WEBVTT - General Motors CFO Paul Jacobson Talks GM Dodging Tariffs With Production Shift to The US

0:00:02.360 --> 0:00:06.720
<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

0:00:06.880 --> 0:00:10.360
<v Speaker 2>Paul, we're talking to you. I'm normally focused on automaking

0:00:10.400 --> 0:00:13.640
<v Speaker 2>as a business. It's now very close, closely related to

0:00:13.640 --> 0:00:15.440
<v Speaker 2>the kind of stuff that Joe and Kyley talk about

0:00:15.440 --> 0:00:19.120
<v Speaker 2>every day because of the tariffs. You've announced a four

0:00:19.160 --> 0:00:21.799
<v Speaker 2>billion dollar investment or plans to invest four billion dollars

0:00:21.840 --> 0:00:24.320
<v Speaker 2>over the next two years bringing production back to America.

0:00:24.360 --> 0:00:27.240
<v Speaker 2>This is essentially what Donald Trump is pushing for. This

0:00:27.280 --> 0:00:30.440
<v Speaker 2>is what he wants companies to do, and now you're

0:00:30.480 --> 0:00:32.879
<v Speaker 2>actually making it work. How much is this going to

0:00:33.000 --> 0:00:38.519
<v Speaker 2>offset the five billion dollars worth of hits GM is

0:00:38.640 --> 0:00:40.400
<v Speaker 2>expected to take from the tariffs.

0:00:40.560 --> 0:00:42.240
<v Speaker 1>Well, Matt, first of all, thanks for having us so,

0:00:42.320 --> 0:00:44.280
<v Speaker 1>I think you know this announcement that we made is

0:00:44.720 --> 0:00:46.960
<v Speaker 1>worth much more than just the tariff side of it,

0:00:47.000 --> 0:00:49.319
<v Speaker 1>and tariffs are obviously a piece of it. Is we're

0:00:49.360 --> 0:00:51.880
<v Speaker 1>reacting to the new dynamic that's going to be out there,

0:00:52.400 --> 0:00:54.680
<v Speaker 1>and it'll offset a good bit of it. So we'll

0:00:54.680 --> 0:00:57.200
<v Speaker 1>move about three hundred thousand units of production. Some of

0:00:57.200 --> 0:00:59.760
<v Speaker 1>it is new production and incremental some of it is

0:00:59.760 --> 0:01:03.800
<v Speaker 1>a sh shift, but reoptimizing our manufacturing footprint and taking

0:01:03.840 --> 0:01:07.280
<v Speaker 1>advantage of some underutilized capacity in the US. But it's

0:01:07.319 --> 0:01:09.920
<v Speaker 1>also about, you know, creating security for our people. You

0:01:09.959 --> 0:01:12.480
<v Speaker 1>look at the Orient plant, we would tailor that to

0:01:13.040 --> 0:01:16.399
<v Speaker 1>produce and scale evs really fast. The market is obviously

0:01:16.520 --> 0:01:19.000
<v Speaker 1>changed and pivoted a little bit. This gives us an

0:01:19.000 --> 0:01:23.800
<v Speaker 1>opportunity to reallocate that plant better utilize it for internal

0:01:23.800 --> 0:01:26.920
<v Speaker 1>combustion engines on trucks and full size SUVs where we

0:01:27.000 --> 0:01:29.400
<v Speaker 1>know the demand is really strong for them, and that's

0:01:29.440 --> 0:01:32.720
<v Speaker 1>great for our utilization, our efficiency as well as for

0:01:32.800 --> 0:01:36.320
<v Speaker 1>our consumers and our people as well. So it's about

0:01:36.319 --> 0:01:39.000
<v Speaker 1>more than just tariffs. But with this will be about

0:01:39.040 --> 0:01:42.400
<v Speaker 1>two million vehicles produced in the US for the US,

0:01:42.440 --> 0:01:44.240
<v Speaker 1>and we're continuing to make those investments.

0:01:44.400 --> 0:01:48.520
<v Speaker 2>I bought Silverado ZR two a couple of years ago.

0:01:48.560 --> 0:01:51.040
<v Speaker 2>Mine came out of Mexico. You're going to be moving

0:01:51.320 --> 0:01:53.480
<v Speaker 2>most of that production, I guess to the US, right,

0:01:53.560 --> 0:01:56.760
<v Speaker 2>most Sierra production to the US. Equinox production does that

0:01:56.800 --> 0:01:59.280
<v Speaker 2>come mostly the US? To What are we seeing in

0:01:59.360 --> 0:02:01.279
<v Speaker 2>terms of the model that are hanging out of miss.

0:02:01.240 --> 0:02:05.040
<v Speaker 1>Yeah, we'll have equinox ice production in spring Hill, I'm sorry,

0:02:05.120 --> 0:02:08.680
<v Speaker 1>in Fairfax. Spring Hill is going to be the Blazer,

0:02:09.160 --> 0:02:11.600
<v Speaker 1>but Fairfax is going to be another great implementation of

0:02:11.600 --> 0:02:13.600
<v Speaker 1>where we're going to be able to produce ice and

0:02:14.480 --> 0:02:17.880
<v Speaker 1>evs on the same production line, creating that flexibility for

0:02:18.000 --> 0:02:20.160
<v Speaker 1>us to be able to respond to consumer demand as

0:02:20.160 --> 0:02:21.080
<v Speaker 1>it continues to grow.

0:02:21.520 --> 0:02:23.960
<v Speaker 2>Have you changed sourcing for any of the parts, because

0:02:23.960 --> 0:02:27.840
<v Speaker 2>it's not obviously just about the final assembly with these vehicles.

0:02:27.840 --> 0:02:32.240
<v Speaker 2>There's a ton of content and you want to have that,

0:02:32.360 --> 0:02:35.320
<v Speaker 2>I guess is as much domestically sourced as possible as

0:02:35.320 --> 0:02:35.919
<v Speaker 2>well to save.

0:02:35.840 --> 0:02:37.640
<v Speaker 1>On costs, well, I think you know, with what the

0:02:37.680 --> 0:02:40.800
<v Speaker 1>administration is set up here with the MSRP offsets is

0:02:40.800 --> 0:02:43.480
<v Speaker 1>giving us time to help retool our supply chain, so

0:02:43.919 --> 0:02:48.679
<v Speaker 1>incentivizing growth and production in the US. Recognizing that the

0:02:48.720 --> 0:02:50.840
<v Speaker 1>supply chain taps time to shift. So we're going to

0:02:50.840 --> 0:02:53.240
<v Speaker 1>continue to work with our supply base to try to

0:02:53.280 --> 0:02:57.720
<v Speaker 1>maximize the efficiencies across the entire value chain and utilize

0:02:57.720 --> 0:02:59.840
<v Speaker 1>those off sets where we need to and shift production

0:03:00.120 --> 0:03:01.799
<v Speaker 1>that makes sense and where we're able to.

0:03:02.040 --> 0:03:05.200
<v Speaker 2>I should say, to save on tariff costs because you

0:03:05.280 --> 0:03:07.160
<v Speaker 2>obviously source a lot of these parts outside of the

0:03:07.280 --> 0:03:11.960
<v Speaker 2>US because the actual production costs are lower. How much

0:03:12.040 --> 0:03:14.600
<v Speaker 2>higher is it. How much more expensive is it to

0:03:15.240 --> 0:03:18.519
<v Speaker 2>build a part like an engine or a transmission to

0:03:19.120 --> 0:03:22.160
<v Speaker 2>assemble a truck in the US than it is, say

0:03:22.160 --> 0:03:22.760
<v Speaker 2>in Mexico.

0:03:23.000 --> 0:03:25.520
<v Speaker 1>Well, it's far more complex than that, Matt, because I

0:03:25.560 --> 0:03:29.400
<v Speaker 1>mean there's obviously the hourly labor differential, and that's a

0:03:29.400 --> 0:03:32.040
<v Speaker 1>big piece of it. But we can save money and logistics.

0:03:32.040 --> 0:03:35.680
<v Speaker 1>We can save money and plant utilization and filling up capacity.

0:03:35.800 --> 0:03:37.800
<v Speaker 1>So when you when you fill up a plan, it

0:03:37.840 --> 0:03:40.480
<v Speaker 1>actually makes it more efficient for every vehicle out there,

0:03:40.560 --> 0:03:43.560
<v Speaker 1>not just the ones that you're moving production into. So

0:03:43.640 --> 0:03:46.080
<v Speaker 1>we look at that as an enterprise wide calculation and

0:03:46.160 --> 0:03:49.680
<v Speaker 1>think we can get to an equivalency where ultimately we

0:03:49.680 --> 0:03:52.240
<v Speaker 1>can be competitive with producing in the US as well.

0:03:52.440 --> 0:03:55.920
<v Speaker 2>One of the things that you can produce fewer of

0:03:55.960 --> 0:03:58.720
<v Speaker 2>in the US is magnets, the rare earth minerals that

0:03:58.760 --> 0:04:01.360
<v Speaker 2>we've all learned much more about than we ever expected

0:04:01.400 --> 0:04:03.760
<v Speaker 2>to in the last week or so. How is your

0:04:03.800 --> 0:04:07.440
<v Speaker 2>access to those rare earths right now? Because there's concern

0:04:07.640 --> 0:04:12.120
<v Speaker 2>that production and a lot of US factories could.

0:04:11.920 --> 0:04:16.200
<v Speaker 1>Slow Yeah, we haven't experienced any slowdown as of yet.

0:04:16.240 --> 0:04:19.440
<v Speaker 1>It's clearly a risk that everybody is watching from that standpoint,

0:04:19.440 --> 0:04:21.160
<v Speaker 1>But what I would say is our supply chain team

0:04:21.240 --> 0:04:24.320
<v Speaker 1>does an excellent job. Similar to what they did through

0:04:24.320 --> 0:04:28.160
<v Speaker 1>the supply the chip crisis semiconductor shortage that we had

0:04:28.200 --> 0:04:30.360
<v Speaker 1>a few years ago. Our team did a great job

0:04:30.360 --> 0:04:34.279
<v Speaker 1>of responding, maintaining agility, working with our suppliers to try

0:04:34.279 --> 0:04:37.120
<v Speaker 1>to balance production as best we can, and they've done

0:04:37.160 --> 0:04:40.240
<v Speaker 1>a great job so far with this situation as well.

0:04:40.640 --> 0:04:43.600
<v Speaker 2>What is your thought on any kind of vertical integration.

0:04:43.720 --> 0:04:45.680
<v Speaker 2>I mean, the concern or the problem I guess with

0:04:46.400 --> 0:04:51.120
<v Speaker 2>rarest isn't just the mining, but also the refining of

0:04:51.160 --> 0:04:54.000
<v Speaker 2>them is mostly done in China. Have you tried to

0:04:54.120 --> 0:04:56.120
<v Speaker 2>convince suppliers to do more of that here? Are you

0:04:56.200 --> 0:04:58.120
<v Speaker 2>trying to get your own supply here?

0:04:58.440 --> 0:05:01.320
<v Speaker 1>We've done a number of initial whether it's with Lithium

0:05:01.360 --> 0:05:05.040
<v Speaker 1>Americas or a joint venture with Pastco around a lot

0:05:05.080 --> 0:05:08.400
<v Speaker 1>of battery raw materials, particularly the lithium side, which is

0:05:08.760 --> 0:05:11.080
<v Speaker 1>a little bit easier to do and a little bit

0:05:11.160 --> 0:05:14.120
<v Speaker 1>less capital intensive. But we've helped fund that, We've taken

0:05:14.120 --> 0:05:17.839
<v Speaker 1>equity positions, we've helped to fund products and projects across

0:05:17.920 --> 0:05:20.240
<v Speaker 1>the board. But we've been working on this for a

0:05:20.279 --> 0:05:22.919
<v Speaker 1>long time, really since Covid is trying to increase the

0:05:22.960 --> 0:05:26.720
<v Speaker 1>resiliency of our supply chain both you know, from a pandemic,

0:05:26.800 --> 0:05:30.400
<v Speaker 1>from just a de risking perspective, and we're in a

0:05:30.480 --> 0:05:32.800
<v Speaker 1>pretty good situation with where we are. We still have

0:05:32.839 --> 0:05:34.960
<v Speaker 1>some work to do, but there's a lot of things

0:05:35.000 --> 0:05:37.120
<v Speaker 1>that we can do thinking creatively with our partners.

0:05:37.440 --> 0:05:40.279
<v Speaker 2>What are you thinking about prices right now? You obviously

0:05:40.480 --> 0:05:44.359
<v Speaker 2>raise prices on a regular basis. Right if we're not

0:05:44.720 --> 0:05:49.279
<v Speaker 2>experiencing deflation, you're going to try and stick with the pack.

0:05:49.360 --> 0:05:51.880
<v Speaker 2>There are you facing pushback from consumers when you try

0:05:51.880 --> 0:05:52.640
<v Speaker 2>and raise prices.

0:05:52.920 --> 0:05:55.920
<v Speaker 1>Well, you know, our portfolio has performed really, really well,

0:05:55.960 --> 0:05:59.000
<v Speaker 1>and we've adopted a strategy of being very disciplined in

0:05:59.040 --> 0:06:02.640
<v Speaker 1>our production, not overproducing like some of the challenges of

0:06:02.680 --> 0:06:04.960
<v Speaker 1>the past, and that's a strategy that's worked for us.

0:06:05.040 --> 0:06:07.800
<v Speaker 1>We announced on our earnings call about six weeks ago

0:06:07.880 --> 0:06:10.160
<v Speaker 1>that we don't need to take any price to help

0:06:10.240 --> 0:06:13.760
<v Speaker 1>with the offset initiatives that we've targeted going forward, because

0:06:13.760 --> 0:06:15.839
<v Speaker 1>we want to be in the position where we're responding

0:06:15.880 --> 0:06:18.800
<v Speaker 1>to demand from our customers and being more stable. We

0:06:18.839 --> 0:06:21.480
<v Speaker 1>don't want to raise prices because of tariffs and then

0:06:21.560 --> 0:06:24.400
<v Speaker 1>when tariffs come down, expect that prices are going to

0:06:24.400 --> 0:06:26.400
<v Speaker 1>come back down. We want to be more consistent with

0:06:26.440 --> 0:06:28.680
<v Speaker 1>our customer base and that's a strategy that's worked really

0:06:28.720 --> 0:06:29.320
<v Speaker 1>well for us.

0:06:30.160 --> 0:06:32.159
<v Speaker 2>Can you do it in other ways through MSRP? I

0:06:32.160 --> 0:06:36.040
<v Speaker 2>mean some manufacturers are raising maybe delivery price, you can

0:06:36.080 --> 0:06:38.880
<v Speaker 2>also raise the price of options packages and still keep

0:06:39.400 --> 0:06:40.720
<v Speaker 2>MSRP level. Well.

0:06:40.760 --> 0:06:44.360
<v Speaker 1>Again, we haven't done anything specific to respond to tariffs.

0:06:44.640 --> 0:06:48.400
<v Speaker 1>We've looked at where packages are for options, where our

0:06:48.560 --> 0:06:52.280
<v Speaker 1>logistics costs are, etc. And we try to price what

0:06:52.360 --> 0:06:55.640
<v Speaker 1>we can. But that's irrespective of tariffs, and it's something

0:06:55.640 --> 0:06:57.920
<v Speaker 1>that we've done. I think when you look at our

0:06:57.920 --> 0:07:00.280
<v Speaker 1>pricing model over the last few years, it's been more

0:07:00.320 --> 0:07:04.720
<v Speaker 1>consistent than many of our competitors, with less volatility and discounting,

0:07:04.760 --> 0:07:06.720
<v Speaker 1>and that's good for our customers as well. So we're

0:07:06.720 --> 0:07:10.280
<v Speaker 1>going to continue to do that across the board where

0:07:10.320 --> 0:07:12.440
<v Speaker 1>we can and make sure that we're delivering value for

0:07:12.480 --> 0:07:13.120
<v Speaker 1>our customers.

0:07:13.400 --> 0:07:16.040
<v Speaker 2>The being counters at Bloomberg Intelligence, So I want me

0:07:16.080 --> 0:07:18.560
<v Speaker 2>to ask questions about cash flow here and how that

0:07:18.600 --> 0:07:22.840
<v Speaker 2>looks right now with the tariff effect. You've had obviously

0:07:23.440 --> 0:07:26.440
<v Speaker 2>great sales, as I guess some demand is pulled forward.

0:07:27.280 --> 0:07:29.200
<v Speaker 2>Do you have to divert some cash though to deal

0:07:29.240 --> 0:07:30.360
<v Speaker 2>with teriffs from anything else?

0:07:30.560 --> 0:07:33.200
<v Speaker 1>Well, I mean, clearly, in the short and intermediate term,

0:07:33.680 --> 0:07:36.040
<v Speaker 1>tariffs are going to be a drain on our cash flow.

0:07:36.040 --> 0:07:39.200
<v Speaker 1>We announced about four to five billion dollars of impact

0:07:39.280 --> 0:07:41.320
<v Speaker 1>this year, and we think we can offset about thirty

0:07:41.320 --> 0:07:43.680
<v Speaker 1>percent of it going forward, but that is going to

0:07:43.680 --> 0:07:45.240
<v Speaker 1>be a cash hit. Now, when you look at the

0:07:45.240 --> 0:07:48.360
<v Speaker 1>performance of the company, our cash flow generation has been

0:07:48.400 --> 0:07:52.160
<v Speaker 1>really strong. It'll continue to be really strong even after

0:07:52.240 --> 0:07:54.040
<v Speaker 1>the tariffs, and we're going to work to continue to

0:07:54.120 --> 0:07:57.280
<v Speaker 1>drive that efficiency. But we've got to create that stable

0:07:57.360 --> 0:07:59.400
<v Speaker 1>cash flow across the board because this is still a

0:07:59.440 --> 0:08:02.520
<v Speaker 1>cyclical industry and we need to be able to absorb

0:08:02.560 --> 0:08:04.360
<v Speaker 1>these shocks. And I think the team's done a really

0:08:04.400 --> 0:08:07.360
<v Speaker 1>good job of managing and being disciplined in order to

0:08:07.360 --> 0:08:09.840
<v Speaker 1>continue to drive strong cash flow even in the face

0:08:09.880 --> 0:08:12.320
<v Speaker 1>of some of these short intermediate term hits.

0:08:12.400 --> 0:08:15.880
<v Speaker 2>What are you expecting in terms of SAR because we've

0:08:15.920 --> 0:08:19.520
<v Speaker 2>had pretty strong sales numbers over the past couple of months,

0:08:19.560 --> 0:08:22.760
<v Speaker 2>I think upwards of seventeen point three million. Does that

0:08:22.800 --> 0:08:24.080
<v Speaker 2>continue through the rest of the year.

0:08:24.280 --> 0:08:26.760
<v Speaker 1>No, we don't expect it to. We would love to

0:08:26.760 --> 0:08:30.440
<v Speaker 1>see that happen, But what we said about six weeks

0:08:30.480 --> 0:08:32.640
<v Speaker 1>ago is we're planning for a year of about sixteen

0:08:32.679 --> 0:08:35.880
<v Speaker 1>million units, which is similar to last year. In April

0:08:35.920 --> 0:08:37.920
<v Speaker 1>and the first half of May, we were trending much

0:08:37.960 --> 0:08:40.560
<v Speaker 1>closer to eighteen million as we saw a lot of

0:08:40.559 --> 0:08:43.480
<v Speaker 1>customers trying to get ahead of what they expected to

0:08:43.480 --> 0:08:46.040
<v Speaker 1>be price increases. We've seen that come out over the

0:08:46.120 --> 0:08:48.600
<v Speaker 1>last couple of weeks, but it's really retreated back to

0:08:48.640 --> 0:08:51.680
<v Speaker 1>where it was before that pull ahead demand. So we're

0:08:51.760 --> 0:08:56.400
<v Speaker 1>encouraged by the fact that that consistent demand is still there,

0:08:56.600 --> 0:08:58.560
<v Speaker 1>and that's going to be important for us as we

0:08:58.600 --> 0:09:01.560
<v Speaker 1>continue to push forward. If we see a slow down,

0:09:01.600 --> 0:09:03.320
<v Speaker 1>we'll have to adjust to it and make sure that

0:09:03.360 --> 0:09:06.800
<v Speaker 1>we create that agility that we have really come to

0:09:06.800 --> 0:09:09.120
<v Speaker 1>be known for over the last few years. But right now,

0:09:09.320 --> 0:09:12.160
<v Speaker 1>the customer seeds pretty stable. Even though we've seen that

0:09:12.200 --> 0:09:13.239
<v Speaker 1>pool ahead demand.

0:09:12.960 --> 0:09:16.319
<v Speaker 2>Come out, You've had the best margins of the big

0:09:16.360 --> 0:09:19.480
<v Speaker 2>three enjoyed I think eight and a half percent margins

0:09:19.520 --> 0:09:22.520
<v Speaker 2>are thereabouts. Does it hang at that level through twenty

0:09:22.640 --> 0:09:23.160
<v Speaker 2>twenty five.

0:09:23.400 --> 0:09:25.600
<v Speaker 1>Well, obviously the tariffs are going to be an operating

0:09:25.679 --> 0:09:29.200
<v Speaker 1>hit to us going forward, which is why we're focused

0:09:29.240 --> 0:09:31.839
<v Speaker 1>on making sure we take actions quickly. There were a

0:09:31.920 --> 0:09:35.120
<v Speaker 1>number of actions that we already took, we called them

0:09:35.120 --> 0:09:38.760
<v Speaker 1>no regrets actions where we increased the line rate in

0:09:38.840 --> 0:09:42.360
<v Speaker 1>Fort Wayne, to build more trucks in the US, etc. Here,

0:09:42.400 --> 0:09:46.440
<v Speaker 1>we're taking the next step of deploying capital to increase

0:09:46.480 --> 0:09:49.560
<v Speaker 1>that production. These are steps that we think are necessary

0:09:49.600 --> 0:09:51.319
<v Speaker 1>for us for the long term to be able to

0:09:51.400 --> 0:09:54.000
<v Speaker 1>drive that type of consistent margin performance that we want

0:09:54.000 --> 0:09:54.520
<v Speaker 1>to be known for.

0:09:54.960 --> 0:09:57.280
<v Speaker 2>I want to ask about the shares as well as

0:09:57.320 --> 0:10:00.880
<v Speaker 2>your free float. It's gotten pretty small. How much further

0:10:00.920 --> 0:10:02.400
<v Speaker 2>can you go with buybacks?

0:10:02.640 --> 0:10:05.079
<v Speaker 1>Well, I mean, we're going to continue to follow our

0:10:05.080 --> 0:10:08.040
<v Speaker 1>discipline capital allocation policy. The first thing we do is

0:10:08.080 --> 0:10:11.040
<v Speaker 1>reinvest in the business. That's a capital budget of about

0:10:11.040 --> 0:10:13.800
<v Speaker 1>ten to eleven billion dollars. We just announced last night

0:10:14.080 --> 0:10:16.400
<v Speaker 1>that that'll be ten to twelve billion dollars for twenty

0:10:16.440 --> 0:10:19.400
<v Speaker 1>six and twenty seven, reflecting a little bit of additional

0:10:19.440 --> 0:10:22.400
<v Speaker 1>spend for what we're doing. The second is we prioritize

0:10:22.440 --> 0:10:24.440
<v Speaker 1>the balance sheet. The balance sheet's been as strong as

0:10:24.480 --> 0:10:28.800
<v Speaker 1>it's been in decades with a pension fund that's nearly

0:10:28.800 --> 0:10:31.880
<v Speaker 1>fully funded, and debt that's very manageable. And then the

0:10:31.920 --> 0:10:34.600
<v Speaker 1>third leg of that still was returning cash to shareholders.

0:10:34.600 --> 0:10:37.000
<v Speaker 1>So we reinstated the dividend a couple of years ago,

0:10:37.320 --> 0:10:40.080
<v Speaker 1>and we've been deploying that cash to return to our

0:10:40.120 --> 0:10:43.640
<v Speaker 1>shareholders to make sure that all the constituencies benefit from

0:10:43.720 --> 0:10:46.959
<v Speaker 1>the success that we've been having, our employees, our customers,

0:10:47.480 --> 0:10:48.440
<v Speaker 1>and our shareholders.