General Motors Company

Ladies and gentlemen, welcome to the General Motors first quarter 2020 earnings conference call. During the opening remarks, all participants will be in a listen-only mode. After the opening remarks, we will conduct a question and answer session. To ask a question, press star then 1 on your telephone keypad. To draw your question, press the pound key. As a reminder, this conference call is being recorded Wednesday, May 6, 2020. I would now like to turn the conference over to Rocky Gupta, Treasurer and Vice President of Investor Relations.

Thanks, Dorothy. Good morning and thank you for joining us as we review GM's financial results for the first quarter of 2020. A press release was issued this morning and the conference call materials are available on the GM Investor Relations website. We're also broadcasting this call via webcast. We're joining you from separate remote locations today. On the call this morning, I'm joined by Mary Barra, GM's Chairman and CEO, Divya Suradevara, GM's Executive Vice President and CFO, and Dan Burse, President and CEO of GM Financial. Before we begin, I would like to direct your attention to the forward-looking statements on the first page of the chart set. As usual, the content of a call will be governed by this language. I will now turn the call over to Mary Barra.

Thanks, Rocky, and good morning, everyone. Thanks for joining. This quarter we have a lot to cover, so I want to begin by updating you on our plans to safely restart our operations. Then we will share the specifics of our COVID-19 activities and our first quarter financial performance. Our work to resume production has been an ongoing process, and I am pleased to report that based on conversations and collaboration with unions and government officials, we are targeting to restart the majority of our manufacturing operations in the U.S. and Canada the week of May 18th under extensive safety measures. We made this decision with the safety of our employees as our top priority, and I want to thank them for their patience and their commitment through this process. Ever since we suspended our operations in March, our teams have been collaborating internally and externally to understand and share the best practices to be able to return to the workplace. This includes the global safety standards we implemented when we reopened our facilities in China as well as Korea, which remained open during the COVID-19 outbreak there. I will go into additional details about the extensive return to the workplace safety protocols in a few minutes. As we prepare to go back, our thoughts continue to go out to everyone around the world who has been personally affected by COVID-19 and the well-being of our employees remains our top priority. Early in this crisis, we recognized that while our operations in North and South America were suspended, we had the capability to quickly support production of crucial ventilators and personal protective equipment. On March 17th, we were introduced to ventilator manufacturer Ventec. With tremendous collaboration that included UAW leadership and suppliers, we began shipping ventilators from our Kokomo, Indiana facility just one month later. We are fulfilling a government order for 30,000 ventilators to be completed by the end of August. In Brazil, we are leading a federal government task force to repair ventilators. In addition, we are making masks, face shields, and gowns in several of our facilities for both health workers and for our employees. As of yesterday, we have donated 1 million masks to hospitals in the United States. We are proud of the employees who have volunteered to do this work following in the footsteps of generations of automotive employees who supported the greater good during times of crisis. Now let's shift to the quarter. We entered this crisis better positioned financially because of the many business transformation actions we have taken over the past several years to improve our competitiveness. As we suspended operations, we also moved quickly to preserve our liquidity and protect the business. In March, we suspended guidance for the year and implemented significant austerity measures and drew down our revolving credit facilities. Last month, we also suspended our quarterly dividend and share refurchases. So let's take a look at the numbers. In the first quarter, we delivered net revenue of $32.7 billion, EBIT adjusted of $1.2 billion, EBIT adjusted margin of 3.8%, EPS diluted adjusted of $0.62, adjusted automotive free cash flow of negative $900 million, and a ROLIC adjusted of $13.2 on a trailing four-quarter basis. The outbreak significantly affected EBIT adjusted in the quarter, and we expect an even greater impact in Q2 because of the production stoppage, a phased restart, and what we believe will be lower market demand. Importantly, our work on safety early in the quarter ensured we could deliver on our commitment to near-term launches like our full-size SUVs and getting parts to our dealers. In Arlington, we completed the build-out of the previous generation of full-size SUVs and the plant conversion for all new models. We will begin shipping the first units to dealers in early June. And our customer care and after-sale warehouses employees across the country have been supplying parts to dealers so they can take care of our customers and also keep their service businesses running. Our EV and AV work also continues uninterrupted, even as many of our engineers work remotely. That means producing the production timing of key entries like the GMC Hummer EV, the Cadillac Lyric Crossover EV, and the Cruise Origin AV remain fully on track. While the world has changed dramatically under COVID, the importance of cruise mission to transform transformation for the better is unchanged, as is cruise importance to our vision of a world with zero crashes, zero emissions, and zero congestion. Cruise continues to make very rapid progress toward its initial goal of superhuman driving performance. While on-road testing has been reduced under COVID, Cruise has maintained a presence on road in Phoenix, Arizona, and in recent weeks has restarted driving in San Francisco in support of the community by autonomously delivering food and other essentials to those most in need. These activities combined with Cruise's cutting-edge simulation capabilities have enabled the team to continue to make rapid progress during this period. As you know, Cruise is well-capitalized, and this is especially important and an advantage for us during these volatile times. We have and will continue to grow our team by recruiting and retaining the very best engineering and leadership talents. So let's shift to our dealers. We know many of them have been heavily impacted by the crisis, and we are supporting them in a number of ways, including ShopClickDrive. This is a leading e-commerce tool that completes much of the vehicle purchase transaction online. When combined with dealers making contactless home deliveries, it's a powerful tool for our dealers and for our customers. An additional 750 dealers have enabled ShopClickDrive since the COVID outbreak. So now 85% of the U.S. dealer network is participating in ShopClickDrive. Of these, 90% offer touchless home delivery experience. In an industry that is down 40%, ShopClickDrive interactions are up 41%, so visits are at an all-time high. And stay tuned for improvements to ShopClickDrive as we are working aggressively to add eight new features and capabilities in the coming week. And finally, putting people first also means taking care of our customers, many of whom have been financially affected by the pandemic. GM Financial is offering case-by-case solutions, including late fee waivers, and OnStar is offering its crisis assist services and free Wi-Fi to keep customers connected to emergency resources and to loved ones. In short, we are positioned to manage through the near-term market dynamics because of swift actions that we took to preserve liquidity, our uninterrupted work on our EV and AV portfolio, our on-time launch strategies for our full-size SUVs, our continued ability to supply parts to dealers who need them, and by leveraging e-commerce and contactless tools like ShopClickDrive. In the coming days, as we get closer to resuming our operations, we will share our complete return-to-work playbook, first with our employees and then with other stakeholders. However, today, I will briefly share a high-level review of the safety procedures we are putting in place. This applies to everyone entering our facilities. Our approach meets or exceeds CDC and World Health Organization guidelines, and as I mentioned earlier, is informed by the global standardized processes we develop for use in China and Korea, as well as input from our union leadership. We've already applied these protocols to Kokomo, Arlington, Warren, and in our customer care and after-sale operations. Where our coronavirus safety protocols have been in place, we have not seen a confirmed case of community spread in our facilities. We have also shared our protocols with our suppliers as they return to work because our supply chain is key to our ability to resume production. When anyone enters a facility, they will do a self-assessment questionnaire, and they will have their temperature screened. Our protocols also require frequent hand washing, additional cleaning of workstation and common areas, continued physical distancing, wearing a mask, and in some cases, wearing a mask and safety glasses. We will also increase time between shifts to further promote physical distancing as people enter and exit the work sites. Now I'd like to shift to our regional performance in Q1. In North America, we were tracking toward a very solid quarter until we suspended our operations. Sales of full-size pickups outpaced the industry by double-digit percentages and drove year-over-year improvements in market share and financial results. As we begin to replenish the pipeline, trucks and full-size SUVs will remain a very high priority. Overall, retail and fleet volumes were down in April, but we continue to see resilience in truck deliveries. In April, GM's incentives for light-duty pickup trucks were below the segment average. As I said earlier, we remain 100% committed to the EV technology and products we shared in March, as well as our agreement to jointly develop and manufacture two all-new electric vehicles for Honda based on our EV technology. Honda will also make our OnStar and driver assist technologies available in these vehicles. This collaboration builds on our existing partnership in EV, AV, and the fuel cell space. It demonstrates our EV cost and technology leadership and will help us deliver a profitable EV business through increased scale and capacity utilization. Turning to our international operation, China was our first major market affected by COVID-19. It put downward pressure on an already weak industry, and we experienced a significant year-over-year decrease in volumes and equity incomes. Production has resumed in China under strict safety protocols, and dealers are beginning to report improved retail traffic. Following the strongest impact in February, the industry started to pick up in March, and GM China sales posted gains in April year over year. We expect to see gradual recovery as a result of our strong mix of new products and the positive impact of government subsidies. However, the outbreak will still affect our overall 2020 results. Also in GM International, we announced we will wind down vehicle sales and design and engineering operations in Australia and New Zealand and retire the Holden brand in 2021. We'll instead focus on sales of GM specialty vehicles. In Thailand, we will sell our Rayong manufacturing facility and withdraw Chevrolet from the domestic market and end vehicle sales by the end of the year. These measures build on the comprehensive strategy we laid out in 2015 to take actions in markets that do not earn an adequate return on investment. In South America, we continue to work with our stakeholders to turn around the business and capitalize on our leading volume and market share in the region. We will continue to take decisive steps to further accelerate our actions to improve the business. We will streamline and integrate our product portfolio, implement additional austerity measures, take pricing actions, and optimize our manufacturing footprint in terms of capacity utilization, as well as work to increase localization efforts. Before I turn it to Divya, I want to assure you that our leadership team is acting on everything within our control to protect our employees and the business during these uncertain times. With the same resolve and discipline we have demonstrated for years, we will continue to focus on conserving cash and preserving our liquidity without sacrificing investments in key product programs and technology that will lead us into the future. In addition, we are actively working to accelerate our transformation and seize opportunities in this environment. With that, I'll turn things over to Divya.