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Executives

Daniel Akerson - Chairman, Chief Executive Officer and Chairman

Randy Arickx - Director of Investor Relations

Daniel Ammann - Chief Financial Officer and Senior Vice President

Nicholas Cyprus - Vice President, Chief Accounting Officer, Controller

Chuck Stevens - Chief Financial Officer of North America

James Davlin - Vice President, Finance, Treasurer

Analysts

Adam Jonas - Morgan Stanley

Himanshu Patel - JPMorgan

Rod Lache - Deutsche Bank Securities

John Murphy - Bank of America Merrill Lynch

Christopher Ceraso - Credit Suisse

Brian Johnson - Barclays Capital

General Motors Co. (GM) Q3 2011 Earnings Call November 9, 2011 9:00 AM ET

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the General Motors Company Third Quarter 2011 Earnings Conference Call. During the presentation all participants will be in a listen-only mode, after which we will conduct the question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded, Wednesday, November 9, 2011.

I would now like to turn the conference over to Randy Arickx, Executive Director of Communications and Investor Relations. You may proceed, sir.

Randy Arickx

Thanks, operator. Good morning, everyone. Thank you for joining us as we review our third quarter 2011 results. As you know our press release was issued earlier this morning and the conference call materials are available on the investor relations website. I’d also like to highlight that GM is broadcasting this call live via the internet.

Before we begin, I would 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, General Motors' Chairman and CEO, will provide opening remarks; followed by a more detailed review by Dan Ammann, Senior Vice President and CFO. Dan Akerson will then conclude the remarks portion of our call with some closing remarks.

After the presentation portion of the call, we'll open up the lines for questions from security analysts. I would also like to mention that today we have Nick Cyprus, Vice President, Controller and Chief Accounting Officer; Chuck Stevens, CFO of North America; and Jim Davlin, Vice President, Finance, and Treasurer, here to assist in answering your questions.

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

Daniel Akerson

Thanks, Randy. Good morning, everyone and thank you for joining us. In summary, we produced a solid quarter. Generating our best results in North America and China, the world’s most important markets where GM is a market leader. Today's results are an affirmation that we continue to make steady progress on our long-term goal, sustained financial performance. Having said that, it’s also clear, we have a lot more work to do. Especially in Europe, which is being hurt by challenging economic conditions and in South America.

Turning to slide two, our global deliveries and net revenue were both up nicely year-over-year, reflecting the benefits of our broad global footprint and the value consumers see in our vehicles. Our deliveries were up 9% to 2.2 million units and net revenue was up 8% to $36.7 billion. It’s always nice to outpace the market which we were able to do with our global share increasing to 12%, including gains in North America and China.

We delivered $2.2 billion in EBIT adjusted, down $100 million versus the prior year. We saw higher volume and better pricing, but that was offset by increased cost which were mostly engineering and marketing expenses, as well as unfavorable vehicle mix. We continue to be encouraged by the strong performance of GM North America, which improved its EBIT adjusted to $2.2 billion, largely on the strength of a strong sales of fuel-efficient vehicles across the portfolio. Despite a $300 million improvement versus a year ago, GM Europe lost $300 million in the quarter, reflecting the weakened vehicle market there, which itself is a manifestation of Europe’s economic morass.

GMIO reported EBIT adjusted of $400 million, down $100 million from a year ago levels, mainly due to increased engineering expenses at our fully consolidated units. And GM South America reported breakeven EBIT adjusted, down $200 million from the third quarter in 2010, largely due to increased cost. During the third quarter we continued to make good progress, strengthening our fortress balance sheet. Yesterday we announced the establishment of the Canadian Healthcare Trust reducing our OPEB liabilities by $3 billion.

In the third quarter we generated $1.8 billion at automotive cash flow from operating activities, and $300 million in automotive free cash flow. We ended the quarter with available automotive liquidity of approximately $39 billion. All in all, a solid quarter in which we continued to generate profits and cash despite the uneven global economy. But we have opportunities within our control and challenges outside of our control to work through as we pursue sustained profitable growth around the globe.

Away from the numbers, we had a very busy third quarter indeed, accomplishing a number of things that bode well for the company's future. First and foremost among them, of course, was completing a four-year labor agreement UAW partners. The new contract is a landmark deal for all involved and is very important to us because it allows us to maintain our low breakeven level and protect our balance sheet. It also gives our employees an even more direct stake in the company's performance, and very importantly it creates jobs.

In other news since I last spoke to you, GM has seen some very important corporate credit rating upgrades. Thanks to continued solid operating performance, our fortress balance sheet, and a new labor agreement, both S&P and Moody’s now have us just one notch below investment grade. We signed a new agreement with SAIC for electric vehicle development. We intend to lead the way, we intend to lead the industry in advanced technology and this is just another step in that direction.

We also signed an agreement with LG Group, to jointly design and engineer future electric vehicles. This will help us expand the number and types of electric vehicles we can offer by leveraging LG’s proven expertise in batteries and other systems. We also announced a number of new important products. The Cadillac ELR, the world’s first extended range luxury electric vehicle, the Chevrolet Colorado mid-size pickup, the Chevrolet Spark mini-electric vehicle, the Chevrolet TrailBlazer, mid-size SUV for global markets. And of course we marked Chevrolet centennial by producing the best sales so far in the company's 100-year history.

That’s just some of the news we have made. Continue to watch this space for more. Now I would like to turn it over to Dan Ammann.

Daniel Ammann

Thanks, Dan. On slide four we provide a summary of our third quarter 2011 results compared to the prior year. Net revenues were $36.7 billion for the third quarter of 2011, up $2.6 billion versus the prior year. Operating income was $1.8 billion, up a $100 million versus the prior year. Net income to common stock holders was $1.7 billion, which includes approximately $200 million reduction related to the allocation of undistributed earnings to the Series B mandatory preferred under the two-class method. The two-class method was not applicable on the third quarter of 2010 as the Series B had not yet been issued.

The remaining $100 million reduction in net income to common was driven be decreased EBIT and the absence of favorable tax items experienced in the third quarter 2010. Earnings per share was $1.03 on a fully diluted basis compared to $1.20 from the prior year. The reduction versus the prior year was driven primarily by the dilutive impact of the issuance of the Series B mandatory preferred of $0.10, the dilutive impact of the 60 million shares contributed to the U.S. pension plans of $0.04, and the reduction of earnings available to common of $0.03.

Moving to the non-GAAP metrics on the bottom of the page. EBIT adjusted was $2.2 billion for the third quarter of 2011, down $100 million versus the prior year. Automotive free cash flow was $300 million, down $1.1 billion versus the prior year. In summary, while our consolidated results were solid, we clearly have more work to do towards our goal of achieving long-term sustainable performance.

Turning to slide five, we did not have any special items in the third quarter of 2011 or the prior year therefore there was no impact to net income or earnings per share. On slide six we provide a walk from operating income to EBIT adjusted. As we previously covered, operating income was $1.8 billion for the third quarter of 2011. Equity income was $400 million, primarily due to our share of income earned by our JVs in China. Non-controlling interest represents primarily GM Korea, and for the third quarter of 2011 this was zero on a rounded basis.

Non-operating income was also zero for the third quarter of 2011, down $300 million from the prior year. This decrease is due to the absence of favorable foreign exchange experienced last year. This totals to EBIT of $2.2 billion for the third quarter of 2011, down $100 million from the prior year. There were no adjustments for the quarter, so EBIT and EBIT adjusted are the same.

On slide seven we provide the composition of EBIT by region for the third quarter of 2010 and 2011. GMNA’s EBIT was $2.2 billion for the third quarter of 2011, up $100 million from the prior year. GME’s EBIT was a loss of $300 million, however, an improvement of $300 million from the prior year. GMIO had EBIT of $400 million, down $100 million versus the prior year, and GMSA’s EBIT rounded to zero, down $200 million from 2010. GM Financial reported pre-tax results of $200 million and corporate eliminations were $200 million unfavorable for the third quarter versus flat for the prior year, mostly reflecting unfavorable foreign currency movements. This nets to an EBIT and EBIT adjusted of $2.2 billion for the third quarter of 2011.

Turning to slide eight, we provide global deliveries and market share for the last five quarters. For the third quarter of 2011, our global deliveries were approximately 2.2 million vehicles, up more than 180,000 vehicles from the prior year. The improvement was the result of 700,000 unit increase in the industry, as well as the success of our fuel efficient product offering globally. For the third quarter of 2011, our global market share was 12%, up 0.6 percentage points from the prior year.

Slide nine, shows our consolidated EBIT for the last five quarters. For quarters in which there were special items, EBIT adjusted is represented by a line. As we previously covered, we posted EBIT of $2.2 billion for the third quarter of 2011, down $100 million from the prior year. For the third quarter of 2011 our EBIT adjusted margin was 6%, down 0.7 percentage points from the prior year. This is primarily related to declines in GMIO and South America, which we will cover in the segment reviews. Clearly, we have more work to do to fully realize our margin opportunity.

Turning to slide ten. We provide a year-over-year comparison of our consolidated EBIT. Starting on the left, our consolidated EBIT was $2.3 billion for the third quarter of 2010. Moving to the middle portion of the slide, we walk the $100 million decline in EBIT. Volume and mix was flat compared to the third quarter of 2010. This includes $600 million in favorable volume largely driven by a 4% increase in the industry and a 0.6 percentage point increase in market share. Mix was unfavorable, due primarily to higher compact car volume in GM North America.

Price was favorable $400 million for the quarter. Costs were unfavorable $400 million, which includes $300 million in increased engineering, $200 million in increased marketing and $200 million in increased commodity and freight costs, partially offset by $300 million in lower depreciation and amortization expense. Other was unfavorable $100 million, mostly reflecting unfavorable foreign exchange in the corporate sector offset by the consolidation of GM Financial. This totals to a consolidated EBIT adjusted of $2.2 billion.

Turning to slide 11, we will now cover the segment review starting with GM North America. GMNA deliveries were 745,000 vehicles for the third quarter of 2011, up 85,000 units from the prior year. The increase was driven by a 230,000 unit increase in the North American industry and 1.1 percentage point increase in GMNA market share to 18.8%. U.S. market share increased 1.4 percentage points to 19.7% and was down slightly from the second quarter. This decline was related primarily to decreases in fleet volume, as our retail share remained flat at 17.6%.

On slide 12, we provide what we view as key performance indicators for GM North America. The two lines on the top of the slide represents GM’s U.S. total and retail share. The bars on the slide represent GM’s average U.S. retail incentives on a per unit basis. Our U.S. retail incentive spending as a percentage of average transaction price and in comparison to the industry average is noted on the bottom of the slide. For the third quarter of 2011, our U.S. retail share was 17.6%, up 1.4 percentage points versus the prior year and equal to the second quarter.

Our incentive levels on an absolute basis have declined approximately $400 per unit from the prior year. Bit of increase from the second quarter as we entered our model year sell down and incentive levels increased across the industry. On a percentage of ATP basis, our incentives were 9.8%, down 1.2 percentage points from the prior year. This puts us at 102% from the industry average levels for the third quarter, essentially flat versus the prior year and the second quarter.

For October, our retail market share was 16.5% and our incentives were 8.9% of ATP, which is just above the industry average for the month. In terms of incentive levels, we continue to be at approximately industry average on a percentage of ATP basis and we expect that to remain the case going forward. These results for share and incentives demonstrate the impact of our plan to produce great vehicles that customers are willing to pay for.

On slide 13, we have GMNA’s EBIT and EBIT adjusted for the last five quarters. GMNA’s EBIT was $2.2 billion for the third quarter of 2011, up $100 million versus the prior year. Revenue was $21.9 billion, up $400 million versus the prior year due to the impact of increased volume of $900 million, offset with an unfavorable mix of $800 million and favorable pricing of $300 million. GMNA’s EBIT adjusted margin was 10% in the third quarter, up 0.1 percentage points from the prior year and the highest for GMNA since the new company was formed.

U.S. dealer inventory was 558,000 units at the end of the third quarter or 67 days supply. This is a 47,000 units or six selling day reduction from June levels. Based on our current industry expectations, we anticipate we will end the year at dealer stock levels in the high 500,000, and this includes meeting our goal of approximately 200,000 full-size pickup trucks or approximately 90-day supply at year-end.

On slide 14 we provide the year-over-year comparison of GMNA’s third quarter EBIT. Starting on the left hand side, GMNA’s EBIT was $2.1 billion for the third quarter of 2010. The middle section of the slide details the $100 million improvement in GMNA EBIT. Volume and mix was unfavorable $400 million. This includes a $300 million improvement in volume, driven by a 6% increase in the industry, and a 1.1 percentage point increase in market share, partially offset by 70,000 units and lower stock builds.

In the third quarter of 2011, dealer inventory was depleted by approximately 41,000 units compared to building approximately 30,000 units in the prior year. Vehicle mix was unfavorable $700 million, due primarily to increased production of compact cars. GMNA production in this segment was virtually zero in the third quarter of 2010, as we were just beginning the Cruze launch and had already phased out the Cobalt.

Price was favorable on a year-over-year basis, $300 million due to the success of our new fuel efficient vehicles and prior price increases to offset commodity costs. Costs were unchanged this quarter. This includes a $300 million decrease in depreciation and amortization as well as $100 million in increased pension income, offset by $100 million in increased marketing, $100 million in increased material costs, and $100 million in increased engineering expense.

Other was favorable $200 million versus the third quarter 2010. This includes approximately $500 million in year-over-year favorable FX related primarily to the Canadian net dollar liability position, partially offset by $100 million in expense related to the UAW agreement, and $200 million related to employee reserve adjustments, including the absence of favorable adjustments that we had in the third quarter of 2010. By the end of the fourth quarter of 2011, we expect to have our Canadian dollar net liability position substantially hedged, which will significantly lower the non-cash translational exchange impact we’ve been reporting to the P&L on a quarterly basis. This totals to an EBIT adjusted of $2.2 billion for the third quarter of 2011. There were no special items or EBIT and EBIT adjusted were equal.

On slide 15, GME deliveries totaled 407,000 units in the third quarter of 2011, up 18,000 units versus the prior year. The increase in deliveries is attributable to a 225,000 unit increase in the European vehicle industry, offset by 0.1 percentage point decline in market share. Third quarter 2011 market share was 8.6% in Germany, up 0.1 percentage points from the prior year and 11.9% in the U.K., down 0.7 percentage point versus the prior year.

Compared to the second quarter, market share declined 0.3 percentage points in Germany and 1.4 percentage points in the U.K., and 0.3 percentage points across the region. These reductions reflect the increased competitive pressure and a lower volume quarter. More specifically, U.K. third quarter share was driven by our strategy to improve sales profitability as well as timing of rental and fleet volumes into the first half, with Vauxhall market share equal to 2010 on a year-to-date basis.

As seen on slide 16, GME reported an unfavorable EBIT of $300 million for the third quarter. However, this is a $300 million improvement from the prior year. Revenue was $6.2 billion for the quarter, up $500 million from the prior year. This improvement was due to $200 million in unfavorable volume offset by $200 million in favorable mix as well as $400 million in favorable foreign currency translation and $100 million favorable related to Strasbourg transmission plant. GME’s EBIT adjusted margin was a negative 4.7% for the third quarter, which was an improvement of 5.2 percentage points from the prior year.

Turning to slide 17, we provide the major components of GME’s $300 million year-over-year improvement in EBIT adjusted. Volume and mix were favorable $100 million. Volume impact was zero and vehicle mix was $100 million favorable driven by increased sales of the new generation Opel Meriva and the new generation Open Astra. Price was flat year-over-year. There was no change in costs from the prior year. This includes $100 million reduction in manufacturing and warranty, offset by an increase in engineering expense.

Other was favorable $200 million due to a $100 million favorable net effect of various foreign exchange items, and $100 million in lower restructuring costs. This totals to GME’s EBIT adjusted of negative $300 million for the third quarter of 2011. There were no special items for the quarter. Before I move on, I want to mention that given current challenging economic conditions across Europe, we do not believe we’ll be able to reach our goal of breakeven EBIT adjusted before restructuring charges for the calendar year.

Turning to slide 18, GMIO deliveries totaled 816,000 units in the third quarter of 2011, up 71,000 units versus the prior year. The increase was driven primarily by 120,000 unit increase in the industry and a 0.7 percentage point increase in market share to 9.4%. GMIO’s third quarter market share benefited from year-over-year gains in key markets. In China, market share increased 0.5 percentage points to 14.1%, and in India market share increased 0.7 percentage points to 3.7%. Relative to the second quarter, GMIO market share declined slightly because of the recovery of the industry in Japan, where we do not have a significant presence. Regarding the flooding situation in Thailand, we do not anticipate a material impact at this time.

Moving on to slide 19, GMIO posted EBIT of $400 million, down $100 million versus the prior year. GMIO’s revenue was $6.3 billion, up $1.2 billion from the prior year, due primarily to increased volume of $700 million, improved vehicle mix of $100 million and favorable foreign currency translation of $300 million. Noted below revenue is GMIO EBIT margins from consolidated operations as well as total net income margins for our China JVs.

GMIO’s EBIT margin from consolidated operations decreased 5 percentage points versus the prior year to a negative 0.6%, and total China JV net income margins declined 1.3 percentage points to 10.5%. Consolidated operations were adversely affected by GM Korea, which incurred foreign exchange losses as well as increased engineering expenses. China JV’s margin percentage decline is a result of cost associated with launching the new Baojun brand and increased sales incentives in the mini-commercial vehicle market.

On slide 20, we provide the major components of GMIO’s $100 million decline in EBIT adjusted. GMIO’s EBIT was $500 million in the third quarter of 2010. The impact of volume and mix was favorable $200 million. This is due to improved volumes, driven by 1.5% increase in industry volume and 0.7 percentage point increase in market share. Mix was flat on a year-over-year basis. The effect of price was unchanged for the quarter. Costs were unfavorable $200 million, due primarily to increased engineering expense. Other was unfavorable $100 million on a year-over-year basis.

In the third quarter of 2010, we realized approximately $100 million favorable derivative in FX adjustments, versus $100 million unfavorable in the third quarter of 2011. This was partially offset by $100 million favorable minority interest. This totals to GMIO’s third quarter 2011 EBIT adjusted for $400 million.

As seen on slide 21, GM South America deliveries totaled 277,000 units for the third quarter of 2011, up 9,000 units from the prior year. The increase was largely driven by 128,000 unit increase in the industry, partially offset by 1.1 percentage point decline in market share. The decline in GMSA market share was attributable primarily to 1.2 percentage point decrease in Brazil market share due to competitive pressures and the age of our portfolio there. However, we just launched the Chevy Cruze and are in the process of launching the new Cobalt there, and believe this will help improve our position. In fact, we are scheduled to launch seven additional products in the market next year.

Turning to slide 22. GMSA’s EBIT was a breakeven for the third quarter of 2011, down $200 million versus the prior year. Revenue was $4.4 billion, up $400 million due largely to increased volume of $100 million, favorable mix of $100 million, favorable pricing of $100 million and $200 million favorable foreign currency translation. GMSA EBIT adjusted margins declined 5.1 percentage points to a negative 1% due primarily to increased costs.

On slide 23 we provide the major components of GM South America’s $200 million reduction in EBIT versus the prior year. The impact of both volume and mix was flat versus the prior year. Price was favorable approximately $100 million, largely related to increases in Venezuela and Argentina. Costs were unfavorable $200 million, driven by unfavorable labor economics of $100 million, commodity and local material cost increases of $100 million, as well as other miscellaneous marketing costs.

Other was $100 million unfavorable due to primarily to the elimination of the preferential exchange rate in Venezuela. This totals to a breakeven EBIT for GMSA’s third quarter of 2011. There were no special items for the quarter. Clearly, we have more work to do improve our results in South America. While we are in the midst of a product renaissance there, we need to remain focused on controlling cost to ensure we can maintain our operating leverage. One important step along these lines is the implementation of our fourth quarter attrition program for workers in Brazil. This program was just completed and reduced hourly and salaried headcount by approximately 4%.

Turning to slide 24, we provide our walk of automotive free cash flow for the third quarter of 2011 as well as the prior year. After adding back non-controlling interests, preferred dividends and undistributed earnings allocated to Series B and subtracting GM Financial, our automotive net income was $2 billion for the third quarter of 2011. D&A was $1.4 billion non-cash expense. Working capital was a $300 million use of cash due to an increase in inventory brought about by the resumption of production after the summer shutdown period. The impact of increased inventory levels was largely offset by positive changes to accounts receivable and accounts payable.

Pension and OPEB cash payments exceeded expense by $300 million. Other was negative $1 billion, including adjustments to the impact of our non-cash equity income from our JVs, and non-cash FX gains in GMNA as well as some overseas tax items. This totals down to automotive net cash provided by operating activities of $1.8 billion.

After deducting capital expenditures of $1.5 billion, our automotive free cash flow was $300 million, $1.1 billion reduction from the prior year. Approximately $600 million of the reduction is driven by increased capital spending net of depreciation and amortization. In the third quarter of 2011, our CapEx net of depreciation was negative $100 million versus positive $500 million in the prior year. In terms of capital expenditures, we expect the run rate to accelerate during the fourth quarter in support of our future product portfolio. Capital accruals for the year totaling $7.5 billion approximately, and cash outflows ranging between $6 billion and $7 billion.

On slide 25, we provide a summary of our key automotive balance sheet items. We finished the third quarter with $38.8 billion of total automotive liquidity, consisting of $33 billion in cash and marketable securities and $5.9 billion of undrawn credit facilities. On the bottom portion of the slide, our book value of debt and Series A preferred stock was $4.2 billion and $5.5 billion respectively. Both obligations were significant reductions from levels a year ago.

U.S. qualified pension plans were underfunded by approximately $9 billion based on assumptions at year end 2010. This includes the impact of the approximate $2 billion stock contribution completed January 13, 2011, which became a plan asset for accounting purposes in July 2011. We continue to make progress toward our de-risking objective. Additionally, as a prudent measure, we’ve elected funding relief that was still available to us under the Pension Relief Act of 2010 for certain of our U.S. pension plans. This election enabled us to defer any minimum funding requirements further into the future. We’ll provide a more fulsome update on pension funding status with our fourth quarter results.

Our OPEB liability was approximately $9.5 billion in the third quarter of 2011. The Canadian Healthcare Trust became effective in the fourth quarter, as Dan previously indicated, further strengthening our fortress balance sheet. This will transfer the retiree healthcare obligation for CAW represented employees, retirees and eligible surviving spouses and dependents to an independent trust. With this settlement, we will transfer $800 million of restricted cash to the healthcare trust and issue a $1.1 billion note to the trust. In the fourth quarter, we expect to reduce our OPEB liability by approximately $3 billion and recognize $800 million non-cash settlement gain as a special item.

Slide 26 provides a summary of key operational metrics for GM Financial. GM Financial reported their results earlier this morning, and will be holding an earnings conference call at noon. Our U.S. subprime financing has increased over the prior year to 6.6% and continues to exceed the industry average. Our U.S. lease penetration of 11.4% has also increased over the prior year, but is down versus the prior two quarters and trails the industry average. We still opportunities to increase our overall lease penetration in the U.S. market. Lease penetration in Canada has continued to improve.

In April, GM Financial acquired FinanciaLinx, a Canadian lease platform and expanded their lease program in Canada to all four GM brands in every province of Canada. The broad availability of the lease program increased GM Canadian lease penetration to 9.4%, which is 7.3 percentage points higher than the prior year, but still below the industry average.

GM new vehicles as a percentage of GM Financial originations and GM Financial’s percentage of GM’s U.S. subprime financing and leasing volume, have both increased significantly since the third quarter of 2010 when GM Financial was an independent entity with a smaller percentage of GM loan and lease originations. GM Financial showed strong credit performance in its loan portfolio, with annualized net credit losses of 3% for the quarter, better than the 5.4% annualized loss rate from the prior year. Earnings before tax were $178 million for the third quarter of 2011.

Turning to slide 27, I want to provide our view on the fourth quarter outlook. Based on our current industry outlook, we expect fourth quarter 2011 EBIT adjusted to be similar to the fourth quarter of 2010. This is a result of seasonal trends in North America as well as continued weakness in Europe. As previously mentioned, we do not expect GME to reach its target of breakeven EBIT adjusted before restructuring for the calendar year due to declining economic conditions. Finally, we expect to report positive special items that will be excluded from EBIT adjusted in the fourth quarter. This includes the previously discussed $800 million settlement gain associated with the Canadian Health Care Trust.

With that, I would like to turn it back over to Dan Akerson for his summary and closing remarks.

Daniel Akerson

Okay. Thanks, Dan. So all-in-all, third quarter results are encouraging. I just want to emphasize that despite a challenging global economic environment, we continue to generate profits and cash. And although we have to do better job in some areas, I find it a very encouraging sign.

Our year-to-date numbers tell a good story. Revenue stands at $112 billion, up 14%. Our global share is up 0.5% to 11.9%, a sign that our fuel efficient portfolio is paying off and we continue to bring the right products to the right market at the right time. And our year-to-date EBIT adjusted is a solid $7.2 billion, up $1.2 billion from the prior year.

So we are making good progress, but we know that, as I said, there is much more work left to be done. We need to do a better job in Europe and South America. Results there are not sustainable and not acceptable. We will continue to work on reducing the breakeven levels in those regions to ensure profitable and sustainable growth going forward. We must and shall continue to work for new ways to reduce complexity and contain cost in all regions of the world. At the same time we will continue to better leverage our scale to take advantage of expected global growth and improving our margins.

Finally, on slide 29, our new business model remains a beacon for us to follow. We continue to systemically execute our plan, which includes investing in new products, strengthening in our balance sheet, preserving our low breakeven point, and growing in emerging markets. We have three key elements to long-term sustained performance, which you see on this pyramid. On the bottom foundation is our aim to reduce the company’s risk profile, so that we’re in a position to invest in new products during good and bad times, smoothing the workload in our product development organization, reducing churn, and most importantly, consistently launching great new products in key growth markets globally.

Second, to leverage GM’s leading position in key growth markets in to sustainable profitable growth. That includes strengthening the value of all of our brands around the world. And on top, a new business model that is built around our vision to design, build and sell the world’s best vehicles. Everything we do starts and ends with great products. Our third quarter results already show encouraging signs of success with the new business model. On a year-over-year basis, global market share is up 0.6 points. Net revenue is up 8%, and pricing is positive $400 million, globally.

That’s our plan for the fourth quarter and beyond. And despite the challenges in the fourth quarter we are striving to improve every day. We continue to be vigilant in reducing cost and complexity while at the same time keeping our product king above all else. That’s our roadmap to success.

Thank you, everyone, and we can now open it up for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question is from the line of Adam Jonas from Morgan Stanley. You may proceed.

Adam Jonas - Morgan Stanley

Hi, thanks. Good morning, guys. Can you elaborate a little further on the GM Korea engineering cost burden and as you integrate GM DAT into your smaller product architecture globally, when should that unit start seeing some of the benefit?

Daniel Ammann

Well, the engineering expense is something that we measure on a global basis and allocate back out on a global basis. So the whole engineering function globally is run as a global entity including the Korean operations, currently. So it’s fully integrated. Clearly, as we have talked about before, going back to the business conference back in August, we have substantial opportunities and initiatives underway to improve our overall engineering effectiveness to make sure that we are getting more out of the system for less input into the system, and that benefit as its realized will accrue to all of the regions around the world.

Adam Jonas - Morgan Stanley

Okay. Moving to pensions, you mentioned you took advantage of some of the pension relief for the U.S. plan. I understand you are going to give further details later on, but just broadly, how does this change your funding strategy near term, because many of us on this call would be expecting you to contribute on a order of $5 billion or more of cash in the coming quarters. Has that materially changed given the pension relief?

Daniel Ammann

No. What the pension relief does is it really takes any required contributions from being a long way out to a really, really long way out. So, it doesn’t change the way that we are thinking about the fundamental strategy. It’s simply an opportunity that was there that made sense for us to take advantage of. But more generally on pension, we have continued with the strategy that we articulated on the de-risking side of the plan. We have been moving consistently in that direction from when we started talking about that last year. And I would say, and this is as far as I want to go at this point, that our de-risking strategy has benefited us through the period of market turmoil relative to if we had not been pursuing that strategy.

Adam Jonas - Morgan Stanley

But as far as voluntary contributions, I mean, did that change?

Daniel Ammann

No, no change to -- and again we haven’t articulated a specific plan for voluntary contributions. From my point of view, the de-risking is as or more important than the fully funded component of our strategy right now. So, we want to make sure that we are getting the assets and liabilities of the plan that are aligned taking all of the de-risking initiatives that we can and will continue to fund the plans over time as needed.

Adam Jonas - Morgan Stanley

Got it, Dan. And just one more on the truck changeover. Looking to next year as you prepare for the changeover, do you have an opportunity to overlap production of the old truck and new truck? Can you produce them concurrently to smooth the changeover or should we view this as 0:1 kind of binary, where you got to have the GMT900 completely done before you start production of the new truck. Thanks.

Chuck Stevens

Yeah, this is Chuck Stevens. We are not planning on overlapping production between the old generation and the new generation trucks. Next year we are taking a selective downtime of 24 weeks across to all of our full size pickups to start the conversion work. But when we start rolling out the new generation, the trucks will roll in new model versus old model and there will be a cadence between certain models like trucks will launch first and then SUVs. But we don’t anticipate producing an old model truck and a new model truck at the same time.

Operator

Our next question is from the line of Himanshu Patel from JPMorgan. You may proceed.

Himanshu Patel - JPMorgan

Hi, good morning, guys. Just wanted to talk about the fourth quarter guidance. You guys alluded to North American seasonal trends that caused the weakness Q-to-Q. I am just curious, when we go back to the fourth quarter of last year, there was a similar setup, where there was, I think, elevated marketing and launch costs that had hurt the North American results third to the fourth quarter. It sounds like we are seeing a repeat of some of those issues. But if I remember, a year ago lot of those issues were kind of deemed as being transitory and somewhat one-timer in nature. So, can you just talk a little bit more to kind of what’s exactly happening third to the fourth quarter, sequentially, in North America this year?

Daniel Ammann

Yes, sure. Let us expand on that. I will make some comments and Chuck can chime in as well. First of all, I want to make sure that everyone is thinking about the seasonal nature of the North America business in the right way. Because there are some seasonal elements going on, and then both this year and last year some more sort of unique elements for those given periods. As you think about the North America business seasonally, a simple way to think about it is that in any given year we will generally generate about two-thirds of our EBIT for the year in the middle two quarters, Q2 and Q3. With the remaining third being generated in Q1 and Q4, with a little bit of a bias to Q1.

And that’s the pattern that you saw last year, it’s the pattern that you will see this year, and frankly, as we look ahead to next year it’s the pattern that we would expect you to see if we’re talking about this a year from now. So the question is what drives that seasonal, or that sequential walk if you like, from Q3 to Q4. It really breaks down into three buckets in terms of the seasonal impacts that you would expect to see each year. The first component of it is the model year changeover happens primarily in the third quarter, so we get pricing benefit and dealer stock adjustment benefits in Q3. That then is essentially reversed to some extent in the fourth quarter, because we are building mostly new model year vehicles into inventory, and we’re beginning to tick up incentives as those vehicles begin their aging process through the model year. So, that’s about a third of the sort of typical seasonal impact.

Another third of it or so comes from seasonal marketing spend, just the way that the different marketing events and sponsorships and other things play out around the calendar or through the year as we typically see a pickup in marketing in the fourth quarter. We saw at last year, we are seeing similar effect this year. And then, the final seasonal element is the fourth quarter is the quarter with the most holidays in it. So, from the manufacturing point of view, there’s some cost penalty associated with that. So, those three factors together drive what you’re going to see. Each year is a typical fourth quarter seasonal weakness and are part of the equation where we make roughly two-thirds of the profits in the middle two quarters of the year, with the balance split Q1, Q4, as I said.

Now, beyond that, last year, we had some items around launch that came in the fourth quarter. This year, the one other item I’d point you to is, you might recall, when we released the second quarter results we talked about the fact that in the second quarter, given the truck production in that quarter and the inventory build in trucks in that quarter, it was about $300 million extra contribution to profit in Q2 of this year. And essentially that’s come out of the fourth quarter as we’ve adjusted schedules in the fourth quarter. So, that’s what I’d highlight as perhaps the meaningful sort of one-time benefit.

So, you’ve got the seasonal impact that I described, the truck mix factor from inventory build in Q2 versus not in Q4. And so that’s really the North America equation. On top of that, looking at Europe, we have been through the first three quarters of this year, with an aggregate broken even before restructuring. We are clearly signaling that we don’t expect to achieve that result in the fourth quarter. So, you put that in the mix to the overall equation, and you can get back to an EBIT result for the whole company that’s similar to last year. So, hopefully that helps give you some color as to how we get where we get to.

Himanshu Patel - JPMorgan

That helps. Thank you. So, $300 million hit from basically T900 inventory reduction in Q4. So, that’s understandable. Can you talk a little bit more to Europe? I just want to understand what’s happening there. You’re signaling cautiously, not just on your guidance, but just in general, talking about cost containment needs and all these things. Are you seeing any sort of cliff event in Europe prospectively or is this just a comment that broadly reflects the obvious macro issues there? And on a related note, you provided a year-over-year Europe walk that talked about pricing being flat. I’m curious if you could talk about pricing sequentially in Europe recently?

Daniel Ammann

Yeah. So, in terms of the overall environment, I mean, clearly, there is a lot of uncertainty, even just overnight and exactly what’s happening in Europe. And I think, we and others are seeing that come through in the business. So, whether there’s a cliff event or not out there, your crystal ball is as good as ours. What we’re focused on obviously is, if you go back to the first three quarters of this year versus the first three quarters of last year in Europe, we improved about $1.3 billion year-over-year in EBIT or $700 million improvement excluding restructuring. So, we’ve achieved significant improvement year-over-year. So, we know how to make progress in the business.

There’s cost elements to that, but there’s also market elements and product elements to that. And we’re still -- we’re continuing to work obviously on all of those fronts. But at the same time, we’re not expecting to get bailed out by a big ramp-up in volumes in Europe, and we’re very focused on what are the actions that we need to be taking to make sure that we get the business, get the breakeven point down, so we can be sustainably profitable even in a challenging environment. So, we’ve done that recently year-over-year. Our assumption is that the market is not going to continue to improve materially from where we are, and that implies that we need to further reduce the breakeven point in order to get where we want to be.

Operator

Our next question is from the line of Rod Lache from Deutsche Bank. You may proceed.

Rod Lache - Deutsche Bank Securities

Good morning, everybody. Just hoping, just to get a little bit more detail on the bridge here in North America into the fourth quarter. I think last year you had a $700 million sequential increase in structural costs and I believe that you had indicated that normally it’s $300 million or something along those lines. Is this something that kind of repeats? Is there anything unusual in terms of the structural costs that you can point to maybe vis-à-vis the UAW contract accruals or anything along those lines? Or, is this basically the pattern last year and this year something that we should expect every year?

Chuck Stevens

Yeah, Rod, it’s Chuck. Last year Q3 to Q4 sequential structural cost increase was about $400 million. A big portion of that was the aforementioned marketing and then there was some engineering this year. When we look Q4 to Q3, it looks to be about $500 million increase in structural costs. About half of that’s marketing, the other portion is really the impact of the C dollar benefit that we got in Q3. So on a normalized basis, I would expect to see Q4 versus Q3 up $200 million or $300 million fundamentally associated with the marketing and the manufacturing impact. From a UAW perspective, we had an impact in Q3 this year of roughly $100 million, and we will have an impact in Q4 of roughly $100 million as well. So no sequential impact.

Rod Lache - Deutsche Bank Securities

Okay. And just relative to your comments on pension. Could you tell us what the pension performance has been on a year-to-date basis and any updated thoughts on how you would expect to deploy free cash flow going forward?

Daniel Ammann

We’re not providing mid-year return updates. But I will say again what I said, which is, our de-risking strategy that we’ve been pursuing, we think has given where we are today and the volatility in the markets has meaningfully benefited us relative to a typical pension plan with typical asset allocation. So, we have had some benefit from that. We will provide full update at the end of the year. And in terms of the funding, really the same answer that I gave to Adam earlier, I think, which is, we’re most focused on de-risking opportunities and pursuing that and we will continue to fund the plan, as needed, over time. But no immediate decisions on that front.

Rod Lache - Deutsche Bank Securities

Okay. And just lastly, any broad thoughts on the trajectory of profits in Brazil and China just given some of the volatility in those markets. And also any commentary on, we’ve seen some pretty sharp declines in steel, copper and other commodities, is that something that you are looking to become a tailwind any time soon?

Daniel Ammann

Yeah, on the commodity side, we don’t do a whole lot of hedging on the commodity side and so we have various programs, but relative to others we probably have less overall hedging activity. So as we get raw material improvements, we will be looking to obviously capitalize on those to the maximum extent possible. In terms of South America, you’ve seen the results in the quarter here. We’ve talked extensively before about the product turnover, portfolio turnover that we have going on down there, and we are in the middle of executing that right now.

What we have continued to see in the last quarter or two is, is it’s quite an inflationary environment in general, down there. And we have begun to take some actions, as I referenced in my prepared remarks, around headcount reduction to make sure that we’re getting the cost structure and the breakeven point where it needs to be to really support that new product portfolio when it gets into the marketplace, and get the profitability of that business back to where it should be.

Daniel Akerson

Let me add a couple of things too, this is Dan Akerson. In China, our growth year-to-date is about 10.5% year-over-year. The market is growing at about 3.5%, 4% somewhere in there. So, we’re growing at almost 2.5 times the market, and we’re taking share. Our share through the third quarter was up to 14.1%, which is good, and it signals that the products are doing well over the next 12 to 18 months. We have a couple more plants going online. So, if this market continues to grow, and it looks like it will, we will be in a better position than we were last year to take advantage of market growth.

So, China, I would say is a good story if it holds, and our expectation is that it will. In South America, just briefly, we’ve introduced two products in the last two months, the Cobalt and the Cruze. Initial indications are positive. We look at market share on a week-to-week basis, (and as) as we can be around here. And we’ve seen some pickup with the take on these two products, and as Dan said, we’ve got seven other product launches. Recognizing that we’re playing offence on one hand and defense on the other, our cost structure needs to be modulated a bit, and we’ve already taken steps in the direction. We’ve got a 4% take on headcount reduction voluntary, and we’ve recognized we’re going to have to go deeper.

At the same time, we’ve got a lot of product launches, many product launches that we’ve got to make sure are handled properly. So, we are reasonably optimistic over the intermediate term. I wouldn’t be surprised to see fourth quarter be flat to maybe marginally down. We think we’ll be slightly positive but there may be some restructuring cost associated with the efforts in Latin America. So net-net in those two markets, pretty positive, and as Dan said, we are watching. And Europe was going on systemically and then I think episodically we need to lower our breakeven point, even lower than we have it today in Europe. So more to come on that.

Operator

Our next question is from the line of John Murphy, Bank of America Merrill Lynch. You may proceed.

John Murphy - Bank of America Merrill Lynch

Good morning, guys. First question is, I think generally, externally, it’s not being well appreciated how much launch costs, how high they are and how much of a pressure that is on margins. And obviously you are going through sort of this product renaissance globally, not just in North America and South America, but globally. I am just curious, if we look into next year, you’ve got a pretty heavy launch cadence, but as we get through late next year and maybe into 2013, do you think you will get a lot more efficient in this launch process and really be globalizing your platforms and that we will get some relief from these pressures? Just trying to understand the timing of when this anniversaries and you get some real savings going forward?

Daniel Ammann

Yeah, I mean, I would say the following, which is, clearly if you take the South America example. Part of the pressure on profitability there is around the product turnover and portfolio turnover. But let’s be clear, a chunk of it is just due to cost inflation outside of the launch activity and that’s why you have seen us take the actions that I described and Dan just further expanded upon, around headcount and so on, to make sure that we are keeping the structural cost where it needs to be, so that when we get the right products in the market that we are able to get the margins dropping through in the way that we want them to.

So, I don’t want anyone to have the impression that South America is just a launch cost issue. It is broader inflation, it’s an inflationary environment. There are broader cost challenges and we are taking actions against that pretty promptly and decisively. More generally, around the world, we have launches going on all of the time, so, I’d be cautious about sort of looking forward to an environment where we don’t have launches. As a general matter, there’s always launches going on somewhere. There are obviously periods of greater or lesser activity and bigger or smaller launches. But I don’t think if I was you I would want to get into focusing too much on that as being a big driver of sequential or year-over-year profit changes.

John Murphy - Bank of America Merrill Lynch

Okay. And then the second question which is sort of a corollary to that. Obviously, as you launch new product and you try to present your product well in the market, pricing is incredibly important. I was just curious, I mean there is a lot of talk about cost but as far as the pricing strategies, you launch these new products, really what the pricing strategy is to really get a good return on these what seem to be stepped up launch costs. Really what the strategy is there both in the short-term and in the long-term globally?

Daniel Ammann

Well, I think, what’s really important to understand is what we’ve been doing year-over-year. So, if you take the first nine months of this year compared to the first nine months of last year, we have $1.2 billion of profit improvement from price. So, we have taken a fair amount of price year-over-year. We are very focused on making sure that we understand the value proposition of the vehicles in the marketplace to the consumer, and we are pursuing price opportunities not just on launches but on every vehicle that we can around the world, to make sure we’re really optimizing on price. And frankly as we look at different places around the world product line by product line, we still have opportunity to gain price relative to competition. As we are getting the right vehicles in the market, as we are improving residual values, we are having the ability to take share and get price, we’ve done that year-over-year. Clearly, we want to keep doing that going forward with our new launches as well as our existing products.

Daniel Akerson

If you were to look at October, we had about a 2% rise in sales. There is two factors in there. One, October of ‘10 was a very good year. I am talking about North America in particular. So, the comparisons for us were good, I mean they were challenging a bit. At the same time, 80% of the car, the vehicles, the cars we sold in October were ‘12 models, and 50% of the trucks were ‘12 models. That was a much higher proportion than our competition.

And to go to your question, we wanted to be very disciplined about pricing, as it related to ‘12 models. We weren’t going to discount. Not nearly as aggressively as we might otherwise have. And so as I said on the road show, we are going to price for profit, not for market share. And I think we did the right thing for us -- for us, I am not commenting anybody else. I am just -- for General Motors, it was the right decision in October to hold to our pricing, especially on our ‘12 models which we had a higher percentage of. So, that should give you some indication how we view the pricing algorithms.

John Murphy - Bank of America Merrill Lynch

That’s very helpful. Just on cash flow in the fourth quarter. Dan, I was just wondering if you can help us with some of maybe the seasonal swings there, obviously the profit might be a little bit lower than folks were expecting. But just curious if other than, maybe the EBIT being lower than some people were expecting externally, if there is anything in that you would expect in cash flow that could be a real benefit or hit in the fourth quarter seasonally and sort of one time?

Daniel Ammann

No, it’s a little bit what you saw in the third quarter which is we’ve been increasing capital expenditure as we had previously signaled. So that’s a big element of it. The only other thing in the fourth quarter is, we have the UAW payment associated with the ratification. So, that’s really probably only other sort of one-time item.

John Murphy - Bank of America Merrill Lynch

And working capital swings?

Daniel Ammann

Just typical seasonal activity, nothing unusual out there.

Operator

Our next question is from the line of Chris Ceraso from Credit Suisse. You may proceed.

Christopher Ceraso - Credit Suisse

Thanks. Good morning. A couple of items. First, on the pension, you mentioned de-risking. I guess, typically, when I think about that, and we’ve talked about this in the past, I think, okay, you get the plan to a better position and then you’re going to reallocate your assets, so they better match the liabilities. But what are you doing in the interim in light of de-risking that you feel is helping the performance here?

Daniel Ammann

Well, we don’t want to get into a lot of detail about what specifically we’re doing. So, I’ll get back to what I said, which is we’ve been pursuing de-risking actions and opportunities really since we started talking about this over a year ago. That’s accrued to our benefit, we think, relative to perhaps your typical pension plan asset allocation year-over-year.

The other big thing that we’ve achieved in this quarter is just to make sure that we’re not adding to the liability through pension increases through the labor contract. And that people might have lost over that, but that’s the first time in over 50 years that there haven’t been a pension increase associated with the new UAW labor contract. So, that was a really important component of addressing the pension problem. The first thing you have to do is make sure you don’t let it grow on you. So, we’re making good progress on that, and then as I said, we’ll have more to say at the fourth quarter results.

Christopher Ceraso - Credit Suisse

And then, on the Canadian Health Care Trust, did you say what that’s going to save you from a P&L standpoint, let’s say, on a full year 2012 basis?

Daniel Ammann

That the EBIT level, it’s a bit over $100 million. But then, obviously, there’s some interest expense associated with the note, but that will be below the line.

Christopher Ceraso - Credit Suisse

Right. Okay. And then lastly, you’ve talked a lot about the step down in EBIT from Q3 to Q4. Is the cash flow delta similar or are there timing differences or other changes that would render the change in cash either better or worse than the change in profit from Q3 to Q4?

Daniel Ammann

Yeah, the cash flow cycle will be a bit different than the profitability cycle.

Christopher Ceraso - Credit Suisse

Is it better or is it worse?

Daniel Ammann

We’d expect less change in cash flow.

Christopher Ceraso - Credit Suisse

A smaller change in cash flow?

Daniel Ammann

Correct.

Christopher Ceraso - Credit Suisse

Okay. And then just one more. In Europe, I noticed that there was an important management change there. Is this signaling a significant change in direction or are there big things that you can do in that business to meaningfully change performance or are you subject to the market?

Daniel Akerson

No, I don’t think there is a significant change here. We moved Karl Stracke over there last spring. He’s been running Opel now for the better part of 2011. Nick Reilly has been with the company 37 years. He will step down next March, but he’ll step down from his responsibilities in Europe effective end of this year. So, I don’t see any significant change there.

Operator

Our final question is from the line of Brian Johnson from Barclays Capital. You may proceed.

Brian Johnson - Barclays Capital

Yes. Continuing on the Europe theme, when do you expect to have to revisit the restructuring plan you got the works councils to agree to over the past couple of years? Or is this something you can do on other elements of your spend to bring this back towards breakeven?

Daniel Ammann

Well, it’s not just cost, right. If you look at where we’ve been successful in restructuring around the company, whether it’s in North America or the progress we’ve made to-date. In Europe, it hasn’t just been a cost play, it’s both revenue and costs in sort of roughly equal contributions. So, we have some important products that are getting underway in Europe that will help us from a share point of view, improve our ability to take prices. As Dan was saying, we are being much more disciplined around pricing on new product as well as existing product.

So we clearly have opportunities in the marketplace to do more but at the same time we are going to be taking a very close look at the cost structure, and how do we help move the breakeven point using both the cost structure and the revenue side of the equation. So there is no one single solution. It’s going to be again back to the improvement we’ve have had year-over-year. We had significant improvement this year over the last year and we will be looking at that all of the same opportunities to do the same thing again going forward.

Brian Johnson - Barclays Capital

So even with the new headwinds, it’s more of an incremental adjustment to the prior plan as opposed to a massive new restructuring?

Daniel Ammann

Well, again, I don’t know how you characterize things. I mean from my perspective it’s much more about continuous improvement, right. We got to get the breakeven point in the business to a point where we are generating sustainable profitability in any reasonable market scenario and that’s very much the strategy we have outlined from the outset to have our breakeven at the bottom of the cycle.

We have been breakeven for the first nine months of the year in Europe in total and what we are looking at is an increasingly challenged economic environment going forward with a lot of uncertainty. We got to get the breakeven point lower, get the revenue higher in order to be profitable in that kind of market environment. We are not going to accept the level of profitability that we have shown in the quarter we have just announced here.

Brian Johnson - Barclays Capital

And in terms of South America, just as we think through 2012, when do you expect the combination of new product line and the cost reductions to start getting that back to the profitability you used to have in the past and some of your competitors are still posting?

Daniel Ammann

It’s too early to provide specific outlook on 2012 other than to say that the product launches have gotten underway. There are many more to come into next year. The cost actions have gotten underway, the ones that we described earlier here, more to come. So, I think that’s the story that will evolve clearly as we move through 2012 on both the revenue and cost side.

Operator

Mr. Arickx, there are no further questions at this time. Back to you for your closing remarks.

Randy Arickx

Thank you, operator, and thanks everyone for your time today. We’ll be talking to you soon. Bye.

Operator

Ladies and gentlemen, this does conclude the conference call for today. We thank you all for your participation, and kindly ask that you please disconnect your lines. Have a great day, everyone.

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