew

That's correct.

Greg Bensinger - Bloomberg News

That's it.

Paul Ballew

Thank you very much.

Greg Bensinger - Bloomberg News

Thanks.

Paul Ballew

Alright operator, I think we are going to wrap. We look forward to talking to everybody next month. We will talk about February results which we will assume will be better than January results. Thanks everybody.

Operator

Ladies and gentlemen and that does conclude the conference call for today. We thank you very much for your participation and we ask that you please disconnect your line. Have a great afternoon, everyone.

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