WEBVTT - GM CFO Paul Jacobson Talks Q2 Earnings

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

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<v Speaker 2>One stock that we're keeping a close eye on this

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<v Speaker 2>morning is GM shares are lower active. Company said it

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<v Speaker 2>will take a one point one billion dollar hit to

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<v Speaker 2>profit from President Trump's tariffs. Let's bring in General Motors

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<v Speaker 2>chief financial officer Paul Jacobson for more. Paul, it's great

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<v Speaker 2>to have you with us. I want to talk about

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<v Speaker 2>potential levers that you can pull here because my understanding

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<v Speaker 2>is that you really haven't raised prices to this point

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<v Speaker 2>to offset some of those costs. I know that you're

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<v Speaker 2>taking other measures, but is it possible that you could

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<v Speaker 2>raise the sticker price on some of your vehicles to

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<v Speaker 2>make up some of that hole.

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<v Speaker 3>Well, good morning, and thanks for having me today. It's

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<v Speaker 3>a beautiful day here in Michigan, and you know, we're

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<v Speaker 3>celebrating another another good quarter. And you know, I think

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<v Speaker 3>obviously tariffs have had some pressures. We've adjusted to them.

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<v Speaker 3>But as we just said on our earnings call, we're

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<v Speaker 3>ninety days into this, and you know, our plans are

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<v Speaker 3>still very consistent with what we said at the beginning,

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<v Speaker 3>and we're going to continue to execute on that. You know,

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<v Speaker 3>we've got a strategy here that is both short term

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<v Speaker 3>and long term. And the shorter term we've talked about

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<v Speaker 3>our ability to offset thirty percent of the tariff impact.

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<v Speaker 3>That's through some cost austerity as well as some manufacturing

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<v Speaker 3>changes and pricing. But we think that as we maintain

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<v Speaker 3>our consistent pricing strategy, where you know, we look at

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<v Speaker 3>the demand for our vehicles and where that sits in

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<v Speaker 3>our disciplined inventory approach, that we can continue to absorb

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<v Speaker 3>that and reflect that in our traditional and sort of

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<v Speaker 3>consistent pricing actions rather than going out and announcing big

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<v Speaker 3>tariff related increases because we don't think that's necessarily good

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<v Speaker 3>for the consumer as well. So pricing is a part

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<v Speaker 3>of it, but nothing out of the ordinary or extraordinary

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<v Speaker 3>from what our current strategy has been.

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<v Speaker 1>How much flexibility do you have to make adjustments to

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<v Speaker 1>supply chains here to meet the evolving auto tariffs and

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<v Speaker 1>the parts that tariffs might hidden of the supply chain.

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<v Speaker 3>Well, there have been things that we've already been working on,

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<v Speaker 3>so really kind of since COVID, we've been looking at

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<v Speaker 3>creating more resiliency in the supply chain, and we've onshoed

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<v Speaker 3>a lot of things as we as we mentioned in

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<v Speaker 3>our last call. Only about three percent of our direct

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<v Speaker 3>purchases come from China through the supply chain, so that's

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<v Speaker 3>helped us a little bit in terms of being proactive

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<v Speaker 3>on that. Obviously, we'll do some resetting in partnership with

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<v Speaker 3>our supply chain partners, but you know, it really starts

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<v Speaker 3>with our manufacturing footprint. Earlier in the quarter, we announced

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<v Speaker 3>four billion dollars of investments over the next couple of

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<v Speaker 3>years to increase production in the United States, And when

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<v Speaker 3>we're done with that, which will start in about eighteen months,

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<v Speaker 3>we'll be producing more than two million vehicles here in

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<v Speaker 3>the US, so comfortably putting us in a position where

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<v Speaker 3>we most produce more vehicles here in the country than

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<v Speaker 3>anybody else. So we're working on those and also partnering

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<v Speaker 3>with the supply chain across the board. So while we

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<v Speaker 3>you know, have a pretty sizable tariff impact this quarter,

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<v Speaker 3>as we've talked about, it's not a surprise against what

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<v Speaker 3>we told the street at the beginning of it, and

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<v Speaker 3>our plans are executing well according to our playbook.

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<v Speaker 2>Let's talk about how those plans play out over the

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<v Speaker 2>course of twenty twenty five. Because GM has said that

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<v Speaker 2>you can offset one third of that four billion to

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<v Speaker 2>five billion dollars in terriff exposure later this year, as

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<v Speaker 2>more of your mitigation efforts really start to take hold,

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<v Speaker 2>can you give us a timeline there one might we

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<v Speaker 2>see some of those efforts actually start to bear fruit

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<v Speaker 2>in terms of offsetting some of these costs that you're

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<v Speaker 2>dealing with.

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<v Speaker 3>We'll really begin to see that in the third quarter,

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<v Speaker 3>in the fourth quarter as we as we've told investors,

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<v Speaker 3>you know, some of it is pricing, and you know

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<v Speaker 3>our pricing was up in the first quarter. It was

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<v Speaker 3>about flat here in the second quarter, but we've expected

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<v Speaker 3>pricing to be up about a half a percent to

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<v Speaker 3>one percent for the full year in twenty twenty five.

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<v Speaker 3>So as Model year twenty six comes out, we start

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<v Speaker 3>to see some of the benefit of that. Going forward,

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<v Speaker 3>there's some cost initiatives which will be coming in in

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<v Speaker 3>the second half of the year. The team's done a

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<v Speaker 3>good job of making sure that we're maximizing efficiency where

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<v Speaker 3>we can, so we don't have to put all the

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<v Speaker 3>burden on our customers to absorb all that. So I

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<v Speaker 3>think we're in good shape. The second half should should

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<v Speaker 3>be better and should be more offsets than what we

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<v Speaker 3>saw in the second quarter as we're just adjusting to it,

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<v Speaker 3>but that remains consistent with that thirty percent assumption that

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<v Speaker 3>we had going into the year.

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<v Speaker 2>Paul, and this isn't specific to GM, but I do

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<v Speaker 2>wonder how you can have confidence to say, you know,

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<v Speaker 2>the third quarters when we might start to see these

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<v Speaker 2>efforts fare through, given that it feels like the tariff

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<v Speaker 2>landscape in particularly dramatic periods, can change day to day.

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<v Speaker 2>And from where you're sitting as the CFO of General Motors,

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<v Speaker 2>is your opinion that the current tariff structure, the current

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<v Speaker 2>stance of this administration, does this make US manufacturers, US

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<v Speaker 2>automakers actually be more competitive at the end of the day, Well,

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<v Speaker 2>I think.

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<v Speaker 3>Over the long term, certainly, we do believe that it

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<v Speaker 3>can be more rational and more stable industry for US

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<v Speaker 3>across the board, and we're going to work through that.

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<v Speaker 3>We've already announced significant plans to increase production here in

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<v Speaker 3>the US. It started with the decision to increase the

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<v Speaker 3>line rate and our production rate in Fort Wayne, where

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<v Speaker 3>we'll produce another fifty thousand trucks and SUVs on our

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<v Speaker 3>trucks on that line going forward, and that'll hit us

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<v Speaker 3>this year so that's already taken effect. The changes that

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<v Speaker 3>we announced earlier this quarter, will start to see those

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<v Speaker 3>in about eighteen months across the board, So you know,

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<v Speaker 3>I think it clearly is having the intended result and

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<v Speaker 3>one that I think will be met good for us

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<v Speaker 3>going forward over the long run. We are optimistic about,

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<v Speaker 3>you know, bilateral trade deals and as they work through,

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<v Speaker 3>in particular with Canada and Mexico and also Korea with

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<v Speaker 3>our footprint there, but where we feel comfort in the

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<v Speaker 3>fact that the auto industry is very important to us

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<v Speaker 3>as well as it is to Korea, so we believe

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<v Speaker 3>that they'll be able to work out a deal and

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<v Speaker 3>ultimately that'll be good for both countries.

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<v Speaker 1>What can you tell us about any future capital allocation?

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<v Speaker 1>Is GM planning to do any share buybacks, especially in

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<v Speaker 1>light of some of the cost reduction efforts you're taking

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<v Speaker 1>in the second part of the year.

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<v Speaker 3>So capital allocation is one thing that I think we're

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<v Speaker 3>really proud of as a team and what we've been

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<v Speaker 3>able to deploy consistently. First, we invest in the business.

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<v Speaker 3>We'll be investing ten to twelve billion dollars over the

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<v Speaker 3>next couple of years. That will allow us to both

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<v Speaker 3>improve and continue our great vehicle portfolio, but also these

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<v Speaker 3>footprint changes that I mentioned earlier. But even with that,

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<v Speaker 3>we're producing sizeable free cash flow and we're able to

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<v Speaker 3>make sure that we protect the balance sheet as well

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<v Speaker 3>as return capital to our shareholders, and we've established a

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<v Speaker 3>pretty good track record for that. Earlier this morning, we

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<v Speaker 3>announced that we've resumed share repurchases in the month of July.

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<v Speaker 3>As of June thirtieth, we had four point three billion

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<v Speaker 3>dollars remaining under our authoryation and strong free cash flow projected.

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<v Speaker 3>So I think it's something that the shareholders can benefit

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<v Speaker 3>from as well as we drive this efficiency into the

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<v Speaker 3>business to ultimately help mitigate some of this terrif exposure.

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<v Speaker 3>So overall, I feel good about where we are and

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<v Speaker 3>we're working hard for the shareholders.

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<v Speaker 1>Paul Jacobson, Chief financial Officer of General Motors, we thank

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<v Speaker 1>you so much for joining us this morning.