Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Paul, we're talking to you. I'm normally focused on automaking
Speaker 2: as a business. It's now very close, closely related to
Speaker 2: the kind of stuff that Joe and Kyley talk about
Speaker 2: every day because of the tariffs. You've announced a four
Speaker 2: billion dollar investment or plans to invest four billion dollars
Speaker 2: over the next two years bringing production back to America.
Speaker 2: This is essentially what Donald Trump is pushing for. This
Speaker 2: is what he wants companies to do, and now you're
Speaker 2: actually making it work. How much is this going to
Speaker 2: offset the five billion dollars worth of hits GM is
Speaker 2: expected to take from the tariffs.
Speaker 1: Well, Matt, first of all, thanks for having us so,
Speaker 1: I think you know this announcement that we made is
Speaker 1: worth much more than just the tariff side of it,
Speaker 1: and tariffs are obviously a piece of it. Is we're
Speaker 1: reacting to the new dynamic that's going to be out there,
Speaker 1: and it'll offset a good bit of it. So we'll
Speaker 1: move about three hundred thousand units of production. Some of
Speaker 1: it is new production and incremental some of it is
Speaker 1: a sh shift, but reoptimizing our manufacturing footprint and taking
Speaker 1: advantage of some underutilized capacity in the US. But it's
Speaker 1: also about, you know, creating security for our people. You
Speaker 1: look at the Orient plant, we would tailor that to
Speaker 1: produce and scale evs really fast. The market is obviously
Speaker 1: changed and pivoted a little bit. This gives us an
Speaker 1: opportunity to reallocate that plant better utilize it for internal
Speaker 1: combustion engines on trucks and full size SUVs where we
Speaker 1: know the demand is really strong for them, and that's
Speaker 1: great for our utilization, our efficiency as well as for
Speaker 1: our consumers and our people as well. So it's about
Speaker 1: more than just tariffs. But with this will be about
Speaker 1: two million vehicles produced in the US for the US,
Speaker 1: and we're continuing to make those investments.
Speaker 2: I bought Silverado ZR two a couple of years ago.
Speaker 2: Mine came out of Mexico. You're going to be moving
Speaker 2: most of that production, I guess to the US, right,
Speaker 2: most Sierra production to the US. Equinox production does that
Speaker 2: come mostly the US? To What are we seeing in
Speaker 2: terms of the model that are hanging out of miss.
Speaker 1: Yeah, we'll have equinox ice production in spring Hill, I'm sorry,
Speaker 1: in Fairfax. Spring Hill is going to be the Blazer,
Speaker 1: but Fairfax is going to be another great implementation of
Speaker 1: where we're going to be able to produce ice and
Speaker 1: evs on the same production line, creating that flexibility for
Speaker 1: us to be able to respond to consumer demand as
Speaker 1: it continues to grow.
Speaker 2: Have you changed sourcing for any of the parts, because
Speaker 2: it's not obviously just about the final assembly with these vehicles.
Speaker 2: There's a ton of content and you want to have that,
Speaker 2: I guess is as much domestically sourced as possible as
Speaker 2: well to save.
Speaker 1: On costs, well, I think you know, with what the
Speaker 1: administration is set up here with the MSRP offsets is
Speaker 1: giving us time to help retool our supply chain, so
Speaker 1: incentivizing growth and production in the US. Recognizing that the
Speaker 1: supply chain taps time to shift. So we're going to
Speaker 1: continue to work with our supply base to try to
Speaker 1: maximize the efficiencies across the entire value chain and utilize
Speaker 1: those off sets where we need to and shift production
Speaker 1: that makes sense and where we're able to.
Speaker 2: I should say, to save on tariff costs because you
Speaker 2: obviously source a lot of these parts outside of the
Speaker 2: US because the actual production costs are lower. How much
Speaker 2: higher is it. How much more expensive is it to
Speaker 2: build a part like an engine or a transmission to
Speaker 2: assemble a truck in the US than it is, say
Speaker 2: in Mexico.
Speaker 1: Well, it's far more complex than that, Matt, because I
Speaker 1: mean there's obviously the hourly labor differential, and that's a
Speaker 1: big piece of it. But we can save money and logistics.
Speaker 1: We can save money and plant utilization and filling up capacity.
Speaker 1: So when you when you fill up a plan, it
Speaker 1: actually makes it more efficient for every vehicle out there,
Speaker 1: not just the ones that you're moving production into. So
Speaker 1: we look at that as an enterprise wide calculation and
Speaker 1: think we can get to an equivalency where ultimately we
Speaker 1: can be competitive with producing in the US as well.
Speaker 2: One of the things that you can produce fewer of
Speaker 2: in the US is magnets, the rare earth minerals that
Speaker 2: we've all learned much more about than we ever expected
Speaker 2: to in the last week or so. How is your
Speaker 2: access to those rare earths right now? Because there's concern
Speaker 2: that production and a lot of US factories could.
Speaker 1: Slow Yeah, we haven't experienced any slowdown as of yet.
Speaker 1: It's clearly a risk that everybody is watching from that standpoint,
Speaker 1: But what I would say is our supply chain team
Speaker 1: does an excellent job. Similar to what they did through
Speaker 1: the supply the chip crisis semiconductor shortage that we had
Speaker 1: a few years ago. Our team did a great job
Speaker 1: of responding, maintaining agility, working with our suppliers to try
Speaker 1: to balance production as best we can, and they've done
Speaker 1: a great job so far with this situation as well.
Speaker 2: What is your thought on any kind of vertical integration.
Speaker 2: I mean, the concern or the problem I guess with
Speaker 2: rarest isn't just the mining, but also the refining of
Speaker 2: them is mostly done in China. Have you tried to
Speaker 2: convince suppliers to do more of that here? Are you
Speaker 2: trying to get your own supply here?
Speaker 1: We've done a number of initial whether it's with Lithium
Speaker 1: Americas or a joint venture with Pastco around a lot
Speaker 1: of battery raw materials, particularly the lithium side, which is
Speaker 1: a little bit easier to do and a little bit
Speaker 1: less capital intensive. But we've helped fund that, We've taken
Speaker 1: equity positions, we've helped to fund products and projects across
Speaker 1: the board. But we've been working on this for a
Speaker 1: long time, really since Covid is trying to increase the
Speaker 1: resiliency of our supply chain both you know, from a pandemic,
Speaker 1: from just a de risking perspective, and we're in a
Speaker 1: pretty good situation with where we are. We still have
Speaker 1: some work to do, but there's a lot of things
Speaker 1: that we can do thinking creatively with our partners.
Speaker 2: What are you thinking about prices right now? You obviously
Speaker 2: raise prices on a regular basis. Right if we're not
Speaker 2: experiencing deflation, you're going to try and stick with the pack.
Speaker 2: There are you facing pushback from consumers when you try
Speaker 2: and raise prices.
Speaker 1: Well, you know, our portfolio has performed really, really well,
Speaker 1: and we've adopted a strategy of being very disciplined in
Speaker 1: our production, not overproducing like some of the challenges of
Speaker 1: the past, and that's a strategy that's worked for us.
Speaker 1: We announced on our earnings call about six weeks ago
Speaker 1: that we don't need to take any price to help
Speaker 1: with the offset initiatives that we've targeted going forward, because
Speaker 1: we want to be in the position where we're responding
Speaker 1: to demand from our customers and being more stable. We
Speaker 1: don't want to raise prices because of tariffs and then
Speaker 1: when tariffs come down, expect that prices are going to
Speaker 1: come back down. We want to be more consistent with
Speaker 1: our customer base and that's a strategy that's worked really
Speaker 1: well for us.
Speaker 2: Can you do it in other ways through MSRP? I
Speaker 2: mean some manufacturers are raising maybe delivery price, you can
Speaker 2: also raise the price of options packages and still keep
Speaker 2: MSRP level. Well.
Speaker 1: Again, we haven't done anything specific to respond to tariffs.
Speaker 1: We've looked at where packages are for options, where our
Speaker 1: logistics costs are, etc. And we try to price what
Speaker 1: we can. But that's irrespective of tariffs, and it's something
Speaker 1: that we've done. I think when you look at our
Speaker 1: pricing model over the last few years, it's been more
Speaker 1: consistent than many of our competitors, with less volatility and discounting,
Speaker 1: and that's good for our customers as well. So we're
Speaker 1: going to continue to do that across the board where
Speaker 1: we can and make sure that we're delivering value for
Speaker 1: our customers.
Speaker 2: The being counters at Bloomberg Intelligence, So I want me
Speaker 2: to ask questions about cash flow here and how that
Speaker 2: looks right now with the tariff effect. You've had obviously
Speaker 2: great sales, as I guess some demand is pulled forward.
Speaker 2: Do you have to divert some cash though to deal
Speaker 2: with teriffs from anything else?
Speaker 1: Well, I mean, clearly, in the short and intermediate term,
Speaker 1: tariffs are going to be a drain on our cash flow.
Speaker 1: We announced about four to five billion dollars of impact
Speaker 1: this year, and we think we can offset about thirty
Speaker 1: percent of it going forward, but that is going to
Speaker 1: be a cash hit. Now, when you look at the
Speaker 1: performance of the company, our cash flow generation has been
Speaker 1: really strong. It'll continue to be really strong even after
Speaker 1: the tariffs, and we're going to work to continue to
Speaker 1: drive that efficiency. But we've got to create that stable
Speaker 1: cash flow across the board because this is still a
Speaker 1: cyclical industry and we need to be able to absorb
Speaker 1: these shocks. And I think the team's done a really
Speaker 1: good job of managing and being disciplined in order to
Speaker 1: continue to drive strong cash flow even in the face
Speaker 1: of some of these short intermediate term hits.
Speaker 2: What are you expecting in terms of SAR because we've
Speaker 2: had pretty strong sales numbers over the past couple of months,
Speaker 2: I think upwards of seventeen point three million. Does that
Speaker 2: continue through the rest of the year.
Speaker 1: No, we don't expect it to. We would love to
Speaker 1: see that happen, But what we said about six weeks
Speaker 1: ago is we're planning for a year of about sixteen
Speaker 1: million units, which is similar to last year. In April
Speaker 1: and the first half of May, we were trending much
Speaker 1: closer to eighteen million as we saw a lot of
Speaker 1: customers trying to get ahead of what they expected to
Speaker 1: be price increases. We've seen that come out over the
Speaker 1: last couple of weeks, but it's really retreated back to
Speaker 1: where it was before that pull ahead demand. So we're
Speaker 1: encouraged by the fact that that consistent demand is still there,
Speaker 1: and that's going to be important for us as we
Speaker 1: continue to push forward. If we see a slow down,
Speaker 1: we'll have to adjust to it and make sure that
Speaker 1: we create that agility that we have really come to
Speaker 1: be known for over the last few years. But right now,
Speaker 1: the customer seeds pretty stable. Even though we've seen that
Speaker 1: pool ahead demand.
Speaker 2: Come out, You've had the best margins of the big
Speaker 2: three enjoyed I think eight and a half percent margins
Speaker 2: are thereabouts. Does it hang at that level through twenty
Speaker 2: twenty five.
Speaker 1: Well, obviously the tariffs are going to be an operating
Speaker 1: hit to us going forward, which is why we're focused
Speaker 1: on making sure we take actions quickly. There were a
Speaker 1: number of actions that we already took, we called them
Speaker 1: no regrets actions where we increased the line rate in
Speaker 1: Fort Wayne, to build more trucks in the US, etc. Here,
Speaker 1: we're taking the next step of deploying capital to increase
Speaker 1: that production. These are steps that we think are necessary
Speaker 1: for us for the long term to be able to
Speaker 1: drive that type of consistent margin performance that we want
Speaker 1: to be known for.
Speaker 2: I want to ask about the shares as well as
Speaker 2: your free float. It's gotten pretty small. How much further
Speaker 2: can you go with buybacks?
Speaker 1: Well, I mean, we're going to continue to follow our
Speaker 1: discipline capital allocation policy. The first thing we do is
Speaker 1: reinvest in the business. That's a capital budget of about
Speaker 1: ten to eleven billion dollars. We just announced last night
Speaker 1: that that'll be ten to twelve billion dollars for twenty
Speaker 1: six and twenty seven, reflecting a little bit of additional
Speaker 1: spend for what we're doing. The second is we prioritize
Speaker 1: the balance sheet. The balance sheet's been as strong as
Speaker 1: it's been in decades with a pension fund that's nearly
Speaker 1: fully funded, and debt that's very manageable. And then the
Speaker 1: third leg of that still was returning cash to shareholders.
Speaker 1: So we reinstated the dividend a couple of years ago,
Speaker 1: and we've been deploying that cash to return to our
Speaker 1: shareholders to make sure that all the constituencies benefit from
Speaker 1: the success that we've been having, our employees, our customers,
Speaker 1: and our shareholders.