WEBVTT - GM CFO Talks Tariffs, Supply Chain Changes

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>Let's turn back to warnings. Shares of General Motors jumping

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<v Speaker 2>after the company beat earnings and race guidance. The GM

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<v Speaker 2>CFO Paul Jacobson joined us now for more Paul, the

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<v Speaker 2>stock is up by more than nine percent. We'll spend

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<v Speaker 2>some time talking about the numbers, but I just wanted

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<v Speaker 2>to take a step back with you, just for a

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<v Speaker 2>brief moment. You've got real experience navigating volatile industries, experience

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<v Speaker 2>in the airline business, and experience in the auto maker

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<v Speaker 2>business too. You took over as CFO in the pandemic.

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<v Speaker 2>Can you talk to us about this year, Paul, Just

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<v Speaker 2>how agile have you and the team needed to be

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<v Speaker 2>and how volatile have things been too?

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<v Speaker 1>Well, Jonathan, first of all, thank you very much for

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<v Speaker 1>having us. It's a great day to be a GM

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<v Speaker 1>and celebrate the success of all of our employees and

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<v Speaker 1>partners worldwide. So really appreciate you being here today, having

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<v Speaker 1>me today. So you know, at the end of the day,

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<v Speaker 1>it's just another change. I mean, since coming to GM

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<v Speaker 1>in we've gone through COVID, we've gone through chip shortage,

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<v Speaker 1>we've gone through tariffs, we've gone through ev pivots and

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<v Speaker 1>so on. But what we've really tried to do is

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<v Speaker 1>create a model that is resilient. And when you look

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<v Speaker 1>at our balance sheet, you look at our inventory discipline

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<v Speaker 1>and the way we've gone to market, there's a lot

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<v Speaker 1>of things that have changed that allow us to be

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<v Speaker 1>able to react to the world around us faster, and

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<v Speaker 1>I think that's paved the way for us to have

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<v Speaker 1>another really strong year in the face of a lot

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<v Speaker 1>of macro changes.

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<v Speaker 2>Pull In order to increase resilience and maybe agility, do

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<v Speaker 2>you have to sacrifice long term planning? Is that something

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<v Speaker 2>that becomes harder?

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<v Speaker 1>Well, you know, I think what we've really done well

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<v Speaker 1>as a team, I think is we've kept focus on

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<v Speaker 1>that long term vision. So you know, for example, while

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<v Speaker 1>we've taken a charge on reducing some of our EV

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<v Speaker 1>capacity reflecting the demand that's out there, we still believe

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<v Speaker 1>that evs are the future and we think that there's

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<v Speaker 1>an opportunity for us to take a little bit of

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<v Speaker 1>a pause in demand growth that we've seen over the

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<v Speaker 1>last few years, structure really improve it right, size our

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<v Speaker 1>capacity and make sure that we can be successful as

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<v Speaker 1>more and more customers adopted. So It's just an example

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<v Speaker 1>of how we make sure that we're managing the short

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<v Speaker 1>team within the face of that longer term vision.

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<v Speaker 3>So what if the big steps Paul, that you've taken

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<v Speaker 3>in order to remain agile, particularly with supply chains and

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<v Speaker 3>removing any kind of a direct input from China in particular,

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<v Speaker 3>how much have you rejiggered where you get your goods?

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<v Speaker 1>Well, I think we learned a lot in industry from

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<v Speaker 1>COVID and a focused supply chain that was really susceptible

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<v Speaker 1>to individualize shocks, and I think we've taken the effort

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<v Speaker 1>to try to make sure that we diversify our supply

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<v Speaker 1>chain base. We've made a number of investments, for example,

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<v Speaker 1>in battery raw materials and other materials in the US,

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<v Speaker 1>in addition to the four billion dollars that we've announced

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<v Speaker 1>this year to increase our US manufacturing capacity. So I

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<v Speaker 1>think it's been a case of making sure that that's balanced.

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<v Speaker 1>And then when we went through the chip crisis of

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<v Speaker 1>twenty twenty one, there were some more challenges about making

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<v Speaker 1>sure that we expand the places where some of our

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<v Speaker 1>chips are fabricated and our supply base that we use.

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<v Speaker 1>So this has just been part of it. I think

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<v Speaker 1>we've learned a lot of lessons over the last five

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<v Speaker 1>years that have helped us and positioned us well to

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<v Speaker 1>be able to thrive in ever changing circumstances like we

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<v Speaker 1>see right now.

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<v Speaker 3>All this costs a lot of money, and I'm just

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<v Speaker 3>trying to get my head around. We've all been trying

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<v Speaker 3>to get our head around where it comes from these

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<v Speaker 3>extra costs in order to rejigger supply chains to offset

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<v Speaker 3>any kind of increased costs that might come.

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<v Speaker 2>Along the way.

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<v Speaker 3>How much is coming from whether it's freezing labor forces

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<v Speaker 3>or trimming around the edges, how much is coming from

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<v Speaker 3>higher prices on consumer vehicles?

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<v Speaker 1>Well, I think if you look at what GM has done,

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<v Speaker 1>we've saved a lot of money by rationalizing our inventory balances.

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<v Speaker 1>So we used to keep probably about forty percent more

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<v Speaker 1>inventory on the ground at our dealerships around the country,

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<v Speaker 1>and we've cut that down. That's frees up a lot

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<v Speaker 1>of working capital to be able to invest and redeploy

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<v Speaker 1>back into the business. But it also makes sure that

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<v Speaker 1>we can change much more quickly to changing demand around us.

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<v Speaker 1>So our pricing has been stabilized, and I think that's

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<v Speaker 1>given us a little bit more comfort to invest a

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<v Speaker 1>little bit more than what we have historically, but still

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<v Speaker 1>making sure that we're very disciplined with our capital allocation

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<v Speaker 1>because we still have opportunities to pay down debt and

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<v Speaker 1>also return capital to shareholders. So it's that balanced approach

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<v Speaker 1>that I think has really paved the way for our success.

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<v Speaker 4>Paul, you and your colleagues in the industry recently had

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<v Speaker 4>a big win in Washington, a little bit of a

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<v Speaker 4>prie when it comes to the arrangement on the timeline

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<v Speaker 4>for the tariff costs for imported auto parts. What else

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<v Speaker 4>are you asking in terms of terrorfully from.

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<v Speaker 1>Washington, Well, you know, I think I want to praise

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<v Speaker 1>the administration for really listening to the concerns of the

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<v Speaker 1>industry and making sure that they're helping us to be

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<v Speaker 1>positioned to be really success full as one of the

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<v Speaker 1>largest US industrial producers that are out there, And the

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<v Speaker 1>announcements that were made Friday essentially take what had already

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<v Speaker 1>been done by the administration in the spring and expands

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<v Speaker 1>it a little bit to be able to use those

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<v Speaker 1>MSRP offsets on a wider variety of parts that we're

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<v Speaker 1>bringing into the country, and as a result of that,

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<v Speaker 1>we were able to lower our total tariff forecast for

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<v Speaker 1>the year by about half a billion dollars from where

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<v Speaker 1>we started the year. And I think it's that proactive

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<v Speaker 1>partnership in terms of really making sure that we can

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<v Speaker 1>remain competitive and help to drive more investment into the US,

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<v Speaker 1>which we've done.

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<v Speaker 4>So do you expect more reprieves, especially as the US

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<v Speaker 4>goes into negotiations next year with Mexico and Canada.

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<v Speaker 1>Well, I think what we're looking for is a little

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<v Speaker 1>bit of stability. Obviously, this year has been a bit

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<v Speaker 1>of a transition year for US. The handshake deal that

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<v Speaker 1>we have with Korea. We're really eager to get that finalized.

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<v Speaker 1>We do have some production of some of our lower

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<v Speaker 1>cost models in Korea that help with some of the

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<v Speaker 1>affordability concerns of our consumers here in the US. But

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<v Speaker 1>also obviously Mexico and Canada are going to be really

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<v Speaker 1>important to us. But as we look at those deals

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<v Speaker 1>being finalized and we start to look into twenty twenty six,

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<v Speaker 1>we think that there's actually an opportunity for us to

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<v Speaker 1>do better in twenty twenty six, and we've done in

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<v Speaker 1>twenty twenty five and start to work our way back

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<v Speaker 1>up to those eight to ten percent targeted margins that

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<v Speaker 1>we set for ourselves before the tariffs were put in place.

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<v Speaker 2>Well just find me. Can we stay in Ahia and

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<v Speaker 2>finish on China? For a long time, we've said on

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<v Speaker 2>this program, this must be the most competitive market on

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<v Speaker 2>the planet in any industry. How difficult is it to

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<v Speaker 2>operate in that country right now? And how much hard

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<v Speaker 2>is it going to get in the future for us

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<v Speaker 2>sort of makers like yourself.

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<v Speaker 1>You know, about a year ago, Jonathan, we undertook a

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<v Speaker 1>pretty ambitious restructuring program in China with the realization that

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<v Speaker 1>you know, we were probably not going to be as

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<v Speaker 1>big in China as we have been historically going forward

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<v Speaker 1>with the amount of just tremendous competition that's in the

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<v Speaker 1>country going forward. But you know, together with our partners,

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<v Speaker 1>we were able to restructure that business and we've been

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<v Speaker 1>profitable every quarter this year and look to be able

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<v Speaker 1>to sustain that. So it's really about making sure that

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<v Speaker 1>we're right size for where we are. We've got great

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<v Speaker 1>products over there, we've got a long legacy, and we've

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<v Speaker 1>got a good partnership that I think has really paved

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<v Speaker 1>the way and with that work that the team did

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<v Speaker 1>in China. Really proud of what they accomplished and think

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<v Speaker 1>we can be sustainable there.

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<v Speaker 2>Well. Appreciate your insight and your experience as always, Sir

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<v Speaker 2>Paul Jacobson. There the General Motors CFO