General Motors Co (GM) Presents at Deutsche Bank Global Auto Industry Broker Conference Call - (Transcript)

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About: General Motors Company (GM)
by: SA Transcripts
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General Motors Co (NYSE:GM) Deutsche Bank Global Auto Industry Broker Conference Call January 16, 2019 12:15 PM ET

Company Participants

Mary Barra - Chairman & CEO

Dhivya Suryadevara - EVP & CFO

Conference Call Participants

Emmanuel Rosner - Deutsche Bank

Colin Langan - UBS Investment Bank

Adam Jonas - Morgan Stanley

Brian Johnson - Barclays Bank

David Whiston - Morningstar Inc.

Emmanuel Rosner

So good afternoon, everybody, and thank you for joining us for this fireside chat with Mary Barra, the Chairman and CEO of General Motors; and Dhivya Suryadevara, EVP and CFO of the company.

My name is Emmanuel Rosner, I'm the senior U.S. autos analyst at Deutsche Bank. We're very, very pleased to welcome General Motors today, especially on the back of their Capital Markets Day from Friday, which was quite eventful, and informative, and we will certainly dig into some of these topics.

As you know, Mary has been CEO since January, 2014. She spearheaded what can be described as a large transformative change at the company across the portfolio, and as the industry moves towards electrification and autonomy. She's been with GM since 1980, and before becoming CEO, she was EVP of Global Product Development.

Dhivya was appointed CFO in September of 2018. Previously, she was VP of Corporate Finance, where she played an integral role in the Opel divestiture, the Cruise acquisition and SoftBank's investment in GM Cruise, which we spoke a little bit about yesterday with Michael Ronen.

So thank you very much for joining us. The format for this fireside chat will be, we'll start a conversation around 2 main topics, the near-term outlook on the back of last week's Investor Day; and then, longer-term perspective on the future of GM and the industry. And then, that should leave us about 15 minutes for questions from the room. Thanks, again.

Question-and-Answer Session

Q - Emmanuel Rosner

So you gave a very strong -- or very strong outlook for 2019 at -- last week at the Investor Day, and we wanted to go over a few things. So first, the markets where you operate. I think many investors we spoke with saw the assumption of a flattish U.S. and China autos demand in 2019 as possibly optimistic. Can you tell us what you're seeing and expecting out of each of your market?

Mary Barra

Well, I think, you've stated, that we do think the U.S. market is going to be in the low 17s, but we think we're well positioned in the U.S. market when you look at the fact we'll have a full year of our light-duty trucks. We'll be launching our heavy-duty trucks. We'll have a full year of some very successful crossovers, in addition to having the Chevrolet Blazer as well as the Cadillac CT6. And frankly, continuing to build on the strength of the XT4 that we launched late last year and it quickly move to the #1 position in that segment. So we think we have a very strong portfolio, and I think we have to step back and remember, if we have a low 17 market, that's a good market in the U.S. If that's kind of where we plateau, that's a very strong market, and -- so that is our outlook base. And what we're seeing with the current views is, the economy is strong and the consumer is strong now, the factors that we'll continue to watch over time, but with all that view right now, that's where we see the United States. In China, we also think it's going to be roughly the same as last year. And remember, we went from a China that a handful of years back, it was double-digit growth, to high single-digit, to mid-single digits, to low single-digit, to now where we have a year that stepped back a little and we think at that level. Again, in that market, we think General Motors is well positioned. We have 20 launches coming out next year. We have the strength and the ability to continue to grow Cadillac, with some new product that will continue to allow us to grow -- outgrow, not only the market, but the luxury market with the Cadillac brand. So we see strong opportunity there. So when you look at where we see the market based on today's indicators, and then, General Motors' position in those markets, that's how we'd derive our assessment.

Emmanuel Rosner

Understood. And then, I guess, in China, specifically, are you assuming some sort of stimulus from the government in order to maintain these flat market?

Mary Barra

Well, and we talked about that, that we have the discussion that was underway and we saw the government start to look at what they can do from a -- to support the economy. Clearly, there's conversation just within the last week or so of durable goods stimulus, which would impact autos. So we're not -- we're watching that careful, but that is clearly the signal that they're sending.

Emmanuel Rosner

Understood. And just a quick one on China as well, before turning to restructuring action. You were speaking about expectation -- your expectation of a modest decline in equity income in China. Can you be more specific? And is it more driven by volume declines for GM, margin pressure, or both?

Dhivya Suryadevara

I think, again, I would say from an outlook perspective, we have factored in a moderate decline in China equity income as we mentioned. And on Friday, we covered some of the tailwinds and headwinds that we're seeing in China, primarily pricing pressures, continuing in China in the range that we have seen in the last few years here, as well as some of the regulatory challenges that we pointed and alluded to on Friday. It's primarily those 2, but beyond the moderate, I would not quantify that any further.

Emmanuel Rosner

Understood. All right. So let's -- then, let's turn to the restructuring benefit from the fitness actions you're taking. The $2 billion to $2.5 billion in savings sometime this year was well ahead, I think, of many investor expectations going into the event. So first of all, just to clarify, your presentation slide on the headwinds and tailwinds seem to clearly imply that this is the tailwind expected in 2019. But in the Q&A of the event, you said it's a year-end -- or it's a run rate at some point during the year. So which is it? And can you just say what sort of tailwind do we get in 2019?

Dhivya Suryadevara

Sure. Actually, the two numbers are purely close because we expect a very quick start to the savings in 2019. And if you actually look at it, since we outlined this in November, we've gotten a pretty quick start, even in 2018 in the form of some of the savings flowed through to the bottom line, which I mentioned on Friday that we are tracking above our expectation in 2018 and some of that was contributed by the early achievement of some of these cost savings. And as we look at 2019, majority of the savings, as I mentioned, as we cycle past Q1, we're really starting to see the benefit. So the run rate and the actual number in 2019 are pretty close.

Emmanuel Rosner

Okay. So that's a big number. And so how are you achieving such savings from actions that were really first announced in November? And is there any risk around it from political scrutiny or other constituents that you have to deal with?

Mary Barra

I think if you step back and look at what we announced, it really was a transformation of General Motors, recognizing how quickly this industry is changing, how quickly the world is changing, how quickly customer preferences are changing. And so we stepped back and looked and said, okay, to position General Motors well for not just the next year or 2 but even beyond, what do we need to do? We also had company-specific opportunities with the fact that, we have just rolled out a whole new suite of crossovers. We're in the middle of our full-sized trucks. We'll be launching this year, globally -- our global family of vehicles. So a lot of work and investment in architectures, that's now done. And these are architectures we're going to be able to use for multiple generations.

And so we were able to step back and say, how do we position the company? And that's what led to the restructuring or really the transformation of product development. And that's something we shared a bit, and so I won't go into all the detail Mark went into on Friday, but really looking at what are the skill sets and how do we need to organize to recognize cars are much more software-oriented, electrification, and that's where we announced we're positioned to be able to shift -- not add, but shift the resources from, I'll say, some of the traditional core elements of auto into more the skill sets we need from an EV/AV perspective. We also, for the last several years, have been working on what General Motors call operational excellence, but we've trained not only all of our leadership, but many people in the organization in Six Sigma, so applying Red X, applying different tools of problem solving to, really, the way we talked about Operational Excellence is, everything can be made better. That has now really taken hold in the company, so improving processes, streamlining processes, simplifying processes.

And so that allowed us to then look at how do we change the way we do business from a salaried workforce, and that's part of the savings. I think the manufacturing, clearly, we looked at our -- at this level of market in North America, and said if we're only running at around 70% capacity utilization, that is something we need to take action on. Now those decisions are very hard and that's why we work so hard to address the people issues from a U.S. perspective, for our represented employees, everyone who wants a job will have a job. When we look at the openings that we have. In fact, I predict at some point, we'll be back in the market hiring because of the expansion that we're doing in trucks and crossovers. So it's really moving some folks around. From a salaried workforce in the U.S., we have many companies that have come to us saying, we think we can -- we're going to value the skill sets, and so we're best positioned because of the strong economy to provide a good and a smooth transition for our salaried workforce. And then, even in Canada, we're working closely with the local government, with local universities and local businesses leaders, and we believe we have over 5,000 good-paying opportunities for those impacted in Oshawa. So I think when you ask the final portion of your question of, will there be things that inhibit your ability to get these cost savings? We are working very proactively, first, with a focus on the people, and then, the communities impacted. And I think people will see over time, taking this action in a relatively strong environment, allowed us to do it in -- do it the right way, with a focus on people and communities, but still setting up General Motors with the cost structure and transforming the business that we need for the future.

Emmanuel Rosner

And that's good color. So you touched upon this in this answer, but when we look at the full potential cost savings of $4.5 billion, there's been a bit of skepticism from the investment community around how much of it is gross versus net? Can you just go back over the 3 buckets of savings that you have? And to what extent some of them materialized sooner than -- rather than later? I'm getting the sense that the salaried reduction is probably what's coming the fastest, manufacturing probably takes among the longest, but can you just -- maybe, just go over the full program and how we should we expect?

Dhivya Suryadevara

Sure. So if you take a step back and think about what we announced in November, we said, we were going to achieve $4.5 billion of cost savings by the end of 2020 and another $1.5 billion of capital savings also in the same time frame. And if you take a look at the $4.5 billion of cost savings, and Mary talked about the transformative actions that we have taken, roughly 1/3 in the engineering space in the form of transformation of the product development group, 1/3 in the form of manufacturing capacity actions that we're taking. And the remaining 1/3 in salaried workforce and SG&A-type actions. So think of it as three broad buckets, roughly split equally. And if you take a look at the cadence of those actions, we do anticipate, to your point, that the salary reductions have a -- they're sooner, and the engineering actions that we're taking and the transformative steps that Mark was taking in his organization will accrue earlier in the two years. So if you think about half being achieved by 2019, that's primarily the SG&A actions as well as the engineering actions. And to your point, manufacturing actions have a slightly longer tail, but -- it's our belief that we will achieve all of the $4.5 billion by the end of 2020, with half accruing in 2019.

Mary Barra

And I'd just like to add, there are very detailed plans by every part of the company, and Dhivya has put in -- we have a very rigorous program management office to make sure that we achieve the savings. So there are detailed plans behind this.

Emmanuel Rosner

Right. And then, just final, maybe on the restructuring. In terms of the cash impact from the upfront investments, obviously, that excludes from your adjusted free cash flow. But how should we expect the cadence of that -- of those cash outflows?

Dhivya Suryadevara

So when we announced these actions, we talked about a $2 billion cost to our entity -- to all the actions. And we expect the bulk of this to happen in 2019 from a cash outflow perspective, and the remaining -- there will be a tail in 2020 as well, but think of it as vast majority in 2019.

Emmanuel Rosner

Understood. Perfect. And then, I guess, turning to another piece of the outlook, the commodities, which you also combined with tariffs. Can you just go over the timing and dynamics of your -- still by negotiations? I think you're at the dinner in New York, as you were mentioning, that some of these things that are still ongoing. And to what extent is there potential upsides for a tailwind from this not being a $1 billion headwind, essentially?

Dhivya Suryadevara

Yes. So when we first outlined this in the end of Q2, we had talked about a $1 billion headwind in 2019 versus 2018 from commodities. And obviously, lots have happened since then, and there are some commodities where we've seen a tailwind, steel prices and aluminum prices. Some other commodities where we've actually seen headwinds, like palladium, and we're continuing to factor in an environment of volatile tariffs as well from a 301 perspective. So you put all of these together, we are baking into our forecast, a vast majority of the $1 billion we signaled a couple of quarters ago. We are anticipating that headwind to continue to 2019, and that's factored into our assumptions. And in terms of the contract timing, typically, the annual contracts, we talk about them at the end of the year going into finalizing around this time frame, and we're pretty much in those time frame. We're in the process of finalizing these contracts as we speak.

Emmanuel Rosner

Understood. And then, very finally, in terms of the walk, and then, I promise we will turn to some longer-term topics as well. The -- is there any way you can dimension the benefit from adjacencies? Or go over what's included in it? Is GM Financial part of the what you would call the adjacency?

Dhivya Suryadevara

So GM Financial, I would say, obviously, extremely strong performance in 2018, and we expect to see that to continue in 2019, primarily, a couple of dynamics here. One, they're continuing to grow their book, and it continues to progress towards the full captive status, and so the volume and the size of the asset portfolio continues to increase, so that's a tailwind. But we do anticipate residual values declining in 2019, so offsetting the 2, you're going to see roughly flat from a GMF perspective. So we do not count that as necessarily a tailwind, primarily, because of moderation and residual values. And adjacencies, when we really talked about it on Friday, it included aftersales and OnStar. And we are continuing to secularly grow those businesses. I mean, the last several years, we've pointed that, that's been a tailwind in our profitability, and that continues into 2019. CCA, our Customer Care and Aftersales, continues to improve penetration and improved lines of businesses and revenue, and we're seeing that going into 2019 as well.

Emmanuel Rosner

That's great to hear. So I guess shifting gears a little bit beyond 2019, still on the financial side. But in North America, a key goal of the company had been this 10% margin across this cycle. So sometimes, higher, sometimes lower, but across the cycle. There was no focus on it at Friday's Investor Day. Is this something that you're deemphasizing? And if that is the case, why?

Dhivya Suryadevara

I think what we're still focused on is margins at the corporate level at 10%, and we've said this before, and we -- that continues to remain our goal, and we're working towards that. And for the North America perspective, that has also been strong in the last couple of years, and we anticipate that continues going into 2019. And if you look at our EPS outlook for 2019 as well as the transformative cost actions we've taken, a vast majority of that does accrue to North America, so you'll see continued strength in margins in North America. But beyond that, we don't want to keep adjusting within a range of slightly higher, slightly lower. We will continue executing, and you'll see the results as they pan out.

Emmanuel Rosner

Then, presumably, the majority of the cost savings are in North America. So that should help you maintain through a very profitable range.

Dhivya Suryadevara

Accruing to North America. Correct.

Emmanuel Rosner

Understood. Can you talk a little bit about the GM platform that's launching soon? And to what extent this will help bring GM International into better levels of profitability?

Mary Barra

Reach of the global family of vehicles?

Emmanuel Rosner

Yes.

Mary Barra

Yes. So that will -- we'll start launching in China, then follow in Brazil, and then, in Mexico. And we're really excited about these products. We gave a little bit of a sneak peek of them, because they really bring the latest technology from a safety, from a connectivity perspective, and we really think are also providing great synergies. In many cases -- and Dhivya, they're replacing how many different models or our legacy architectures?

Dhivya Suryadevara

It's several architectures that's in the teams.

Mary Barra

So we had fragment -- and this brings it all together. We get the scale from that, and so I think it's really allowing us to offer the consumer in those markets, something that they necessarily haven't seen before. So we're very excited about it. The reception has been great, and it is a family of vehicles, so we're leveraging the platform. And I think you'll see some surprises coming in what we do with that platform.

Emmanuel Rosner

And so in terms of both timeline and potential expected benefits to the GMI bottom line, is there anything you can put out there?

Dhivya Suryadevara

So if you look at these programs, we -- by 2023, the South American volumes -- 75% of the volumes will be from these vehicles. So it'll be a significant portion of the South American business down there. And if you step back, and in addition to the vehicles themselves, the way we have set it up is it's more localized than our current set of vehicle entries in South America, which is important, given the FX environment that we've experienced there. So we continue to attract towards our objective to get to mid-single-digit to EBIT margins there, and this will certainly contribute. And what we're navigating in the meanwhile is the FX environment as we transition over to this portfolio, that remains volatile. And as Mary mentioned on Friday, we continue to work with all the stakeholders in South America to set that business up to an acceptable rate of return.

Emmanuel Rosner

Understood. And then, I guess, turning to China. Mary, how is GM thinking about the China business on the long-term basis?

Mary Barra

Long term, when you look at the size of the market, we see, over the next few years, the market has the potential to grow to 30 million units. We are unique in our position in China, not only having three strong global brands with Cadillac, Chevrolet, and Buick, that we're growing with entries as we go forward. And I think it's providing the nice platform as I've already mentioned with Cadillac. But then, we also have an investment in a domestic brand that provides the Wuling and the Baojun brand. So with the coverage that we have of Tier 1 and 2 cities as well as 3, 4, and 5, we think we're well positioned to how that market will unfold. When you look at the market, and the reason we're confident on the 30 -- growing to $30 million and possibly beyond, is right now, in the United States, about 800 of 1,000 people have a vehicle, where there it's only about 140. So you look at that over time, there's still tremendous opportunity for that market to grow. And General Motors is well positioned to participate in that growth. Also, the benefit from a China perspective is we know from a regulatory environment, that will fuel the EV market, and that gives -- with our strong position in China, gives us the ability to leverage that scale for EVs, globally.

Emmanuel Rosner

And any desire on GM's part to change the structure of your joint venture over there, as we've seen from some of the European players?

Mary Barra

Not at the current time. I think we're very fortunate to have SAIC as our partner. We think they are the strongest partner in China. We've worked with them for over 20 years now, and we have a very strong working relationship. We have a lot of respect for the knowledge they have of the market and of what's happening. And so it's been a very strong partnership, and so we continue to value that. They do as well, and so, we're going to keep pushing forward in that vein. Now if something dramatically changes, we'll continue to reevaluate, but right now, based on the strong partnership that we have, I think it positions us well to both succeed.

Emmanuel Rosner

That's a great segue to the next topic, which is partnerships. You signaled multiple times in your presentation on Friday that Jim is open to partnerships without the automakers to achieve efficiencies or develop technology. Can you give an example of where this can make sense for GM? We obviously don't have to be specific about the potential partner, but what areas would it make sense for GM to partner up?

Mary Barra

I think a good example is what we already have with Honda, and we've been working on for a couple of years now. It's -- because partnerships to work, there has to be mutual trust, especially as you look at how the volatility and the different -- the rate of change. You have to have a strong partner, where you have, I'll say, the same values, and then also, a commitment to find win-wins. If you make every partnership about a win-lose every time something changes, and the market changes in the development of whatever you're doing, it's a, I think, the friction that's caused there takes away a lot of the benefits of a partnership. So the fact that we've been able to -- we started with Honda and built a lot of mutual respect, not only at the leadership level, but at the working level for engineering, and that started with fuel cells. We then saw the opportunity from a battery cell perspective, and then, even moved to autonomous vehicles with the investment Honda made. And so when we look at partnerships, that's how we look at it, and we'll continue to look for those opportunities. But make sure we've got the foundation that we're going to work together well and really not create friction, but achieve the benefits. I think we are very open to considering opportunities that allow us to share, not only development cost, but be more efficient with capital. And I don't have anything specific to announce right now, but those are the types of opportunities that we'll continue to look for and be open to with others.

Emmanuel Rosner

Understood. And I guess, more broadly, and not specific to GM, global automakers, in general, seem to be more open to these arrangements than maybe in the past. Possibly, as a result of the considerable technology investment needs. We saw the announcement between Ford and Volkswagen. There were even news reports earlier last -- I guess, late last year between Daimler and BMW, potentially, sort of like cooperating. So do you expect consolidation of the auto-making industry in the next few years? Or will it be mainly ad hoc partnerships?

Mary Barra

I think it remains to be seen. I can't predict what everyone else is going to do. I think, though, I've shared with you our strategy, that we are more than willing to work with others if we've got the right foundation. So it's going to lead to true benefit and true synergies that we can then translate to create shareholder value. I think you're absolutely right, that not only investing in today's core business, which we think is going to be around for a very long time, but the investment to successfully lead from a EV/AV perspective, I think that there are opportunities.

Emmanuel Rosner

And so I guess, what is the recipe for a successful partnership? There's been quite a few failed ones in the automotive industry over the years.

Mary Barra

Well, I think it starts with -- I mean, when we look at it, and as you've noted, I've been in the business for 38 years, so I've had the opportunity to be in very successful partnerships, or alliances, or JVs that have the opportunity to be in those that I wouldn't want to repeat. And it gets -- I think it starts at a foundational leadership level of making sure you have the same values, that you see the opportunity the same way, and then, a commitment to look for the win-win for both parties or multiple parties, as things will change because we know they will. So that's what General Motors looks for, and I guess that I think we've evidenced -- have evidence of that with what we've been able to accomplish with Honda, and frankly, even different because it's more of a financial arrangement, but that with SoftBank as well.

Emmanuel Rosner

Understood. So maybe turning to electric vehicle and Cruise before turning it -- opening it to the room. So first, on electric vehicle, I found it interesting that your -- the strategy you highlighted on Friday was to essentially use Cadillac as sort of the first mover into your electrification approach. Can you just give us the -- again, the rationale for this? And how do you sort of make sense in the current market?

Mary Barra

Well, as we go forward, Cadillac -- Cadillac success has always been built -- if you go back into its rich history, has been built on innovation and technology. And we're seeing that very much evidenced by the success we're seeing in China. We know we have work to do to rebuild the brand, to make Cadillac what Cadillac should be. And we think technology and innovation will be an important part of that. So it's very natural that we would start with our luxury brand, and put the most advanced technology, like we've done with Super Cruise as an example. And then there's the opportunity to roll that through the entire portfolio. So we think it's right for what we're working on and dedicated to with Cadillac. We also think it makes sense for an overall technology portfolio across the company.

Emmanuel Rosner

Got it. And then there was no mention at all of electric pickups in the product plan, the Investor Day presentation. And the vibe I've been getting for the last few years out of Detroit is that full-size pickups are not -- may be not well suited for complete electrification. We have Rivian presenting later today. They introduced one at the LA Auto Show. And I wanted to get your take on electric vehicle pickups. Is it -- is that something that could be an opportunity? Or are there fundamental reasons why those two don't really go well?

Mary Barra

Well, I think General Motors has been very clear. We believe in an all-EV future. So if you take that -- and we haven't put a time on that because there's a lot of factors that go into that. I think also evidence is that we've been working on fuel cells for quite some time because of some of the different issues, as you mentioned, as it relates to truck. So I don't have anything specific to announce right now. But I think if you look at what we've stated of being committed to an all-EV future, I would say stay tuned.

Emmanuel Rosner

Yes, that's good. Then I guess, turning to Cruise. In respect to the 2019 launch before year-end, what would be the key variables or bogeys in determining whether you can actually hit that objective and release those cars or whether you need more time? Is it primarily safety?

Mary Barra

It's a safety. It's definitely -- I'm really proud of what the team is accomplishing. And obviously, General Motor's commitment to it is very strong with moving Dan Ammann to be the full-time CEO of Cruise, working in day-to-day partnership with Kyle Vogt and Daniel Kan who created our Cruise Automation. So our plan has not changed. The development -- the rate of iteration, if you haven't had the opportunity to see the video we posted, I believe, last Thursday, I'd encourage you to do that. Because I think when you look at what the vehicle is mastering from a capability on the very crowded and unpredictable roads of downtown San Francisco, I think it demonstrates where we are and where we're committed. But like we've demonstrated time and time again, safety will be the overriding priority. I'm very pleased right now with Super Cruise, what we have out it into the marketplace. I think it's getting a lot of good recognition of the value that Super Cruise adds, but also the way in which it was done. And recall, we had a definite commitment to safety before we would launch that. So I think you'll see us take the knowledge that we have in the industry of what it takes to deploy safely because not only is it important -- obviously, the technology has to be safe, but consumers also have to trust it. And so we see those going together, and that's our commitment. And we'll continue the fast rate of iteration because we have it all working together. The team from Warren, the team in Waterloo, from our Markham -- I should say from Markham, with many Waterloo grads as well as our team in Israel, working seamlessly to take all of that expertise to advance our AV capability.

Emmanuel Rosner

That's good color. So when you hosted the first Cruise investor event, I think, in November 2017, I think the initial go for -- or definition for commercial deployment was many thousands of vehicles. I think that as of Friday, something more like maybe many hundreds. Like is there -- are you sort of like dialing it back, the program? Or is it just a question of how quickly you could ramp up commercially?

Mary Barra

I think it's more a question of how quickly. I mean, clearly, we've said that it would be deploying in a rideshare environment, in a [indiscernible] area that our plan hasn't changed there at all.

Emmanuel Rosner

Okay. And then it's a question I asked Dan Ammann on Friday that I will try again today.

Mary Barra

I can be consistent with Dan.

Emmanuel Rosner

Exactly. Let's see. So we found Cruise's partnership with DoorDash very interesting because SoftBank is an investor in both companies, Cruise and DoorDash. And we hosted Michael Ronen here last night, and it's pretty clear that SoftBank strategy is to build a mobility ecosystem between the various investments that they have. Are there any other businesses or business models, which would make sense for Cruise to partner with?

Mary Barra

We think one of the benefits of doing the deal with SoftBank and having them invest after they had assessed the industry from an AV technology perspective, so we were thrilled that as they evaluated, they believed in our strategy, commitment to safety all under one roof and in fast growth and in fast rate of iteration. But one of the other benefits is they do have a wide group of companies that they're working with, so I think those are opportunities for us to consider. As Dan said on Friday, this was more of an organic between the 2 companies. But certainly, that's an advantage that we have with SoftBank being a major investor.

Emmanuel Rosner

Right. And I guess, within the mobility ecosystem, are there any other areas that GM is interested in besides moving people in that car or moving goods? Are there any other things that you're looking at either organically or through acquisition?

Mary Barra

Nothing to share at this time.

Emmanuel Rosner

Okay. And then, I guess, just finally, still on Cruise, and then we'll open it up. So with Dan moving over there as a full-time CEO, how should we think about the path to monetization? I think that -- again, back to the November 2017 event, it sounded like you want to capitalize on all the benefits from having both GM on the manufacturing side and then Cruise on the network side. But then after that, it would sort of be the right conditions to potentially do something with Cruise as an asset. Is that still very much the case? Or do you think that it will probably take longer than you had initially anticipated?

Mary Barra

We haven't really changed our time line. But what we've always said is the technology is the gating factor. So safe technology is what opens up a trillion dollar market. So we're going to be looking to get the technology to a point that we feel it's safer than a human driver that allows us to then take the driver out of the vehicle or even the safety trainer. That then though is just the beginning because we'll take the cost curve down of the autonomous vehicle. The capability of the vehicle will just continue to grow and grow, so I see a huge opportunity. We're not looking for a quick path from a monetization. We're looking to create long-term shareholder value for those invested in General Motors. And no one can predict exactly how AVs are going to unfold across the globe, so we're working hard on getting the technology. We're also working in parallel on the commercialization, but we're going to be looking and taking the information that's available at the time to maximize shareholder value.

Emmanuel Rosner

Great. So we now have 10 minutes for Q&A from the room. So if you have a question, please raise your hand and we have a couple of microphones in here. Over there. Dan, yes?

Conference Call Participant

You talked on Friday, and I think you've also talked in the past, about the goal of creating a BEV architecture. Can you just run us through how much more challenging or difficult is it to create a BEV architecture as opposed to another ICE architecture? How many more resources does it require? And then as you're looking to electrify in China as well, is the current BEV architecture something that could also accommodate electrification in China? Would that need its own architecture?

Mary Barra

No, we're looking at an architectural solution that will serve across the globe from our EV strategy, and that allows us to tap into the scale of all of that. And I would -- it's just different. And what we're really working on, and if you had the chance to see Mark's presentation, of really creating a very modular EV architecture platform that allows us to build many different vehicles. Because what we've learned from consumers, they want -- there's multiple sizes, multiple configurations of what they want in an all-EV world, and so we're working to do that as efficiently as possible, and also looking at how do we create the structure in a way that is efficient from a mass perspective, from a flexibility perspective. So I would say, a lot of what you need to do to do a really strong architecture, similar to what we've demonstrated with the global family of vehicles that we're going to be rolling out, finding the areas where it makes sense to drive exact common parts, finding where you need change so you have the performance of the vehicle, the functionality of the vehicle so it meets customer expectations, that whole mindset that goes in is very similar. It's just different components.

Conference Call Participant

And just to clarify, once your architecture is live, to the extent that you have additional EV model, I presume that all EV models would be on this BEV architecture or additional BEV architecture as opposed to would there be still the option to put future BEVs on a preexisting ICE platform?

Mary Barra

We're focused -- we already have the Bolt EV, which is actually our second generation from an all EV -- actually, you can maybe call it our third. Because I think one thing people need to know is how much learning in iteration and ability to take cost out General Motors already has with all the work we've done in EVs. And so for the bandwidth and the family of vehicles that we're looking at, we would expect to reuse that. While we're making that decision of it fits this -- if we take something outside of that, what's the most efficient way? And obviously, there's going to be a lot of reuse of components, battery cells, et cetera. So depending on the entire bandwidth, but what I would say with -- when we talk about our next generation, it's got a pretty wide bandwidth already.

Emmanuel Rosner

Other questions?

Colin Langan

Colin Langan, UBS. Way back here, sorry. You talked a lot at the Investor Day about Cruise and Level 4 autonomy. Can you provide a little bit more color on Level 2 and Level 3, which obviously has a big opportunity with Super Cruise. What is the time line there? How much do you need to redo the electronic architecture of the vehicles as you move to those types of technologies? And how much of the software capability to go Level 2, Level 3 will need to be in-house? And where do you stand today on having that capability set?

Mary Barra

We're doing much of the work in-house. And if you look at -- obviously, we have Super Cruise on the road today. I think we've shared that we are in the process of launching a new electrical architecture. That step-up provides additional capability that will enhance what we can do from a Level 2, Level 3, also provide a much more thought around cybersecurity. So it's very important. This is work we're primarily doing in-house because we think it's so important, and the deep integration piece of it is important as well. So I don't have any specific time line beyond that, that I'm going to share today, but we're well on our way. And there's been tremendous work already done that sets us up to be able to advance in that area. And again, I think Super Cruise is a great first step. And as you can imagine, we're working on what the next generation of that looks like.

Emmanuel Rosner

Over here. Adam didn't get an answer to his question to Michael Ronen last night. So we're going to try for this one.

Adam Jonas

We're going to have a question I think you can answer. Adam Jonas, Morgan Stanley. Mary and Dhivya, GM is -- you guys are kicking butt, okay? Private investors come up to me all the time lately saying where do this come from? What GM is this? And it's not just a great results. It's the actions you've taken very preeminently, getting out of Europe, having leadership in autonomous, restructuring from a time of strength, anticipating, right? I'd be curious, how much of this is -- this execution is the result of the strength in diversity of your board, 50% of your board are women, about 1/3 of your board have tech background. There's national security background. There's a range. They haven't been on the board as long as many other companies, so it's a very fresh board as well. I'm curious how much that environment and the board are contributing to this pattern of behavior, very good behavior we're seeing? And also if you could add, how much is related to the fact that you're one of the only auto companies that doesn't have that family or government blocking protectorate minority stake?

Mary Barra

So Adam, I appreciate the question because often I don't get the opportunity to share with everyone. General Motors has a great board. It's a very involved board. And I think you are absolutely right, I think it's part of the reason of the ability for us to move quickly and for us to really look with just the reality of the world. I mean, we've got to face the brutal fact and understand what's happening and seize opportunities as opposed -- and lead disruption instead of being disrupted. And we get strong support and encouragement from our board. One of the things I'd like to do with our board is, as we start to think of something new or we see an opportunity, we have a discussion. And then we'll bring it up again at the next board meeting; or if things are moving so quickly, we all jump on a call. And so I think one of the differentiators of General Motors -- I can't speak to any other OEM or suppliers' board, but I can tell you, I think our board is very engaged. It's very diverse. We have a very robust process where, every year, we look at what are the skill sets we need not for today but for the future. And that's what drives us as we do board refresh. But really, an outstanding board that is very integral to driving the strategy of the company.

Emmanuel Rosner

Brian?

Brian Johnson

Brian Johnson, Barclays. We could go into any number of reasons why the stock price doesn't necessarily reflect the managerial and strategic progress that my colleague alluded to. One of them is, clearly, we're -- it's perceived as late in the U.S. economic cycle, you're a cyclical business. Yes, the fixed costs are very different than it was. But one thing you didn't update us on was, especially given these headcount and structural cost reductions you're doing now, how does that prepare you for an eventual 1 year, 5 years, whenever downturn in North America? What's your view -- I know you backed -- you're not -- what's your view on sort of trough margins in a garden-variety recession? And are there any actions left to take if we were to go into downturn that you haven't done already?

Dhivya Suryadevara

So one of the things that we have been focused on is improving the water line with respect to where do we start from a baseline free cash flow. And I talked a lot about that on Friday and how we're taking actions to close the gap between net income and free cash flow. And to your point, Brian, if your starting point from a free cash flow perspective is set higher, it does position you better from a downturn perspective when it does happen. And then some of the actions we've taken from a cost perspective are actions we would have taken in the downturn. And to Mary's point, we think it's better to do it now than in the downturn, but we do have levers to pull. And we have previously modeled the downturn and shared it with you as 25% downturn impacting 60% of our EBIT. And it is consistent, if anything, there's some tailwind to that based from the actions that we've taken. So overall, I would say, positive from a downturn preparedness perspective, and starting from a position of strength from a free cash flow perspective allows us to weather the cycle better.

Emmanuel Rosner

Seeing a question up front. Can you just wait for the mic, please?

Conference Call Participant

So in 2018, and I guess, that flat to up 1% or 2% volume market, the sedan market shrank, whatever it was, 10-ish percent, despite substantial growth in the EV sector -- segment of sedan. And light truck and mostly the top end of SUV, it grew at like a -- volume at a pretty high rate with higher ASPs despite sedan -- non-EV sedan having kind of lower ASPs. Why do you guys think it is that consumers despite the gap between sedan and truck and SUV growing a lot? Why is it that they are choosing to buy the higher-priced truck and SUV versus the sedan? Why do you think that trend is occurring?

Mary Barra

Well, I think from a sedan to a crossover or an SUV or a truck, our experience is once somebody moves into a vehicle -- a higher-stands vehicle, they generally don't want to move back. Now there's a segment of the sedan market that I think are -- there's sedan levers, but that -- those who -- as we've had more and more entries, those who were choosing between a sedan and a crossover or an SUV, they tended to move. I think one is the strength of the economy, and they've been able to buy more vehicles. I think also you've seen fuel economy improve. So some of the reasons you might make a trade up, I think the gap has closed, but we just -- from a customer preference, once they move into a crossover or SUV, they generally don't move back.

Emmanuel Rosner

Any final? All right.

David Whiston

Dave Whiston, Morningstar. A question on 5G and your AV program. Can you talk about what you have to do from a software, hardware, AI capability point of view to be ready for 5G? And then once it's here, what opportunities does that bring you that are not present today?

Mary Barra

So I'd say -- and first off in the AV work we're doing today because obviously we have a desire to launch more quickly than 5G will be available, but we're -- I would think of it more as a parallel path. And we do see 5G down the road from a -- and I'm not the technical expert on this. But I would say General Motors looks at -- when you have the ability to have more interactivity between towers, between infrastructure, right now, if you look at it, all the sensors on the vehicle and fusing all that information together between radar, LIDAR, cameras, I think 5G provides another opportunity and will allow us to implement differently. We have teams working on that as well. But because of our time line and its time line, it's a two-pronged approach.

Emmanuel Rosner

Great. So I think we're just about out of time. So thank you very much Mary and Dhivya. Really appreciate it.

Mary Barra

Thank you.

Dhivya Suryadevara

Thank you.