General Motors' (GM) CEO Mary Barra Presents at Deutsche Bank Global Auto Industry Conference (Transcript)

About: General Motors Company (GM)
by: SA Transcripts

General Motors Company (NYSE:GM) Deutsche Bank Global Auto Industry Conference Call January 10, 2017 1:05 PM ET


Mary Barra - Chairman and CEO

Dan Ammann - President

Chuck Stevens - EVP and CFO


Rod Lache - Deutsche Bank

Ryan Brinkman - JPMorgan

Matthew Stover - Susquehanna Financial Group

Emmanuel Rosner - CLSA

Greg Tar - Board of Glimpse and Auxi Auto Digital

Unidentified Analyst -

Colin Langan - UBS Securities

Brian Johnson - Barclays Capital

Joseph Spak - RBC Capital Markets

John Murphy - Bank of America, Merrill Lynch


Rod Lache

Great. Thank you. In a number of important ways we would rank General Motors as one of the most dramatically transformed company in the automotive industry. The restructuring of this company went through six years ago; it's really just part of the story. In our view some of the biggest changes that we've seen are related to strategy. We've seen a GM that's much more focused on capital allocation over the past few years. We've seen a company that's been much more nimble. And we've seen a company that's begun to look at how to transform its business model in a very fundamental way. As I said in my introduction earlier, we are in a very dynamic market. In a number of ways the rules have changing and I am very pleased that GM is here to talk about their strategy and in light of these changes. With that introduction, I'd like to extend a very warm welcome to CEO of General Motors, Mary Barra.

Mary Barra

Well, thanks a lot for that introduction and thanks everybody for being here today. We are extremely proud to be here today to talk about General Motors. We had a great year in 2016 in every respect. It started with award winning product and just yesterday we had another one added to the list for the Chevrolet Bolt EV winning North America Car of the Year. We are on track to deliver record financial results. We've taken specific actions to redefine and lead in the future of personal mobility and we continue to reshape the company.

So today what we want talk to you about is how we are going to continue our momentum in both the core business of great cars, trucks and crossovers and also and how we lead and redefining personal mobility.

We think our track record of EPS growth is a demonstration of our overall business performance. Earning per share has grown each and every year. From $3.18 in 2013 to the high end of $5.50 to $6 range in 2016. And we are not done. We have consistently delivered improved results and we plan to grow EPS again in 2017. Our goal is to create value for our shareholders. And this is critically important we focused on it everyday. On top of establishing a track record of strong business results based on award winning cars, trucks and crossovers, we've also focused on driving efficiency. We have an intense focused on cost. And today we are increasing our cost savings target to $6.5 billion, that's up $1 billion from the previous goal to be achieved by the end of 2018.

We are seizing opportunities to capitalize on adjacencies and growth opportunities and this includes GM financial, OnStar and our customer care and after sale. And we believe this will contribute an incremental $2 billion of EBIT in 2019 versus the 2015 baseline. We continue to execute a very transparent and clear capital allocation framework, where we return all available free cash flow to our shareholders after appropriately reinvesting in the business and maintaining and investment grade balance sheet. Since 2012, we've returned $18 billion to our shareholders. And we are an industry leader in return on invested capital. As of the end of Q3 we were at 30.6% and we have shown willingness a discipline to take actions where we do not believe an investment is going to have the appropriate return.

We are really driving the organization on all fronts and the result is this will be very different company. One that is more focused and more disciplined. The focus we had on doing great cars, trucks and crossovers has allowed us to strengthen our brand. And we had improved brand momentum at Chevrolet, Buick, Cadillac, GMC and Opel this past year. And we are in midst of massive product launch. This launch cadence only gets stronger and for the period of 2017 through 2020, 38% of our volume is expected to come from our recently launched vehicles. This is up from 26% in the 2011 to 2016 timeframe.

Our North America margins were greater than 10% in 2015, this was one year earlier. We will likely be that again in 2016 and we expect to do the same thing in 2017.

And we are also we understand this is a cyclical business and we are well positioned to perform through the industry cycle. We continue to maintain the low US breakeven volume of 10 million to 11 million units but also we continue to strengthen the business with not only driving the efficiencies but growing retail share and being very disciplined in matching supply with demand. We've also made very important and strategic investment in key technologies that has put us in a leadership position in the areas where this industry is being transformed. In fact, we plan on leading in that transformation. And we also have a foundation of an investment grade balance sheet which is very important as we continue to grow GMF which is a very important for the core business and growing loyalty.

This is all based on a fact that we have a very strong team. We've walked the right people into the business. In fact, 35% of our salaried workforce has only been with the company for four years. And we have through this transformation we have changed from a culture that once was a best effort company to a culture that is accountable for delivering results. And our strategy remains the same. We believe that we can best serve our shareholders and all of our stakeholders by putting the customer at the center of everything we do and working hard to earn customers for life. And this goes beyond a traditional buying a vehicle. This is talking about the whole experience as people get from point A to point B and whatever fashion they choose.

We've three key elements of our strategy, start for the strong foundation, then a very strong core business and then a leadership position and the game changers. So as I mentioned, we've made very strong changes to the company as it relates to the culture. We have the right behaviors, we are ensuring the organization understands what they are to deliver and are accountable and all 100% aligned behind our customer focused goal. We also work everyday to improve every aspect of business as it relates to doing great cars, trucks and crossovers, seizing the opportunities that we have in adjacencies and looking at every area of the business to take out cost with our operational excellence program.

And finally we understand that the way people get from point A to B is changing. And that's why we are moving very aggressively to leading this area and you'll hear more about that from Dan. We do believe that we are uniquely positioned as you look at the technology changes that are happening, the innovations and our ability to deliver at scale. We also believe it's important to be first. When you look at connectivity we have over 20 years of experience in vehicle connectivity. With more than 12 million vehicles connected at the end of last year across the globe, that's more than the next seven OEMs combined. We've already delivered the Bolt EV, the Bolt EV that we launched officially at the beginning just one year ago is already into the marketplace. We've already had 600 delivered and this is a vehicle that's a technology platform, it's electric but it's also a vehicle that [sponge] a drive has a latest technology and competes on all level.

We acquired cruise automation in the first half of 2016 and that area with the technology and talent at cruise automation coupled with the technical talent we have at the company has allowed us to dramatically advance our autonomous vehicle program. And we even launched our own car sharing program Maven which is now in 16 cities and we are learning everyday not only about car sharing but also a very fast moving business where we are making changes on a weekly basis very different than the business of doing in state highly validated cars, trucks and crossovers.

So we look at the combination of our manufacturing capability, our leadership capability in technology and integrating great cars, trucks and crossovers, our unmatched connectivity and our shared mobility relationship, we are really in a very good position in the industry for this transformation.

So I'd like to make a couple key points before I turn the stage over to Dan then Chuck. First, we continue to generate strong financial results and that will continue into 2017. We are a fundamentally different company. We are better, more disciplined and more focused. We are redefining the future of personal mobility and we are taking steps to make sure we lead in the key areas. We are delivering on our commitment. So make no mistake, everyone at General Motors is committed to win.

So with that I'd like to turn the stage over to Dan Ammann who is going to talk about growth, our resource allocation and our leadership position in autonomous.

Dan Ammann

Thanks. Very good afternoon, everybody. I know it is the after lunch crowd but we'll try and if things moving along here. As Mary mentioned three topics to cover with you today. First, strong growth opportunity. I am going to talk about our growth track record on the revenue line and how we will be going about that but also what the prospects for that are going forward. Secondly, disciplined resource allocation. but our view as a leadership that one of the most important things we do is decide to which opportunities do we apply our resources and to which opportunities do we not apply our resources. And thirdly, I'm going to provide you an update which I think you will find to be quite interesting on our autonomous vehicle activities and what we are doing there. And in a way all three of these themes are actually somewhat linked together. And I think about it as what we are trying to do is fish with fish or do business where the money is and you'll see as I go through this some very deliberate decisions that were made and that we are making with respect to future about reshaping the company to pursue those lines of business those areas of opportunity where we think the maximum returns are available to us.

So let's begin with the growth and let's begin with the top line and let's look backward and take a look at what happened here. If you just look at our absolute reported revenue over the last few years you see growth but it's relatively modest growth. But you need to segregate that a little bit and look more closely what's being going on. We have made as you -- numbers of you are aware over the last few years several decisions to exit areas of business, markets of business that we didn't see a path to make a long term return. And so that's obviously had revenue consequences associated with that improved our returns but reduced our top line growth so $7 billion top line impact of that. Then purely on a FX translation basis we've had about $13 billion of adverse translation impact to revenue. So those two things together $20 billion total impact. So when you look at the true underlying revenue performance that was generated in the business over the last three years, we have $30 billion of revenue performance. $30 billion, very few companies in any industry can generate an incremental $30 billion of revenue performance on their baseline business. But that's what we have. So I'm going to take that a little bit further here. So $30 billion on a $155 billion just about a 6% CAGR on that. We have generated that 6% CAGR on an industry that's growing globally at 3% but if you look just at the industry ex China which is what our revenues relate to because we don't consolidate our China revenues, the global industry over that same timeframe has grown at 1%. So our revenue growth rate, our true underlying revenue performance has been 6x the industry. And if you take that and desegregate at a step further, the vehicle side of the business has been a strong contributor to that and a still by far the significant majority of the business from a revenue point of view that's been 5 -- delivered 5 if you like of the 6% growth rate but the adjacencies in our business had delivered significantly through the top line. And we've been talking about this for a while. But we want to give you a perspective on the kind of revenue contribution that we are getting out adjacent line of business like GM Financial, like customer car and after sales, like on star and so on and so forth.

And so while we continue to grow the core business of vehicle production and sales, we are also growing at a much faster rate 3x the core business the adjacencies that we have there. So when you start desegregate and look at the true underlying growth performance that we had in the business, it's been very significant.

Just to break that down a little bit further to revenue per unit level on a consolidated basis. Revenue per unit has been increasing significantly and this mix shift, this is a function of mix shift that we've enjoyed but it's not just mix shift that's happened to our mix shift that we have pursued. Obviously, SUV trend is helpful so this is getting out of low margin; low revenue market has been helpful to this. So as we have are into the company towards the higher profit pools, the higher margin line of business, it's very clearly and very demonstratively showing in our realized transaction prices. That's a global number ex China.

So what's been contributing to that, if you break it down into a couple other areas full sized truck in North America, no surprise it has been a big contributor. But interestingly through the lifecycle of our current truck, every year we have grown the transaction prices. Every year we have growth the transaction prices. And we've grown profitability and the profit contribution every year through the lifecycle. So clearly a favorable story there.

Another story that's in the earlier stage is but we think this information might be surprising to some is what we are doing with Cadillac. You heard about the investment we are making in Cadillac and the growth opportunity and if you look at the transaction prices that we are realizing is ATP over the last three years a very clear disciplined focused to the marketplace around Cadillac has driven significant increase in ATPs through that timeframe from being in a middle of the pack in the luxury segment to being right at the very top in line with Mercedes Benz in just three short years.

If you go to China outside of the consolidated revenue, as lot of you know the price pressures in China have been extremely intense. And our hypothesis has been that we will offset those price pressures by richening mix and as the market matures and transaction prices increase, that we will be able to more than offset those price pressures and here is the evidence that we've been able to do that. 2016, this is revenue per unit again and China 2016 represent of the year when we really got into the sweet spot of the portfolio and the launch activity and so on. And so themes of all these richening mix, richening transaction prices going to the profit pools that we think are greatest that starting to show -- are going to showing up with real results here.

So if we -- that's the historical picture. If we look forward what this chart represents and Mary referenced the data earlier, this represents the rate of refresh of our portfolio over time. So if you go back to 2011-2012 when the investment in the preceding few years had been quite low, the refresh rate was low and we've been steadily increasing the refresh rate over the last several years to a new high point in 2016 but they are still much more to come and the refresh rate will only accelerate as we go forward over the next few years. So we are going to -- we are entering -- we are not entering-- we are in the middle of a sweet spot of product cadence. But that's only going to accelerate from here forward. And importantly that per portfolio cadence going forward is time so that we are exactly hitting the sweet spot of the market with the whole new issue re-portfolio coming up here in the next couple of years. So for 2011 to 2016, our refresh was heavily oriented towards cars and less so to trucks, SUV and crossovers. And as we look forward and look through 2017-20 the waiting reverses and we've much heavier emphasis on trucks and SUVs and crossovers as we go forward here.

So we are going to have the right product coming to the market at exactly the right time so where the market trends are going. These are just three examples that are right in the heart of the marketplace of new entries, Chevrolet Equinox will launch this year. The junior GMC Terrain we unveiled on Sunday night and the Chevy traverse, Alan Batey unveiled that just yesterday morning at the show. So the timing couldn't be better to have brand new entries coming in into these segments to replace entries that are frankly getting quite aged in the portfolio. And so we've been delivering the kind of top line performance that I showed you notwithstanding the fact that our entries in the sweet spot of the market have been getting quite old. And so our timing here and the impact of these new entries are going to be great. We launched just at the end of last year the Cadillac XT5 and GMC Acadia and just to give you data point the Cadillac XT5 replaces the SRX in the line up and the new XT5 is transacting at $7,000 ATP premium so the SRX is going to be replaced. So there are still plenty of opportunities in the marketplace in the SUV area. And we think these vehicles will perform similarly strongly in their new roles.

So I've taken you through some of the growth track record, some of the growth outlook and I have indicated little bit that we are allocating resources inside the company. Those of who you are here last year I think look seen this chart before but the point here simply is that in order to pursue new growth opportunities and to pursue new areas of the business, and we have infinite list of opportunities and we have a very finite level of resources. So in order for us to take on something new to double down in a profitable area of the business to pursue a new opportunity, we need to do that by funding it, by deciding what we are not going to do. So the internal discussion inside the company has become one of okay so you want to go and doing that, what you are going to stop doing. What's the thing we are going to decide not to do so that we can fund the thing that we are going to do? So as we invest in new technologies, in new areas of the business, we need to fund it somehow, we can't just burden the P&L all the balance sheet, or take our earnest capital and just put more of its work. We need to decide how we rationalize that and how we make those decisions. So this is just a remind you that we have already taken a number of tough decisions on places that we are not going to do business, things that we are not going to invest in and ways in which we are going to make the company more efficient going forward. And we will continue to be ruthless in our decisions not pursue lines of business or markets or opportunities that we don't think can make a compelling return for us down the road. So more to come.

The need to have that kind of mindset is only accelerating in the current environment. If you look at the left hand side of this chart you see a lot of the big macro trends that are going on right now in the marketplace and they are happening really at an accelerated kind of rate. So we got segment shifts, that's not a new story but it's an accelerating story. Profit pools are moving around, regulation is changing in all kinds different directions and different places. The geo- political and macro environment is more volatile and less predictable than it has been in the long time. Alternative proportion, electrification is happening. It is not something that might happen or so on something that is happening. Transportation is a service autonomous vehicle and so on. So every time we need to pursue a new opportunity it's get back to this point what is it that we are not going to do in order to fund the thing that we do think offers a better return opportunity for us.

So just to illustrate this over the last several months and this is just over the last several months as we go through our internal decision making and evaluation of opportunities and prioritization of our resources and decisions as to where we are going to deploy our earnest capital, if we want to add as we have on the left hand side of the chart, if we want to add to a high margin franchise, if we want to do more in the truck space. If we want to do more in high end SUVs, if we want to do more at Cadillac? If we want to invest in advanced technologies, if we want to invest in our plants to increase manufacturing efficiency because we think the pay off is compelling then in order to fund that we need to go and find the money somewhere else. And we need to decide what we are not going to do. And we have been as I have said I showed you examples markets we are going to get out of, different ways to play in a declining segment. So if we see a segment that's on a negative growth trajectory, how can we continue to play on that segment but to do in a way that's more efficient? How can we reuse more not reinvent the wheel every time that we come for a product renewal in the segment? How can we get more efficient as we go forward there?

Finally, footprint optimization. We don't need to play and replace. So we may not invest in certain markets or places going it forward. But the important message here is the mindset. The mindset of -- we need to balance the books and if we got to invest in something new, we need to take the resources away from something else and it drives to Mary's point about culture and mindset and accountability and results in the company that drives a different way of thinking about how we run the organization and brings a whole different level of discipline.

So talked about growth, talked about resource allocation. One of the things on the previous slide that we identified was advanced technologies. We have been very consistent I think in our external messaging on autonomous vehicles and ride share and what we see the opportunity to be. We think this could be a very, very large addressable market in autonomous ride share in scale. And we believe that we have assembled all the pieces that we need to lead in this area. So just go through them quickly, connectivity, we've been leading vehicle connectivity for 20 years through OnStar. We believe we have the right vehicle platform for AV, we think the only long -term sustainable path for autonomous vehicle is fully electric and we are obviously in a leadership position with the Bolt and all of our AV development that's going on is based on the Bolt platform. Autonomous technology, you are going to get a glimpse in a minute what we are up to there. We think we are on a very interesting place. But it's more than just having the autonomous technology, it's also and again Mary touched on it, how we integrate it safely into the vehicle. How do we put safety first as we put together these new technologies and new business models. So it is autonomous technology fully integrated into the vehicle in a production hardened environment for automotive so that you can go to scale production because that's when this really starts to count.

And then on the network, we have our alliance with Lyft that's one year old now. And we think it has been very successful in terms of both the short term opportunities we've been pursuing in relation to our express drive but also obviously the ultimate goal here of deploying autonomous vehicles into a shared network.

So what I'd like to do now is just give you a little bit of perspective on where we are technology wise here. Over the last 12 months particularly through most of 2016 there has been a lot of hype around AVs and new business models and so on and all kinds of noise and perspectives out there. And frankly what we've been doing as a company we've been really sort of working. We've been working in the background but we thought it was time to give you a little bit of perspective on where we at so any time any of us from the leadership are out on the West Coast, we stop by to see the cruise team and typically we take ride and join one of the development ride in the cars and see how the technology is evolving. And what I am going to show is a video of a ride that I went on just a regular development ride, is another produced videos, it is raw onboard footage of a ride that I went on in November with the team, development team out there. And what you are going to see is a 22 minute ride through the streets of San Francisco, it is not approving ground, it is not on countryside, it is in the environment in which we think that AV ride share will be deployed. It's a very, very, complex environment. You will see that. And again this is just the onboard footage at the front of the car of that ride. But this ride went from beginning to end 22 minutes, it sped up, so you don't have to sit here for 22 minutes to see the whole thing. 22 minutes fully autonomous, zero driver takeover, zero driver intervention. Whole ride entirely controlled from the cruise mobile app. And you will see the environment. You will see crazy driving behavior. You will see real world behavior. You will see human, you will see pigeon on the middle of the road and the car navigating around that. But I think what it will show you are where the technology is really at. And again this is a couple months old so the technology is moved on. It is a very fast development cycle that we are going through. And again this is a ride I was on sitting at the back seat of the car but that just will give you a flavor for where we are at. So let's play the video. [Video played] so there you go, it's real.

From a technology point of view we think a ton of progress has been made. There is a lot of work to do. Safety integration and so on. But this hopefully gives you a flavor for how quickly we think this is moving along. So just to wrap it up, three areas we discussed, strong growth opportunities, looking back the revenue performance that were generated over the last few years. If you look at the product cadence going forward and where we are allocating our resources going forward we have a strong foundation for continued growth on that basis. Tying into a discipline resource allocation, being really, really disciplined about if we are going to do something new, we got to stop doing something else and funding growth and funding our initiatives in a very disciplined fashion, changing the culture inside of the company around that. And the finally just giving you a little snip at a little glimpse on AV for ride share, where we think the technology is at, the trajectory we are on and the availability to make that something real in the real world here sooner than a lot of people think. So it's a really, really exciting time. There is a ton going on inside the company. A lot of really interesting, really interesting opportunities in front of us. Working to create our own luck in a volatile environment, but we are looking forward to the future, looking forward to 2017 and here to give just a little bit more flavor on 2017 is Chuck Stevens.

Chuck Stevens

Got it. Thanks, Dan. As Dan mentioned I am going to talk about kind of the immediate future which is 2017. And I think what I really want to talk about is how we plan to continue to create value for our owners. And that's largely underpinned by these three pillars and we've talked about these on numerous occasions over the last couple of years. First, we expect to continue to grow our earnings in 2017. Second, we are going to remain very, very disciplined with capital deployment as Dan just talked about. And third, we are going to run this company to perform well through the cycle. I've talked about this repeatedly, we understand that we operate in a cyclical industry and we need to run the company from that perspective. We are absolutely focused on delivering results. As Mary indicated, we met the commitments we've laid out in the past and we are fully committed across the organization to do the same in 2017 and beyond.

As I said, we continue to deliver on our commitment and this chart is just further evidence of that. If you look at the far right of the chart that's a lot of green, the green check is on track or exceeding expectations vis-à-vis the commitments that we made at this conference a year ago. We are on track to deliver all of our 2016 guidance metrics including achieving the high end of our earning per share outlook which we raised mid year from our original guidance. And based on the strong year that we expect to have in 2016, we are very confident that we are going to see improved performance here in 2017.

Turning specifically to 2017, I think the key message or the key takeaways continued improved performance in a challenging environment. As usual we see a number of tailwinds that we are going to have leverage as we go through the year and a few headwinds that we are going to have navigated. From a tailwinds perspective, Dan talked about it very, very important product launches. A strong launch cadence really focused on core SUVs and crossovers in 2017. We are going to continue to remain very focused on cost efficiency. I'll talk more about that later. We see a significant opportunity for growth in adjacencies in 2017 specifically GM Financial where we expect to improve earnings again as we continue to grow our US captive capability. On both side of the ledger, early days the US regulatory environment and potential changes in US regulatory environment can be both a potential tailwind for us and a potential headwind. Again early days and that's something we are going to have navigate through. And as we look across the world, we will see when we report 2016 results, a significant improvement year-over-year in 2016 versus 2015 in South America and we would expect to see that improvement again in 2017 as the macro conditions continue to improve especially in our key market of Brazil.

Again, the key point or takeaway from this chart is we will drive improvement in the areas that we control like we've been doing for the past several years. And we will work to mitigate whatever industry and macro challenges that we face. Again, in the context of driving improved performance on a year-over-year basis in 2017 versus 2016. Here you can see our history of strong revenue and profit performance as measured by earning before interest and taxes. And our expectations for 2017. As we step back and think about our business over the last number of years and for 2017, really the results have been largely driven by the success of our new vehicle launches and again we see that accelerating and continuing in 2017. A very disciplined go to market strategy in the United States. Results were very strong in 2016, retail share was up 0.5 percentage point, and we reduced our reliance on daily rental fleet and really, really focused on as Dan put it where the profit pools are.

We've had continued strong performance in North America, 10% margins in 2015; expect 10% in 2016 and again in 2017. And strong profit performance in China. And we've been very, very focused on cost efficiency. Again, we expect to continue with the focus on these key drivers, a financial result in 2017 which will lead to another strong year with both revenue and EBIT adjusted equal to or better than 2016.

We also expect to deliver significant earning per share growth again in 2017 supported by both strong profit but also our continued share buybacks. Our guidance for 2017 EPS outlook as Mary indicated $6 to $6.50 a share which continues a trend of improved year-over-year improvement in EPS. And in fact, if you look at 2013 to our expectation for 2017 that's a 100% improvement over four years in earning per share.

We've generated strong free cash flow over the past several years and we'd expect to see continued levels in the $6 billion range in 2017 which ultimately will translate into additional return of capital for our owners. Turning to cost. We've committed to remain focused on cost efficiencies to continue to drive improvement in our overall cost competitiveness. Our original goal that we publicly stated was $5.5 billion of gross cost savings on a run rate basis by 2018. We are ahead of plans as you can see from the chart about $0.5 billion ahead of our run rate that we originally established through 2016 with $4 billion of saving to date against an original target of $3.5 billion. Because of that we are increasing our cost objective target; we are asking the organization to deliver more by another $1 billion to $6.5 billion by 2018. These cost efficiencies are underpinned by a number of critical drivers. Mary talked about operational excellence. That's our company wide initiative to drive a continuous improvement mentality across the organization using very disciplined tools like Six Sigma and Lean.

We are just starting to get the benefits of global scale and as we continue to optimize our footprint and really streamline our industrialization, we think there are further opportunities from that perspective going forward. And again the tough decisions that we've made over the past number of years to exit markets where we weren't making money also took cost out of the business. And we are going to continue to make those tough decisions.

Looking at this from an enterprise perspective, we expect that these savings $6.5 billion will more than offset the incremental investments in engineering, brand building and technology related to costs. In fact, we would expect to spend about $3.5 billion on brand building, increased marketing expense, increase D&A associated with our new product launches and incremental investment in technology and future mobility. But we will generate about $3 billion of bottom line benefit net of that incremental investment. In other words, when you think about 2017 or beyond, the investments that we are making in technology are fully reflected in the guidance that we are providing of improved performance.

Stepping backs a second, I want to remind everybody of our transparent and disciplined capital allocation framework and we used this as Dan mentioned day-to-day to run the business. We are going to invest in the business and make the top trade off decisions to ensure that we can generate 20 plus percent return on invested capital through the cycle. We are going to maintain an average $20 billion target cash balance to ensure that we can invest through the cycle and importantly maintain our current dividend. And we are committed to an investment grade balance sheet. And as we've demonstrated over the past couple of years, we are returning all available free cash flow to our shareholders.

Mary mentioned it since 2012 we've returned $18 billion to our shareholders that are about 90% of our free cash flow. 90% over the past four years. And our disciplined approach will continue to generate results. We've converted a significant portion of the earnings that I have talked about into cash. We are relentlessly working on improving our capital efficiency and the bottom line to our shareholders is that we are returning excess cash to you while making sure that we invest appropriately in the business to strengthen the business and have sustained long-term returns. And we are committed to continuing along this path as we go through the next -- in 2017 and beyond.

This lays out our capital allocation approach for 2016 and expectations for 2017. In 2016, we spent capital around $9 billion. We increased our quarterly dividend in 2016 to $0.38 a share. We completed our $5 billion share buyback program that we announced early in 2015, one quarter early in the third quarter of 2016. And started towards our second $4 billion authorization by buying back $1 billion worth of stock in the fourth quarter of 2016.

For 2017, we expect to spend a similar level of capital, $9 billion again really being driven by that product launch cadence that we covered. We expect to maintain the dividend at $0.38 a share. We will complete the $4 billion second authorization for share buybacks and as Mary mentioned we did announce a third authorization of $5 billion share buyback which really underscores our commitment to enhancing shareholder value over time. And continuing to drive efficiency from a capital perspective.

I have talked about this before, I talked about the downturn and I talked about our intent and our focus on running the business like we operate in a cyclical industry. We understand we operate in a cyclical industry. Importantly, we do not anticipate a downturn in the foreseeable future but we need to be and we are prepared. This chart lays out what we would expect our results to be in the event of a 25% downturn in the US. First, we will generate positive profit both globally and in North America. We will be able to continue to invest in critical technology and product and continue to maintain our product launch cadence. And we will be able to maintain our current dividend. This is how we have positioned the business over the last number of years by continuously focusing on a breakeven point and capital efficiency and driving cost efficiency in the business. That's how we manage the business. That's how we positioned our capital structure to ensure that we continue to perform well in a downturn and generate these kinds of results.

We've touched on 2017 outlook throughout this presentation but to summarize, first, we expect revenue to exceed 2016 levels driven by a continued strong launch cadence and growth of GMF. We expect that 2017 EBIT and EBIT margin will meet or exceed 2016 levels driven by strong performance in North America and China, improvements in South America and continued growth and profitability at GM Financials. That will translate into improved EPS performance with a range of $6 to $6.50 as I mentioned before. We expect to generate about $6 billion in free cash flow and we will continue to make the smart capital allocation decisions resulting in a ROIC adjusted that will be greater than 25% in 2017. And we are committed to completing our current $4 billion share repurchase program and will return more than $5 billion of capital to shareholders in 2017 when you include dividends.

In summary, we expect to deliver on our 2016 commitments and expect more of the same in 2017. And that's why we continue to believe that GM is a compelling investment opportunity. Before I turn it over to questions-and-answers as always remind everybody that the content of my presentation as well Mary and Dan's presentations are governed by the language in our forward-looking statements.

And with that I'd invite Mary, Dan and Randy up to the stage for Q&A. Thank you.

Question-and-Answer Session


[Operator Instructions]

Okay. We've got about half hour for Q&A. So why don't we get going. Rod, I think you need a mike will be with you momentarily. Thank you very much.

Rod Lache

I have two questions. Thank you very much for that presentations, very impressive. Just one is the shorter-term question and one is a longer-term question. On the shorter term, you talked about regulations potentially being a headwind and maybe potentially being a tailwind in some areas. One of the obvious things that we've all been talking about in terms of headwinds is protectionism. And border adjustments or tariff and that kind of thing. I was wondering whether you might be able to talk to us a little bit about how concerned you are about this. How we should be thinking about as an investment in General Motors the risk potential when you think about your cost structure what percentage of your cost of US sales for example are derived in the US and how you think that might play out.

Mary Barra

Well, first off I think what we want to do is make sure as all the different policy changes are being contemplated. People really understand the auto industry, understand that we are long lead, decisions of products that we are launching right now were made two, three, four years ago. Also that it's a very capital intensive business. And we think as people understand that but also understand right now in General Motors we have over 40 manufacturing facilities in the United States. We provide 100,000 jobs. Over the last two years we've invested $11 billion in the United States. We've also which is either preserved jobs or increased jobs from a IT perspective over the last few years we've increased 11 or broaden 11,000 IT jobs into this country, many of which brought into the company many of which were brought into the country as we made that move, as well as we made some shifts in our engineering foot print. So we want to make sure people understand the industry and General Motors specifically as we look at that. When you also then look at where we produce, we produce upwards of -- over three quarters almost 80% of the total vehicles produced in the US when you look at it against sales. So we are providing very strong job. And when you look at for instance some of the products that we talked about, there comes a point where if you have to look at how officially how many vehicles are you going to sell to make the investment worthwhile, that's when some cases products are in Mexico because of the bilateral trade agreements. So that's another important point that we want to make as we look at what are the difference that are going to be made in trade. So I believe I have an honor and have the opportunity to be on the strategy and policy forum for President elect Donald Trump, so we are helping to make sure we convey the story. We also think some of the changes that are happening as Chuck said some of them are definitely tailwind from a tax reform perspective, from a regulatory reform. So we are hopeful and when it is truly understood at the significance of the job creation that we have and we continue -- we will continue to have -- and the investments that we are making in this country with very good paying job that overall it will be something that is a benefit and allows General Motors to grow and even increase jobs.

Rod Lache

So just to summarize that it's your sense that rational thought will be applied here and that the people you are speaking to are listening.

Mary Barra

Yes. I very much believe the people we are speaking to are listening and want to understand our business and want to understand a pathway. Because what we really want to do is have sustainable growth in jobs and the country doing well. And I am an optimistic person and I believe that we are going to have that opportunity

Rod Lache

Second question is maybe longer term what you have been able to accomplish in terms of net cost reductions is really impressive especially considering the amount of investment that's need to go in for automation, alternative proportion, efficiency gains all these different things, the brand building that you guys have achieved. And it just points to the fact that there have been a lot of opportunities within General Motors. There always things within the company broadly they aren't earning their cost to capital. They are not as profitable as they really need to be to even meet your metrics for returns. Is there way you can sort of characterize when you look at the business going forward what is the pool of opportunity when you look at it today? We think about things like Europe or small car, South America, South East Asia, all these things are still operate within the company, that are probably pretty sizable but is there sort of a pool where you say, look, there is this percentage of our revenue base where we need to either fix this or we need to cut it and reallocate to other opportunities.

Chuck Stevens

Yes. I guess the way I would put it starting at about $10,000 fee is we are probably mid way through the opportunity list of -- when you think about not only from a geographic perspective but from a product perspective and then a fundamental cost standpoint. I think there are still significant opportunities and that doesn't necessarily mean that you exit the geography. That means you figure out a way to make money, improve the earnings profile in a geography or country either by a more efficient business model or really taking advantage of our scale as we continue to get more and more volume of global architecture or as we invest less as Dan showed on his chart in next generation products especially no shrinking segment. So what we will continue to is identify those opportunities and then reprioritize and identify the next set of opportunities. We do a lot of global benchmarking across all of our cost drivers and again I think we are on a good path but I think there is more to come.


Ryan Brinkman

Hi, Ryan Brinkman from JPMorgan. How should investors think about the cadence of earnings throughout 2017 including specifically the contribution from your crossover launches? Which quarters might see potentially lower production or increased launch cost versus which quarters should benefit from the higher volume and pricing of those launch vehicles?

Chuck Stevens

Yes. I think the starting with improved EPS and earnings that are greater than or equal to 2016 is a good place to start. So we think 2017 is going to be another strong year especially in North America and China. When I look at the general earnings cadence for the year sitting here middle of January, I'd say it's going to be roughly in line quarter-to-quarter-to-quarter. We are not going to have kind of the big spike in the second or third quarter that we've had in the past but that's broadly speaking at this point in time. And I'd suggest that as part of the continued 10% margin kind of performance in North America you are going to see a benefit from the new launches more than likely in the latter half of the year as we get through those launches.

Matthew Stover

Matt Stover, Susq. I would like to follow on to a question from Rod. And I think consumer focus and regulatory focus shift to things that are happening inside of the cockpit and the external sensing for vehicle. You created variable cost challenge over the course of the next decade. I am wondering if over the course of the next decade we should expect to see GM accelerate the activity that it pursues with other auto makers as it thinks about transmission, engines, the full drive train and opportunity for you to derive greater scaling costs.

Dan Ammann

Yes. I'd say there is -- we've been doing a lot of ad already as I think you know we co develop some transmissions with Ford. We are working on few cell projects with Honda so on and so forth. So I think those opportunities tend to come along case by case and we'll certainly continue to evaluate and pursue those and they can lead to some good savings, they can lead to some complexity in execution so there is always a trade off there between can you maintain the speed that you want to have and sort of the cost benefit to go through. So other thing now if you look back at the some of the revenue metrics I showed, a big reason we are so focused on moving to the more profitable segments improving mix, growing accessories, growing adjacencies, growing after sales all those things because those are very, very high margin incremental dollars and every incremental dollar like that, that we add to the top line, lot of that drops straight through some major variable profit to the bottom line. So as we think about those added cost for compliance and other measures, it's very much this mindset we need to fund it internally, we need to offset when it create our own luck either by richening mix, pursuing cost saving program and so on. So we understand the cost is coming but we also pursuing the revenue opportunities to offset that.

Matthew Stover

But do you think that the decision on the truck transmission was a made a number of years ago and although there have been activities between here and there, the large scale activities have not been as prevalent. And I am wondering as this cost curves, the cost pressures build if you think that we should see more of this type of activity.

Dan Ammann

I think there is probably an opportunity for more what we've done and what others have done. I think the challenge is really finding the opportunities where the timing works for the engineering solutions work and where the execution can done efficiently. We would learn the hard way frankly on some of these that the idea is easy and execution is hard. So it's finding the right opportunity, the right partner to work with one by one. So I don't know it would be bigger necessarily but they will probably continue maybe more.

Emmanuel Rosner

Hi, Emmanuel Rosner from CLSA. A short term one and then the more strategic one. On the short term could you please give some high level color on how you see 2017 play out by regional segments? So it is up overall obviously EPS up quite nicely as well as result of buyback but generally speaking how do you see to reflect the regions playing out?

Chuck Stevens

Yes. I covered it kind of at the level that we were thinking about covering it. We expect to see North America be strong again in 2017, 10% margin we expect strong performance. In China, continuing strong performance, in China so I would suggest equity income largely in line with what we are seeing a last couple of years. Improvement in GM Financial, improvement in South America and that kind of covers it.

Emmanuel Rosner

Great. And then strategically so you are talking about this huge opportunity from transportation as a service. How important is it to own the direct customer relationship in this kind of business model? And how does your relationship with Lyft now fit within that topic?

Dan Ammann

Yes. It is an excellent question and it is something we spent a lot of time thinking about. Clearly we gave you a little clue as to where the technical development is and it's clearly moving very rapidly. We see still quite a lot of work to do to get to the point where we are ready to deploy and scale in a real commercial environment. But as that work goes by we'll evaluate sort of the business models to go forward. We think the natural place to begin is exactly in line with our alliance with Lyft which is to begin in a driver based environment where we have -- we start the deployment there but obviously this is a landscape that's moving really quickly, business models are coming and going pretty frequently. So our main objective is to remain sufficiently agile as we move forward that we can adapt and put ourselves in the best possible position for what we think is a very big total addressable market down the road.


Yes. [Greg Tar from Board of Glimpse and Auxi Auto Digital]. Question related to some of the recent deals done with IBM on connected car services. And just wondering if over the next few years you believe that's going to be material contributor to revenues given the size of GM. It is obviously a fast growing area, packages food to the car et cetera or is this really more looked at as value added service for the vehicle? And then the second question, Dan, are you moving quick enough with enough budget in Silicon Valley in terms of M&A venture capital with this fluid movement. Some of the competitors have larger budget, more M&A, more R&D staff on the ground.

Mary Barra

So on the data piece and again we have an industry leading position as it relates to connectivity with -- for GLP connection as well. When you look at the opportunity we have with IBM and it's all customer permission, so we want to be very respectful of the customer but we think we are just scratching the service but what we can do to improve the time that they spend in car personalized so it is not delivered at distracted way, very integrated into the vehicle. So we think if there is opportunity on two fronts. One, to make our vehicle -- the vehicle they want to purchase because of the opportunities and the functionality that we provide but then we also think there is opportunity as we allow more people into the vehicle, into their precious time to monetize that as well as the data that we have and coming out of the vehicle. So we think it's both.

Dan Ammann

So on the second question; I think it's an interesting question. So take the cruise acquisition as an example. We acquired with cruise we acquired a couple of things; we acquired the IP that had already been developed. I mean you've seen how that's moved along. We acquired the people that hadn't place the resources ahead in place of their time but the third thing that we acquire was more of an intangible which is the ability of that team to go on recruit additional talent. So we started with the acquisition 40 engineers came onboard as part of that, we are well over 100 now. And so it gives you clear -- and those are people that on an organic basis that we would not been able to go and recruit in the way or certainly at the right that's been achieved there. So we used M&A as a step, as a starting point but we see a really clearly path to grow when we need to grow organically from both talent acquisition and capability development point of view.

Unidentified Analyst

[indiscernible] with Legal and General. Thanks for taking the question. You've laid out GM Financial as a growth driver for you and certainly if you were to get an upgrade with Moody's it would benefit that business. What is Moody's telling you need to do to get an upgrade? When do you think that's coming? And then secondly, I've read in several pieces that if we were to see economic growth in the US a rule of thumb is 1% growth in GDP is associated with about 3.5% increase in SAR, is that even a realistic framework for your upside, for how you are looking at the upside to the guidance that you have given. Thank you.

Chuck Stevens

We continuously reach out and engage with the rating agencies not just Moody's but S&P and Fitch, and I would suggest that we are reasonably constructive on the path that we are on based on the performance of the business with discipline that we've shown in our capital structure and our balance sheet and the improved performance so I can't speak for the rating agencies but my takeaway or view would be it's just a matter of time for upgrade. But let's how that plays out. We just continue to execute and communicate proactively with them on that front. Relative to the growth rate now Dan or Mary can way in, we expect to see another strong year in 2017 from a US industry perspective. We had another record year in 2016. We think we are going to plateau at these kinds of strong levels. I think the fundamental drivers of what's been driving the industry may change a little bit from a kind of credit driven tailwind into more of economic growth GDP type growth tailwind over the next number of years. Is there upside to the industry? Perhaps but we try to manage the business from a conservative perspective from a revenue standpoint then see if we can take advantage of those opportunities as they present themselves.

Colin Langan

Thanks for taking my question. Colin Langan with UBS. I just had two questions. One, you just talked about US, it sounds like you are looking at plateau. What are your pricing assumptions for the US and China and what kind of volume assumptions are you looking at for China next year, I guess this year. And then also in your presentation you talked about shared autonomous vehicle needing to lying to be the first mass market, other companies have put 2020-21 target. Are you confident that you are going to be able to be to market before that and how should we think about announcements coming up to kind of gauge your progress towards that.

Mary Barra

Well, I think we very much think what we showed you today that show the very significant progress. Again, as Dan indicated that video that you saw are a few months old already. So it is moving at a very rapid pace. So we will be gated by making sure it's safe because we think that so important for our customer acceptance of autonomous vehicle. And so we are not putting specific timeline on it. But we believe we have the ability to lead in safe autonomous vehicle into marketplace. You like to add anything?

Chuck Stevens

Yes. Relative to the pricing environment and the headwind side of the chart I said the challenging pricing environment in China and US was going to continue in 2017 and that's how we are planning the business to run the business. In 2016, at the foreign joint ventures the price headwind and carryover was somewhere between -- it will land somewhere between 4.5% and 5%. For the domestic, somewhere in the range of 2%, we expect a situation similar that in 2017 although in fact we did see pricing start to moderate a little bit in the fourth quarter but we are kind of planning that same level. And in the US market, clearly incentive spending as a percentage of transaction prices continues to increase in 2016 versus 2015 but as Dan showed in our own results; our transaction prices continue to increase as well. So I would expect to see carryover pricing continue to be headwind in the US. Our expectations are that we are going to be able to more than offset that with new model pricing, and the launch in new products and continued cost efficiency so more of the same in 2017 versus 2016.

Brian Johnson

Brian Johnson, Barclays. Couple of questions. On the strategic verging into the financial, you talked about the 15% growth rate Dan or Marry, some of which is technology driven, some of which is sounds like customer care, SBO. Can you dimension that is that 15% growth of a small number or 15% of the significant number to what extent is that driving some of our confidence in EBIT being flat despite some of these headwinds.

Dan Ammann

The 15% of a number that's measured in billions.

Chuck Stevens

And Mary touched on it in her comments, if you look at our expectations kind of net bucket of adjacent business growth which in corporate OnStar, customer care and after sales the service parts of business and GM Financial, when you look 2015 to 2019 over that time horizon, we would expect to see about $2 billion improvement in profitability from that adjacent business and it is largely high margin business. So that's one of the things that we are going to continue to take advantage of.

Brian Johnson

And second just a couple of housekeeping questions. You implied, you said you are going to be at the high end of that up to $6, 2016, does that mean we shouldn't expect it to be over $6?

Chuck Stevens

At this point in time--

Dan Ammann

February 7 right

Chuck Stevens

Yes. A month or so from now you will get the actual number but at this point time we are saying the high end of the range which is consistent with what we talked about earlier in 2016.

Brian Johnson

And just on the border adjustment tax, I assume you assume no change to the corporate tax rate in your 2017 guide and more strategically what if that were to happen, the house GOP proposal, is there more you could do to export from the US, Eugene out of Arlington, Texas, gaining market share and pickup trucks in Canada or maybe ship more the pickup truck production out of Mexico and now Canada back to the US.

Chuck Stevens

I'll answer the easy part of the question. As of today, there is no change to our view on the effective tax rate for our results in 2017 and in fact there wouldn't be a change in our cash tax which is significantly lower than our effective tax rate. On the latter part, I think what we've said is it's too early to make any kinds of decisions or comments around what we may or may not do. We just be speculating, what we need to do is work constructively and proactively to ensure that everybody understands the complex environment that we are dealing with and that we are optimizing the outcome for United States for the manufacturing footprint now we think. So there is a lot of moving pieces there.

Joseph Spak

Joseph Spak from RBC Capital Markets. Two questions. First one, Chuck, on the headwinds and tailwinds chart didn't really see anything on FX and commodities, just wondered if you could detail some of your assumption there. And then Dan you mentioned on the second question cadence of new products, it seems like one of the areas where that refresh rate has really been accelerated versus historically is on the full size trucks and can you talk about how that changes the return profile given that you are selling over much shorter period versus a longer period, are you able to spread the cost a little bit differently?

Chuck Stevens

Yes. On the first part, commodity prices moderated in the second half of the year as we talked about we got the benefit kind of through the first six, nine months of 2016. I would say as we sit today and look at it; it is a moderate headwind in 2017 versus 2016 measured in a few hundreds of millions of dollars. Not anything that we haven't been able to deal with and manage and mitigate but certainly our initial planning assumption is that's a small headwind in 2017 versus 2016. FX that was a pretty significant headwind over the last number of years. Again, we expect that to moderate a little bit probably the biggest exposure that we have in 2017 versus 2016 is the pound sterling. Again, when you think about the big drivers of the business something that we are going to have managed within Europe but not necessarily something that's going to change the trajectory of our overall company performance.

Dan Ammann

So on the second part of the question, I'd say not just in relation to trucks but across the whole portfolio, all of the new, major new architectures that we've been rolling out on the car side over the last year or two are now on the SUVs and ultimately through truck. And are engineered in a way that we expect them to last multiple lifecycles. So from a mass efficiency point of view if you saw the stats on the Chevy Traverse or the Terrain or the Equinox of XT5 or any of the SUVs that have launched, go back and look at the car launches, hundreds of pounds of mass have come out of this architecture that give us a foundation from a fuel economy point of view, so we think we can actually run those installations for well more than one product cycle, two to three product cycles going forward. So the amortization of this capital investment that we are spending now will actually happen over a much longer period than we've achieved historically. And you might remember last year, maybe you don't, but there was a chart I showed where in our CapEx outlook beyond the investment cycle we are going through now, makes to see an opportunity for capital investment in the core vehicle portfolio to come down when we get a few years out because of that heavy reuse that we expect going forward. And that's something that General Motors is not being particularly good at previously. But because of the way these architectures are engineered now, we expect to have very high reuse over a very long period of time.

Rod Lache

Probably have time for one or two. Over here John.

John Murphy

I'll make a quick. John Murphy from Bank of America. Just a first question on residual performance. I am just curious how focused you are on that -- how you have managed that over the next like two three years as we see ton of vehicles coming back off lease and might see some pressure on used vehicle pricing. And then also sort of longer term as you think about that as you are kind of making the step function improvements in technology and may relegate some of your older vehicles obsolete, how you will deal with that, the pressure on residual, pressure in the long run.

Chuck Stevens

Well, we are very, very focused on residuals. It is area that the U.S. side of the business with GMF are very integrated and managing and understanding the critical drivers associated with that. We are developing our own models to understand the critical drivers of residuals and how to best optimize that whether at each equipment level or level of incentive spending. When you dispose the vehicles we've taken a number of actions to optimize our own results. One, critically is the reduction of daily rental vehicles. So reduced the supply that's coming into the market. GM Financial now manages all remarketing activities of all used vehicles, whether they are returned daily rentals or company vehicles or off lease vehicles so we can make sure that we optimize that. So that is a critical initiative for us. And if you go back several years ago John we talked about the residual gap that we had vis-à-vis the competition. And again that's a continued focus area of ours to make sure that we continue to close that because that's real money. So the quick answer to your question it is high focus area for the GMF and the U.S. sales team.

John Murphy

And then just the second question the housekeeping one. When you mentioned EBIT would be flat to up year-over-year in 2017 versus 2016, but we are looking at EPS, EPS grow so just curious as we look at it is there something going on between the EBIT line and net income line that's driving the EPS growth or do you think that it is more of an emphasis on greater than equal to in that EBIT and how should we think about I mean right now looks like share counts are driving up EPS to a perfect line on year-over-year basis from 2016 to 2017.

Chuck Stevens

Well, obviously a portion of which reduce share count because of buying back shares right. And in of itself that would drive year-over-year EPS growth with equal earnings before interest and taxes. There is nothing happening from a tax perspective. I would expect ebb some kind of change from a regulatory environment that our effective tax rate would be similar in 2017 versus 2016 so --

John Murphy

So emphasis is on greater.

Chuck Stevens

I would say the emphasis is on greater than or equal to as we said it.

Rod Lache

With that thank you very much. We are out of time. Appreciate it. Thank you.