Categories Earnings Call Transcripts, Other Industries

General Motors Co  (NYSE: GM) Q4 2019 Earnings Call Transcript

Final Transcript

General Motors Co  (NYSE: GM) Q4 2019 Earnings Conference Call
February 05, 2020

Corporate Participants:

Dhivya Suryadevara — Executive Vice President and Chief Financial Officer

Rocky Gupta — Treasurer and Vice President of Investor Relations

Steven A. Kiefer — Senior Vice President and President, General Motors South America and International Operations

Mary T. Barra — Chairman and Chief Executive Officer

Matt Tsien — Executive Vice President and President of GM China

Mark Reuss — President

Dan Ammann — Chief Executive Officer, Cruise

Analysts:

Rod Lache — Wolfe Research — Analyst

Joseph Spak — RBC Capital Markets — Analyst

Emmanuel Rosner — Deutsche Bank — Analyst

Itay Michaeli — Citigroup — Analyst

John Murphy — Bank of America Merrill Lynch — Analyst

Adam Jonas — Morgan Stanley — Analyst

Ryan Brinkman — JPMorgan — Analyst

Brian Johnson — Barclays — Analyst

Dan Levy — Credit Suisse — Analyst

Presentation:

Dhivya Suryadevara — Executive Vice President and Chief Financial Officer

Good afternoon, and thanks, everyone, for being here today.

So in my section, I’d like to talk about two main topics. Firstly, I want to talk about our calendar year 2019 performance and our outlook for 2020; I want to give you more color on that. And importantly, I want to pull together what you heard today and give you a framework on how to think about our business in my second part of the presentation.

So let’s get started. 2019 was an eventful year. We had a share of challenges, but I also think we had a number of opportunities that we capitalized on that allowed us to deliver the results that we did. So let’s take a quick look at what worked and what some of the challenges were.

You heard a lot about trucks today and crossovers and the performance for new launches. That was an important tailwind as we think about our performance in 2019. The cost savings we announced in November of 2018 remain on track. In fact in the calendar year 2019, we were ahead of track and we remain on track for the rest of the calendar year 2020 to deliver what we committed to. GM Financial was a bright spot from a performance standpoint. The business continues to grow and generate record levels of profitability. And finally, from a cultural standpoint, I’ve been talking to you about cash and cash conversion for about a year now. And I think the results we have demonstrated and what we predict for 2020 I think really demonstrate the commitment of the entire team on this very important metric, and I’ll talk more about that later in the presentation.

Let’s talk about the challenges. The strike had a meaningful impact on 2019 results. The China business you heard Matt talk about today and what we’re doing there to get that business back on track. South America was volatile — more volatile than what we predicted at the beginning of the year. And you heard Steve talk about the steps we’re taking there as well.

I think the takeaway is, relative to what I talked to you about a year ago, there were a number of puts and takes. But the underlying business remains exceptionally strong, and that’s what takes us into 2020 with a strong outlook.

Let’s look at the actual results, the numbers. EPS, we delivered $4.82 against an outlook of $4.50 to $4.80. And from a cash flow standpoint, we generated $1.1 billion against our guidance of zero to $1 billion.

Now, I think it’s important to also look at these results on a strike adjusted basis because it will help frame our 2020 performance and it will allow you to look at apples to apples comparisons. From an EPS standpoint, we generated $6.71 on a strike adjusted basis. You may remember our original guidance last year, $6.50 to $7, so in line with our original guidance one year ago. Free cash flow, we generated $6.5 billion of cash, excluding the impact of the strike. And when you compare that against our original guidance of $4.5 billion to $6 billion, it was clearly a strong performance that demonstrates our focus in this important area.

I would like to quickly touch on regional performance before we move to 2020. North America had a strong performance, up $1 billion year-over-year, and that’s primarily due to our launches, the strong performance of trucks, crossovers and cost savings. That helped offset international weakness around the globe. You see GMI on this page. That was primarily China down $800 million year-over-year, offset by international operations, excluding China, up $200 million year-over-year.

GM Financial, as I talked about, grew earnings and stood at $2.1 billion for calendar year ’19. Cruise and Corp sectors performed in line with expectations.

So the takeaway from this slide, excluding the impact of the strike, strong performance, especially in North America and GM Financial Operations.

So let’s get into 2020. Before I get into the numbers, I want to frame for you the macro picture around the globe. We are predicting continued volatility in all of our key operating areas. In the US, we’re expecting a mid-16 million light vehicle industry which is down about 0.5 million units compared to 2019. In China, as Matt talked about, we do expect a decline in industry, about 1 million units, prior to the impact of coronavirus. Clearly, as Mary talked about, how the virus impact evolves would have an impact on 2020 performance, not just from a demand perspective, but potentially the global supply chain as well. And the whole team is working diligently to have contingency plans in place should this become a more serious situation.

In South America, we’re expecting FX pressures to continue into 2020. You all see where the Brazilian real is and you see where the Argentine peso is. Those are the two main currencies that impact our operations in South America. And we’re expecting in 2020 that those challenges will continue and we’re managing our operations despite the volatility that we expect so that we are on a path to profitability irrespective of the FX environment.

Commodities have been up and down, and you’ve seen steel and aluminum have backed off somewhat. But importantly, palladium and rhodium have been up significantly since December. Especially rhodium was up close to 100%; palladium and other 40%, and that’s causing a significant headwind as well from a macro standpoint.

Next, I want to talk about key drivers before I get into numbers. I just covered macro and regulatory which will be the biggest headwind that we’re seeing in 2020. Weigh against that our specific performance the factors that are specific to GM, whether it’s launches or a full year of heavy duty and light duty and the cost savings that we have coming up — remaining from our $4 billion to $4.5 billion target that we’ve set out for ourselves, they contribute favorably to 2020 performance.

I also want to talk for a minute about strike and strike recovery. In a normal environment, excluding the impact of the strike, when you see the industry go down, we will have had to take inventory down. Because of the strike, we have effectively overcorrected for the situation and we’re building back dealer inventory subject to the capacity constraints that we have in our vehicle lines. Mary and I talked about this last quarter that we’re constrained from a capacity standpoint on some of our key vehicle lines. And the team is working together to get every unit we can across all of these, and you can see some of the results from a tailwind standpoint offsetting the macro impact that we’re expecting in 2020.

Now, obviously the industry level and the strike recovery is a toggle. If you see a higher industry, our ability to recover strike will be lower and vice versa. So we’ll keep you updated on that as we go through the rest of the calendar year.

So the takeaways from this page, the first negative is offset fully by GM specific performance as well as lean inventory balancing out to about zero.

So let’s get into the numbers. Our EPS diluted adjusted range this year is in the range of $5.75 to $6.25. To put it in context, we’re expecting an impact from non-operating items of about $0.55 per share. What are these non-operating items? We’ve talked about tax rate normalizing to a more sustainable level. 2019 was abnormally low. We’ve talked about interest income being lower because of our cash balance. And as in every year, we are not expecting any tailwind or headwind from our investments in Lyft and PSA so that it neutralizes the impact of that and it allows you to look at our operating performance and focus on the core performance here.

From a free cash flow standpoint, we’re expecting $6 billion to $7.5 billion, despite the impact of the challenges that I talked about from a macro standpoint, and I will be walking for you both the EPS and the free cash flow in the next couple of pages. Before I do that, let me give you a run around the world from a regional outlook standpoint.

With all the actions we’ve talked about the new launches and cost savings, we expect North America to be up year-over-year on a strike adjusted basis. So if you exclude the impact of strike, North American performance was strong in ’19. We expect it to be better in 2020.

In China, we expect continued industry and regulatory headwinds, as Matt talked about earlier. Clearly, with the virus situation, we expect a meaningfully lower equity income in China in the first quarter of 2020. And once the situation resolves, we’re expecting an equity income in the range of about $200 million on a quarterly basis — on a run rate basis after the situation gets to be more stable one.

GM International, up slightly as a result of the number of actions that Steve talked about and the new launches that are happening in the region. GM Financial continues to grow their earning assets, but we expect residual values to normalize in 2020 and as a result their earnings to be flat to slightly down, but that would depend a lot on what’s happening with residual values on a year-over-year basis.

I want to talk about cadence as well for a minute. As in the last several years, H2 we expect to be meaningfully stronger than H1, and, as I mentioned in China, the early part of the year to be weaker than the latter half of the year. So from a total Company standpoint, the outlook for EBIT is flat despite the macro headwinds that I talked about. So let’s get into this in a little bit more detail.

I’d like to walk for you the impact of all of these three factors that I talked about, starting from EPS diluted adjusted for calendar year ’19 at $6.71 that I talked about. You first layer in macro headwinds: US-China, commodities and GMF. So that’s the biggest headwind that we are expecting in 2020. But against that, the net impact of GM specific factors, as I talked about in the prior page, is a positive. There are some puts and takes within that column.

The biggest tailwind that we see in 2020 from a GM specific performance is the full-size SUV transition, and we’ve talked about this before how we expect to take downtime, and the ramp-up on our full-size SUVs with the level of change in the vehicles as well as the brand new architecture and three brands coming out of one architecture in one plant, we have major changeover related downtime. And we expect to see that to be the headwind that is on a GM specific basis that’s most meaningful.

I talk to you about depreciation every year. This is secularly going up as catching up to the levels of capex that we’ve had historically. On the positive side, launches and HDs [Phonetic] continue to be strong — cost savings that I mentioned — and given the interest rate environment we’re in, a small tailwind as well from pension standpoint.

I talked about strike recovery. A simple way to think about it — we expect to build about 80,000 units from a dealer inventory standpoint between year-end 2019 and year-end 2020. So you put all this together, EBIT roughly flat from the impact of operating items. And the new layer on top of that, the non-operating items, and that gets you to our EPS diluted adjusted outlook for the year.

Let’s talk about cash flow. We generated $6.5 billion on a strike adjusted basis in 2019. The biggest headwind we see on cash flow is predictable: it’s the impact of China dividend and the earnings — the year-over-year decline between 2018 and 2019 because China dividends are paid on a one-year lag basis. So that’s $800 million coming out of China dividends declining from ’18 to ’19. But that headwind is more than offset by some of the tailwinds that we see.

I talked about capex and capex normalization. We anticipate about $7 billion approximately in capex. And in 2019 we achieved $7.5 billion. So there is a $500 million tailwind coming from capex.

GMF dividends are expected to roughly double in calendar year 2020. They paid $400 million, approximately, in 2019, and you see that roughly doubling — we see that roughly doubling in 2020. Put all this together, we see growth in free cash flow, and it gets you to the range of $6 billion to $7.5 billion that we talked about.

I also want to touch on the cash flow trajectory as well as cash conversion and give you a sense beyond 2020 of what to expect. When we first talked to you about cash conversion at the end of 2018, we were generating about a $4 billion cash flow level, and that was approximately 44% conversion from a net income to cash flow basis. With the results in 2019 strike adjusted at $6.5 billion, it takes our conversion up to about 62%. And with the outlook we’ve talked about in calendar year 2020 that takes our conversion to 65% to 70%. And you might wonder when does that get to close to 100%, and you’ve been talking about 100%.

And if you think about the tailwinds and headwinds we’ve had from a cash flow standpoint, the biggest tailwind we expect beyond 2020 has been GM Financial dividends, the rest of their earnings to the parent. And I’ll talk about that in a few slides on what that potential could be.

And from an earnings standpoint, I’ve also talked about depreciation and pension income and those will be earnings headwinds, but we expect to — we’ll continue to work to offset that with true cash earnings as well, which will bring our conversion to an 80% to 90% level in the ’23 to ’25 time frame. Why not 100% yet? The pension does have a long tail and the payments follow the benefit payments schedule that retirees have set out. So that’s the story here, and I think this is an important slide because this showcases for you why this is an important priority and how we’re working to get that to the levels that we’ve talked about before.

Okay. I want to touch briefly on operating efficiencies. We’re on target to hit the capex levels that I talked about before, $7 billion in 2020, approximately. And from a cost savings standpoint, through calendar year 2019 we have achieved $3.3 billion of efficiencies. So we have about $1 billion left to go in 2020. So we remain on track and I wanted to give you a quick update on that.

Let’s talk about capital allocation. So you have all that cash and what are we going to do with it? So from a free cash flow standpoint, you can see on this page, I talked about the $6 billion to $7.5 billion, which is really the net of operating cash flow and the capex that you see on this page. So we have free cash flow of $6 billion to $7.5 billion. We also have potential source from selling non-operating assets like our investment in Lyft which we’ve been opportunistically selling and we expect to continue to do that.

In terms of uses of cash, you see that on the top right of the page. The strike has depleted our cash balance, and as you know, we have talked about that in the last earnings call, and we’re now working on replenishing that cash balance back to our target of $18 billion on an average basis. So, we expect to use about $2 billion to $3 billion of our free cash flow towards our investment grade balance sheet, which brings us to return on capital to shareholders. We expect to keep dividends at the same level of about $2 billion, which leaves $2 billion to $3 billion for share buybacks and other potential uses.

Now, Steve talked about how we’re continuing to work on getting GMI to profitability. To that end, if we see compelling restructuring opportunities in GMI with an appropriate payback period, we will likely use a portion of this cash for that purpose, with the rest of the remaining cash going towards share buybacks, and we will keep you posted on that as we go through the calendar year.

To summarize 2020, improvement in operating performance will likely offset macro headwinds. And again, this is a differentiator in our view. This demonstrates our commitment that macro headwinds might come and things might happen from time to time, but this team remains focused on executing our plan. Improvement in cash flow and cash conversion, and expect to return cash to shareholders through dividends and buybacks.

Before I go to the second section, I want to talk for a moment about execution. What you see on this page is proof points of different things from a financial metric perspective that we’ve committed to, and I want to really use that as a foundation to frame our 2020 performance. Yes, we will likely see different headwinds or tailwinds that we have not predicted at the beginning of this calendar year. But this team, as we’ve done in the past, we’re committed to delivering on our objectives in 2020 and beyond.

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With that, let me take you to the second section where I’d like to pull together what you heard from all the other speakers and give you a framework on how to think about our various collection of businesses.

Firstly, we have a collection of highly profitable cash generative businesses where we have a leadership position, and you see all of those listed on this page. I’m going to talk about each of them in the following pages. We do have a few turnaround opportunities, especially on the international side. And finally, you’ve heard a lot about AV and EV today, and we consider those businesses accretive from our core, given our unique positioning. So let’s quickly talk about each of these.

Trucks. Mary talked about how this is an important business for us and how we’re growing this and we are proud of our product and our performance in this area. So let me frame this up for you in terms of how important is this for the Company. Over half the revenues in North America come from trucks, $65 billion of revenue. And from a margin standpoint, we expect this to be in the mid to high teens. And hopefully, that gives you an additional insight on the attractiveness of this business. And I’ve talked previously about how we think this business is different from the rest of the light vehicle market. And a quick recap of the points that we made on that topic.

We believe there is pent-up demand in this sector, which is likely to continue as a tailwind from a demand standpoint for the next several years. A proof point for you is the growth we have seen in the last few years. In the past five years alone, this segment has grown about 6% on an annualized basis. Compare that with the rest of the industry where we’ve seen a decline of about 50 basis points. So again, this is a segment where because of the age of the fleet, the installed base and the growth that we’ve seen here, we do expect a healthy level of demand to continue in the foreseeable future.

I talked about how the margins are attractive and Barry talked about how we’re the only OEM with two brands and we’re positioned really well with both the Chevrolet and the GMC brand. I want to remind you of the competitive moats that exist in this sector as well. Historically, over 90% of the sales in this sector has been through the top three OEMs. Compare that with the rest of the light vehicle industry where that’s less than 40%.

We do — you might ask, well, aren’t there new disruptors coming in. And that’s where the next point comes in, which is really important where we believe the battery electric trucks that we will build will leverage the success that we’ve had in the ICE business. This is a business that we’ve done for over 100 years. We know the customers well, and we have an outstanding distribution channel, and we do not intend to cede our leadership position in this very important segment.

Next, I’d like to talk about GM Financial, which is another cash generative business that earns an appropriate return on its capital. Before we talk about GM Financial’s financial contribution, I’d like to talk about what it brings to the auto industry and the auto side of the business. We had in calendar year 2019 alone over 2 million leads to our dealers generated through GMF, so clearly very important. From a loyalty standpoint, as a data point, over 78% leased loyalty. So what that basically means, over 78% of the customers come back to GMF to buy a GM vehicle. And as you know, conquests are much more expensive than retaining a customer. So this allows us to strengthen the vehicle sales and help with demand there as well.

Financing through the cycle is critical. We recognize we’re in a cyclical industry, and GMF provides hard to finance customers with financing as the industry does turn. So put it altogether, this business generates return on equity in the range of low to mid teens, an appropriate level of return for this kind of a business. And let’s talk about how it’s been growing over the last several years.

From 2015, when we made the decision to grow this to be a full captive finco to 2019, we’ve seen a significant growth and we sit just shy of $100 billion from an earning assets perspective, quite significant. And in the next several years, as we improve penetration and it continues to grow, we expect the level to be around — the assets to tail off around $125 billion.

And from an earnings standpoint, we expect a corresponding growth in our earnings as well with EBT in the range of about $2.5 billion in the next several years. And as I talked about from a cash conversion standpoint, we do expect that the net income coming out of this business will be dividended back to the parent in the 2023 to ’25 time frame, again, very important business for us.

Let’s quickly touch on after sales, which is another important business and cash generative business for GM. This has been a consistent profit contributor, and we expect it to be a consistent profit contributor going forward. This business is less cyclical than the rest of the business. And this is a growth opportunity as the car park continues to age and it sits at about 11.7 years today. The service business for trucks is particularly attractive and it’s over 2x that of passenger cars. So when you take the strong truck business, it translates into a strong after-sales business as well. The margins are very strong in this business as well and it keeps the customer in our ecosystem, which is very important. Translates into a high ROIC business overall

I want to talk finally about connectivity, which is an important piece of a franchise which is profitable and cash generative. This includes OnStar with the safety and security features. It includes remote access and other subscription businesses that we have. Up until 2016, this business was losing customers and subscribers, and we had made a conscious decision in 2016 to turn this around and have this be a growth area. And you can see the results of that. And in 2020, we expect to have about 12 million paying subscribers in this business. And in the future, we expect that this would grow, and the drivers of growth, obviously we get growth with GM customers, we get growth through our fleet business as well where fleet intel is an important aspect for that category of customers.

From a partnership standpoint, there is many examples of things that we’ve already rolled out, whether it’s Amazon and package delivery or Marketplace. But we’re just scratching the surface in terms of how much more subscription-based businesses we can have which are high margin and just have a different kind of a revenue profile than the rest of our business. And I’m going to talk about subscriptions later in the presentation as well.

So that summarizes the cash generative portion of the franchises that we’re proud of, and they fuel the growth in a lot of the growth areas that we’ve talked about today.

Let’s turn to the turnaround opportunities. Steve Kiefer talked about GM International. So I’m not going to repeat all of that. But that does represent a $2 billion improvement when you get the margin levels from where they were in 2018 to an appropriate level of margins, which in this business we think is mid-single digit, so a tailwind coming from restructuring of this operation.

And finally, from a luxury standpoint, Mark talked a lot about this today. This is a business that’s historically struggled in the United States and performed really well in China. And with all the exciting plans that we shared earlier today, with a refreshed product portfolio and improved segment coverage, we expect that this business will grow not only in China but in the United States as well. And we’ve talked about how this is our leading brand from an EV standpoint. And so this will attract a new generation of customers that the Cadillac brand currently doesn’t have to the brand.

So we talked about cash generative businesses and turnaround opportunities. I want to talk a bit more about how we think the EV, AV and other business revenue streams are accretive to our overall business. So let’s take a quick look at where our strength lies today.

Our strength is in Middle America with trucks. That’s where we sell our most vehicles, that’s where we make most of our money. And if you look at the AV and EV opportunity that you heard about today, we expect that those businesses will first have a meaningful manifestation in areas where GM has an opportunity from a market share standpoint. So we think it’s very much complementary to our core business and particularly to our truck business.

I talked about subscriptions previously, and I want to frame that up a little bit more in our core and our Cruise businesses, the automotive model today as you sell the vehicle and you see the customer x number of years from now. And, as we think about and we’re working on future revenue opportunities, you heard Dan talk about the business model that Cruise is working towards and on the automotive side, whether it’s licensing or subscriptions or customer inside coming from the data we have responsibly monetized, we think those are additional revenue streams which we’re currently not capitalizing on which present a huge opportunity and they’re complementary to our one-time transaction nature and they’re high margins as well and highly cash generative.

So in closing, I would like to leave you with this slide. Why are we uniquely positioned relative to our competition? We have valuable franchises that are cash generative, and we have accretive growth opportunities on AV, EV and other areas that we’re laser focused on capitalizing on. And from a cyclical standpoint, we’ve taken a number of proactive steps to strengthen the business and position us well for the cyclicality that typically comes with this business. And we believe that this positions us well with a very strong foundation to create shareholder value.

With that, I thank you, all, and I bring Rocky up to start our Q&A.

Questions and Answers:

Rocky Gupta — Treasurer and Vice President of Investor Relations

Thank you. Dhivya.

I’m going to request all the speakers from today to come onto the stage for the Q&A. If you have a question, please raise your hand and we’ll get a mic to you. Just wanted to remind everyone again that the Investor Relations team is available to address any additional questions you may have, especially any detailed questions on the numbers. And what I’d suggest is that to use our time most efficiently today, we focus on some of the more strategic questions for the people on the stage today.

And Matt will be joining us on phone also. So we’ll get him dialed in.

Let’s get started. First question, Rod. Rod Lache. Thanks. Rod Lache from Wolfe Research. Three questions. First, maybe just a quick housekeeping, Dhivya, if you can just clarify. In your guidance, how much working capital you’ve anticipated in your free cash flow and the buybacks, whether those are incorporated into the guidance.

Dhivya Suryadevara — Executive Vice President and Chief Financial Officer

From a working capital standpoint, while we would expect some rewind of sales allowances from a strike recovery perspective, we expect that will be offset, Rod, by other working capital items, including industry impact and timing. So we’ve had no tailwind assumed in our free cash flow guidance from that.

And your second question was…

Rod Lache — Wolfe Research — Analyst

And the buybacks…

Dhivya Suryadevara — Executive Vice President and Chief Financial Officer

Well, the buybacks is a use of the free cash flow. So we expect that out of the $6 billion to $7.5 billion we generate. We would replenish our cash balance to the tune of $2 billion to $3 billion, and the remaining towards buyback and other uses.

Rod Lache — Wolfe Research — Analyst

So that’s built into your EPS guidance.

Dhivya Suryadevara — Executive Vice President and Chief Financial Officer

Yes.

Rod Lache — Wolfe Research — Analyst

Okay. And then just focusing on the international businesses. I was hoping that maybe you could be a little bit clearer on the GMI turnaround. How much of this you’re going from about $1.3 billion loss to a profit is actually exiting products — or, exiting markets, how much of it is product, and then, if Matt is on the line, maybe talk a little bit about the China business and why we should believe that that business is kind of stabilizing and improving. It’s been losing some market share. It’s down to about $200 million a quarter of profitability, mapped, and the recorded remarks mentioned a number of headwinds and spending. Is it just underperformance related to powertrain that’s been corrected? Or is there something else here that we can look at and say that now it should start to perform in line with the rest of the industry?

Dhivya Suryadevara — Executive Vice President and Chief Financial Officer

Steve, do you want to take the GMI question?

Steven A. Kiefer — Senior Vice President and President, General Motors South America and International Operations

Yeah, sure. I would say that there is sort of a — we’ve talked about $2 billion. There is about $0.5 billion in this improved product that we’ve talked about that was in my slides, the new vehicles. And then I would say the remainder is a combination of cost cutting and restructuring that’s been in the plan.

Mary T. Barra — Chairman and Chief Executive Officer

Matt, are you on the line?

Matt Tsien — Executive Vice President and President of GM China

Yes, I am. So thanks, Rod, for your question. Can you hear me?

Rocky Gupta — Treasurer and Vice President of Investor Relations

Yeah. We can hear you, Matt.

Matt Tsien — Executive Vice President and President of GM China

Great. Okay. Let me sort of start with 2019 and just sort of put it in context. So, in 2019, our performance was certainly impacted by industry factors in terms of the industry downturn and the China V to China VI transition, which put a lot of pricing pressure on the industry. But there were also a number of unique, I would say, Company factors that you alluded to, Rod. I mean, at SGM, I would say the most significant Company level factor is the challenges with customer acceptance on three cylinder engines with some of our customers.

So the launches did not deliver the results we expected. And, as I mentioned in my remarks, we’re reacting quickly, and a number of the products will begin to have four cylinders as options as early as second quarter of this year. At SGMW, the key issue was the transition of the [Indecipherable] to a higher brand position. This is absolutely the right thing to do for the long term. But as the plan pivots there are transition issues that impacted SGMW’s performance.

Looking into 2020, we expect that the industry downturn will continue. There will be increased fuel economy pressures and [Indecipherable] pressures that will impact the industry as a whole and our performance as well. And then there is the additional fairly heavy investment cycle that we’re into to deliver any of these for the future. So we expect that our performance will continue to be challenged in 2020 and probably for the next couple of years. As we get through this investment cycle and with the industry recovery, we do expect that our equity income will pick up once again.

Rod Lache — Wolfe Research — Analyst

Thank you.

Rocky Gupta — Treasurer and Vice President of Investor Relations

Great. Next, Joe Spak. I think you had a question?

Joseph Spak — RBC Capital Markets — Analyst

Maybe just to follow-on quickly from Rod’s question on South America or on GMI. The $2 billion improvement, $1 billion was from South America. That other $1 billion, does that consider some of those additional restructuring actions you talked about from that use of cash? Or would that be — is that further restructuring or exits in GMI?

Dhivya Suryadevara — Executive Vice President and Chief Financial Officer

Yeah. It would be — to the extent there is restructurings, it would be a use of cash, like we’ve talked about previously. The $2 billion is — think about it as a run rate on how we would make 5% margin on that business on an ongoing basis as opposed to the $1.2 billion or $1.3 billion we’ve lost in 2018.

Joseph Spak — RBC Capital Markets — Analyst

Okay. And then, Mark, on the BEV3 platform, I think versus that graphic that you showed prior, you’ve added the pickup truck versus prior years — did something change there that allowed you to add to pickups to that platform versus your prior thinking that maybe you need a standalone platform? And maybe just at a very high level, you could tell us why you think you can sort of do this all more modular because I think some of your competitors are building more specific platforms for different sizes and types of vehicles.

Mark Reuss — President

Yeah. We started a while ago, looking at the fundamental cell content pouch versus prismatic versus the height of the floors of different models. So what you saw in that animation indicated that we had everything from a low floor entry with different wheel bases to a mid-floor entry. I’m talking about highways [Phonetic] to a high floor entry, which we would have for the BET.

And so, as we’ve been architecting that, we’ve been looking and trying to match the market desires to the architecture, and the cell –the basic cells are pretty much all the same. The only difference it will have is if you’re in China we would do one type of cell structure and — we get [Indecipherable] but we do it in North America, it’s a different type of cell structure. But the partners are all in place. The chemistries have been developed and vertically integrated. And that drives a different I think definition of what architecture was and what it is.

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And so our architecture is really around the cell and the orientation of the cell in the pack as you saw the electric motors. We’ve got at least three different electric motors that will be vertically integrated and the power structure for that. And then the power electronics and the global v [Phonetic] part of it and the backbone will all be common. So those are the big cost drivers in what is a new architecture for electric vehicles versus stampings, floor pans, rockers, chassis pickup points, control arms. Those are all things that used to define an architecture because they are the high cost internal capital spends on a volume basis for a plant.

And so it’s very different. As we were architecting the first BEV, which looked like a crossover, we really started looking at what else can we do and how can we do it. And you’ve only seen sort of the first models of a BET architecture. There is another version of our BEV3 architecture that you’ll see on EV Day, and I’ll leave that as a surprise. So if that helps frame it up a little bit. Very different.

Rocky Gupta — Treasurer and Vice President of Investor Relations

Great. Next, move on Emmanuel Rosner.

Emmanuel Rosner — Deutsche Bank — Analyst

Thank you. I’m Emmanuel Rosner from Deutsche Bank. First question for Dan Ammann. Very refreshing to see you so bullish, optimistic about the opportunity. A lot of the other players that I have spoken recently were generally more cautious, maybe the timeline getting pushed out and a lot of — the asset valuations coming down quite meaningfully. For us sitting on the outside, we don’t have the benefit of being able to examine or test your technology. I guess, what should we look for to know that this is real? What do you have that the others don’t? And what kind of milestone can we track going forward?

Dan Ammann — Chief Executive Officer, Cruise

Well, I think the fundamental goal that most of our energy is behind now is this objective of reaching a superhuman level of safety performance, and that’s as I went through in my talk, that’s where most of the energy is and it’s where we’re making incredibly rapid progress. As I said, we’re pretty far along in reaching that level of performance. We can see where we need to get to and we think we have the tools in place to close out that last step.

As I mentioned, it’s difficult to predict exactly what the timeline is because we’re out on the very long tail of a sort of an exponential problem and we have incredibly powerful tools that we’re bringing to those long tail issue. And so precise timing predictions are tricky. But we feel that that is something we can see from here. And again, that’s just the starting point. What happens once you reach that point is where things get more and more interesting.

In terms of what are we doing that’s different from some others, I think one of the things that’s really helped us all the way along is testing in a very complex operating domain. We also do some testing in a simpler environment and we know how much this helps us relative to this. So that’s been really powerful. And then I’d say secondly this whole idea that the Company has been built around rate of improvement as a core product of what we do and building the infrastructure to allow us to move incredibly quickly and iterate more rapidly — and I showed you lots of examples of how we’re doing that.

And so, I don’t know exactly how others are thinking about that or doing it, but we have the core product of the technology stack we’re building, and then we have another equally important product of building the infrastructure that allows us to get really rapidly.

Emmanuel Rosner — Deutsche Bank — Analyst

And then just the housekeeping for Dhivya if I may. So the earnings walks are extremely helpful. If I wanted to zoom in on GMNA specifically, so you’re guiding for earnings up even versus ex strike last year, so call it more than $11.8 billion this year, very strong performance. Could you maybe talk a little bit about the puts and takes? I mean, I assume the rebuild of inventory will not be part of that walk because last year was — the starting point is ex-strike. So what are the puts and takes and how should we think about that?

Dhivya Suryadevara — Executive Vice President and Chief Financial Officer

So, the way to think about it, I’d say, is what you saw in that slide on the GM specific factors, the puts and takes on that primarily impact North America. So you can take those as North American specific items. Tailwinds, the new launches and full year of heavy duties and full year of light duties and cost saves, which predominantly impact North America positively. On the headwind side, full-size SUV downtime is what impacts North America the most. And I mentioned about 30,000 units roughly on a strike adjusted basis. And depreciation — that’s a non-cash item — but put all that together, North America positive.

Rocky Gupta — Treasurer and Vice President of Investor Relations

Thanks. Great. Itay? Joe, can you get the mic to Itay?

Itay Michaeli — Citigroup — Analyst

Great. Thank you. Itay Michaeli from Citi. Two questions on Cruise for Dan. The first is in the slide referring to moving people, Dan, you mentioned possibly for tech partnerships. I was hoping you could elaborate on that. Would that potentially exclude some partnerships with rideshare companies? Or is that not in the plan? And then secondly, you mentioned that the competitive field is now thinning out. I was hoping you could talk about how many, without maybe naming names — or feel free to, how many competitors do you see that are viably competing with Cruise?

Dan Ammann — Chief Executive Officer, Cruise

So on the first one, on the tech partnerships thing, I think that it’s something we’re just kind of reserving as we look at global markets and that have different existing market configurations. There could be places where partnership makes more sense than the sort of the core plan that we have of going vertically integrated.

And then in terms of the field thinning out, I think this has happened over the last — I don’t know, 18 to 24 months, and I think as people have realized that this is not something you can do with 10 or 20 or 50 people and $10 million of venture capital, it’s just a much bigger challenge than that and a much bigger scope of problem to work on. And so I think in California there were at one point more than 60 licenses that have been issued for self-driving testing, and I don’t think when the dust settles here, there’ll be 60 companies that have really delivered mission critical safety system and that drives with superhuman level of performance at a cost point that makes it work [Indecipherable] that makes it work from a customer point of view.

Itay Michaeli — Citigroup — Analyst

Just a follow-up, maybe housekeeping for Dhivya. Back to the large SUVs, if you can — the mention of the headwind this year and also the potential — and how you think about the opportunity in 2021, particularly some of the new trims like AT4 that Barry talked about in his presentation. Kind of how should we think about the [Indecipherable] profit opportunity on this platform after the launch?

Dhivya Suryadevara — Executive Vice President and Chief Financial Officer

So your first question about 30,000 units on a strike adjusted basis. So, if we didn’t have SUV down during because of the strike, the delta between what you’re going to see in ’20 versus ’19 would be 30,000 down. So hopefully that helps. And, Itay, IHS has it roughly at the right level. So if that helps us another data point, that’s another way to look at it. And in terms of profitable trims beyond 2020, AT4 and others, I’d say better profits than average, and I will leave it at that.

Rocky Gupta — Treasurer and Vice President of Investor Relations

Great. John Murphy, I think — yeah go ahead.

John Murphy — Bank of America Merrill Lynch — Analyst

Thanks very much. If we look back at 2019, I mean I appreciate the attempt to pro forma the numbers for your earnings. But the reality is what happened in 2019 happened, and if you look at the volume, it’s probably more indicative of something that would have produced in a low 15 million unit environment. So you essentially just put up almost $5 in earnings in a low 15 million unit environment. You’re talking about another $1 billion of cost saves in your $4 billion to $4.5 billion plan. Plus, you’re talking about some potential improvement in GMI of $2 billion.

So, just curious when you roll all that stuff together, it adds a lot of credence to the idea that you just talked about a breaking even at 10 million to 11 million units and actually maybe even then some. So I’m just curious if you kind of update us where you sit on your thoughts on sort of break-even in — it seems like you [Indecipherable] at least to the next downturn. I was trying to understand how you’re thinking about that.

Dhivya Suryadevara — Executive Vice President and Chief Financial Officer

Yeah, John, I think that’s a really good way to think about it because if you look at the strike impacted results of $4.82 which we put up in ’19, that was after taking into account the impact of about 320,000 units down because of strike. When you market share adjust it, it translates to industry being down about 2 million units. And so the thinking about it as a curve from our earnings at 17 million units to our 25% downturn scenario, this matches quite nicely with what you would expect in an industry down. So to your point, it does validate the downturn thesis.

With the actions we’ve taken, we’ve maintained the 10 million to 11 million breakeven point for North America. I would say we were probably hovering in the higher end of that range, and with the cost savings we’ve come closer to the lower end of the range. And as we continue to strengthen the business and the rest of the operations around the globe, our downturn scenario looks better because you have fewer cash burning operations around the globe. So I’d say, yes, it grants some credence to the downturn thesis and you will see us address some of the other problematic areas which should be better for downturn protection as well.

John Murphy — Bank of America Merrill Lynch — Analyst

Okay. And then just a second question around the subscriptions. I know it’s sort of a TBD when Dan will deliver Cruise — we’re waiting for that and we want it now, and that’s a big part of — that’s sort of an incremental subscription opportunity for you. But you have incremental opportunities that appears on some of the more near-term things like OnStar and OTA updates as you get to sort of this digital platform that, Mark, you were talking about.

So, just curious if you can give us sort of where OnStar sits right now, where that could potentially go, and as you get this digital platform in place, could we see a lot more subscription opportunity sort of in the near term. And then Dan, what do you think the potential that you could bring to the table over time to the subscriptions? And is this recurring revenue outside of just the simple rideshare model from Cruise that you guys are kind of alluding to?

Mark Reuss — President

Yeah, let me take the OnStar question and the idea of [Indecipherable] enhance and new opportunities, new businesses that may not exist today. We’ve been really excited about our OnStar business and the growth that we’ve seen there. Today, we’ve got about 20 million vehicles that are on the road, and only about a quarter of those are connected and paying a subscription. We also have a very limited portfolio of products that we sell. Essentially, there are three. And so — and even with all those constraints that I’ve just described, this is a business that has been growing really nicely for us. And so, if we think about over the course of time, the vehicle part will continue to grow. The 25% subscription could be something significantly higher than that. And the portfolio can be quite a bit larger.

And so, we’re engaged right now with customers and with the product development organization and trying to figure out what are those products and services that are most interesting to the customers and how do you bundle those up and how do you put them onto the vehicle, how do you sell them, how do you go to market. And we see a very nice opportunity there with a fundamentally different margin profile than today’s hardware business. And so, I think as we go forward over the course of time, it is an area that we do want to talk to you about.

Dan Ammann — Chief Executive Officer, Cruise

And on the Cruise side, I’d say the — we’ve all grown accustomed to the sort of pay-per-ride demand pricing environment around rideshare. I think that’s one way to do this. I think there’s lots of other interesting models in terms of how you engage customers now you have them sign up and pay. It’s obviously very early days, but I think there is a — it’s a pretty wide open field of opportunity there.

John Murphy — Bank of America Merrill Lynch — Analyst

And then just one quick one. I mean, on the luxury SUV market in China is gangbusters. And you said it’s great. You have the best luxury SUV in the world in the Escalade. Are we ever going to see the Escalade in China? It seems like a huge incremental opportunity for you. I mean, obviously it’s larger than most stuff that’s over there, but the Mercedes S-Class sells at similar price points, which just seems like a natural chance to take and try and develop that business in China?

Mary T. Barra — Chairman and Chief Executive Officer

Does Matt want to take that or I can take it?

Rocky Gupta — Treasurer and Vice President of Investor Relations

Yeah. Matt, did you hear the question? It was about the potential for Escalade in China.

Matt Tsien — Executive Vice President and President of GM China

Yeah, I’d be happy to address that. First of all, Cadillac has done extremely well over the last several years and we expect that to continue to perform very well. I think the other trend that’s happening China is the movement towards larger SUVs. A couple of years ago, the largest SUVs in the market were probably what we would call C segment SUVs. And now C segment SUVs are gaining acceptance. So there is a movement towards larger vehicles. Certainly we’ll not rule out the potential for something like Escalade.

Rocky Gupta — Treasurer and Vice President of Investor Relations

Great. Thanks, Matt. Adam? Adam Jonas?

Adam Jonas — Morgan Stanley — Analyst

Thank you. So, I have a question for Mark and I have a question for Mary, but first a comment. I noticed that you were videotaping today’s Investor Day. It’d be great if someone could send that tape to Ford in Dearborn. I’m serious. I’ll hand deliver it myself to them if you don’t send it to them. Your team is really airtight. I think you should be very proud of this presentation you gave. It’s a kick-ass management team up here in front of us. You are executing. You’re clearly not getting the credit. I know you deserve it. And I think many investors in the room deserve. But over time you keep doing this and you execute on even two-thirds of what you’re talking about and it’s going to happen. So I just had to get that out there.

Mark, first question for you. Can you confirm are EVs a tailwind? And specifically, I remember a year ago when you talked about getting out a hybrids and people thought you were crazy.

Mark Reuss — President

You didn’t.

Adam Jonas — Morgan Stanley — Analyst

I didn’t. It’s not looking so crazy. I mean, can you describe maybe in financial terms or just order of magnitude how much easier — how much better life is when you don’t have to architecture those complications into the business?

Mark Reuss — President

Yeah, I think it’s a great question. The hybrid piece of this — when we look at this — and we look at what it takes to bring a plug-in hybrid, a traditional hybrid, any of those to market where you’re carrying an internal combustion engine and an electrification propulsion system and you have to make them work together and you have to certify — you still have to certify, you still have to crash, you still have to pay money to carry two propulsion systems on board, I just, from a physics and engineering standpoint, can’t get my head around making money doing that in the long-haul even as a stop gap. Even as — I mean, I’m bragging of Volt, okay. I can tell you I love the Volt. By the way, I was one of the early buyers of the Volt.

So that was great too, and I get a lot of emails from Volt buyers and I get it. But at the end of the day, if we can get the battery chemistry vertically integrated correct and cost effective and our control systems have taken everything we’ve learned from Volt and Bolt on how to use the battery to get more range and more cost-effective. At the end of the day, the customer is going to be much, much happier doing a pure EV than a stop gap that you still have to plug it in sometimes and then hard to understand. I mean, honestly they’re hard to understand. And so we know that because we’ve done it and we’ve done it reasonably successfully over a pretty long period of time.

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So, all that customer data plus the cost basis plus the engineering basis — and I told you last year, if I had another dollar of R&D from our company, I would spend it on getting the anode and cathode and the chemistry of our batteries better.

Mary T. Barra — Chairman and Chief Executive Officer

I’ll give you a dollar.

Mark Reuss — President

Oh yes. No, Mary. Thank you. And then everybody, thank you very much. We have really done a great job. So, anyway, that is a very impassioned speech about a very long answer to your question, but that’s the way I feel, the way I do.

Adam Jonas — Morgan Stanley — Analyst

Okay. And my final question for our CEO and Chairman, Mary. At the beginning of this presentation, I was really struck by the comments about the opportunity that GM has — I stress opportunity — to really help decarbonize the fleet, decarbonize your operations and show a rate of change that is clearly resonating with everybody at the margin, investors, your customers, regulators, governments, everybody. Would you consider, given your role as Chairman, would you consider tying a portion of management compensation, if not a significant portion, to GM’s ability to show that progress of CO2 reduction? Because I kind of have this sneaking suspicion that you can show a lot of progress quite within your wheelhouse and then it would be outstanding for your business.

Mary T. Barra — Chairman and Chief Executive Officer

So the way our compensation system is set up, in our short-term incentive plan, 25% of it is individual performance. And I can tell you that achieving the metrics we’ve put for ourselves are incorporated not into just mine or the appropriate people who sit next to me but even deeper in the organization. So as we look at that, that is definitely something we regularly report to the Board. And we’re stepping back and we’re looking and say, if you look at Scope 1 and Scope 2, very well underway. Dane Parker who runs our sustainable workplaces organization that just became our Chief Sustainability Officer, we’ve been on this journey for a while. And so we sit in very good shape.

But we have to look at Scope 3 because right now we build ICE vehicles and we’ve looked at what are the different routes, and clearly the best fastest way to have the least impact on the environment is to EVs. And that’s another reason in addition to the technical and the fact that customers don’t understand and it’s more costly, is getting to EVs and doing it in a way that customers want to buy them as opposed to being regulated to sell them and then find the buyer. That’s our mission and that’s what we’re on. But I would tell you that it’s already incorporated — along with several other goals, but it’s already incorporated into the metrics the Board holds me accountable for and the organization.

Rocky Gupta — Treasurer and Vice President of Investor Relations

Great. Let’s move to Ryan, Ryan Brinkman.

Ryan Brinkman — JPMorgan — Analyst

Great. Ryan Brinkman from JPMorgan. Thanks for taking my question, and thank you for the disclosure that your trucks business generates roughly $65 billion of revenue at a mid to high teens adjusted EBIT margin. I think that helps to underscore for investors the attractiveness of your trucks business. And I’m not sure if that math is so simple, but it also underscores the fact that you’re generating something like $11.5 billion of EBIT there assuming 17.5% of margin which essentially approximates all of your profit in North America, a region which has another $40 billion of revenue.

So, can you talk about your plans to increase the margins and returns for your non-trucks business? And do you think there may be scope for additional rationalization of the passenger car lineup beyond that which was communicated in the November 2018 restructuring announcement?

Dhivya Suryadevara — Executive Vice President and Chief Financial Officer

Yeah. So just to frame up the North American operations and the various different vehicle lines, I’d say from a passenger car standpoint, Ryan, the step we took in November of 2018 takes us quite a bit far in terms of taking us away from the segments that we’re not generating an appropriate level of return. If you look at passenger cars, with the exception of Cadillac, where we have a couple of vehicles, as well as Corvette which does make money — and a couple of those vehicles — it’s basically that. There’s no more passenger cars really in the lineup in North America. In its other markets, as Steve talked about, we’re working on getting those to profitability.

And within crossovers, it’s multiple different stories, depending on which segment do you look at. Our mid crossovers earn a very healthy level of return. Compact and small crossovers are more challenged with the pricing pressures we’ve seen. And what Mark talked about earlier from a complexity standpoint, if you think about the parts we’ve eliminated, how we’re getting it all into fewer architectures and how we’re getting material costs down and some of the brand work that Barry is doing from a — getting the ATPs of Chevrolet and GMC and Cadillac up, I think those are on a path as well. We clearly have more work to do, but we will continue doing that work.

And internationally, you’ve seen all the other cash burning businesses which are also on a path to profitability. So it is our goal to diversify the profitability overall and get that to — not all of them will get to truck level margins, obviously, but they will get to their appropriate level of margin.

Mark Reuss — President

I think it’s important to note on that too, as Dhivya mentioned, in addition to what we talked about earlier is we’re now entering into a second term of these architectures, where we already spent the money to get the mass out the first turn. And so everything that comes online here has a much higher reuse of the core architecture level on an ICE platform. And then we move — these are positioned for 2 plus, okay, on a turn basis here. So we will get as many turns out of those as we can. But we’re not going to do new ones of that, if that makes sense, okay. So it’s a good place to be.

Rocky Gupta — Treasurer and Vice President of Investor Relations

Right. Brian? Brian Johnson?

Brian Johnson — Barclays — Analyst

Brian Johnson, Barclays. I’ve lots of questions for EV days, but I’ll keep those. I guess the big question is, look, the stock price is, as you know, roughly kind of where the IPO was. It seems to many of us say you’re doing everything right in terms of GMNA, the investment in Cruise. But I mean, how do you think about the stock price, a, and, b, to what extent are you open to strategic options? I’ll throw three out that I’ve heard around the room as well as talking to investors.

One would be consolidation of some sort. Certainly that’s going on in Europe as we speak and up the highway from you. Second, the idea — should you just become a pure play North American truck company and everything else go somewhere else? Or thirdly [Indecipherable] sort of the next-gen businesses. OnStar, arguably creating tracking vehicles for those.

Mary T. Barra — Chairman and Chief Executive Officer

So, we are always exploring opportunities that are going to create long-term shareholder value. We’re not interested in doing something that’s just a short-term path, but — and we consider all lines as, I mean, I think we are in an era right now, where a lot of people are talking to a lot of people. I think people don’t understand how significant the work that we’re doing with Honda is when you think about fuel cells, when you think about AV and when you think about the fact with EV cells. For those of you who had a chance to see or look online for the Cruise Origin, the three teams worked together rather seamlessly. And in order for groups to work together, there has got to be — it’s got to be at the engineering level and we’re demonstrating that and we have been.

But again, we’ll consider all those opportunities. I mean, I think to get to your core question, we do feel General Motors is a compelling investment opportunity. We feel across many of our strong franchises, you mentioned trucks, we’ve talked about OnStar, we’ve talked about mid-crossovers. We do believe China is going to be very important in the future. It’s still is a market that has tremendous growth potential. The scale that we get allows us to compete in a way from an electrification perspective across a full range of products and across the full range of — from value brands to luxury brands.

So, I will tell you there is nothing that’s off the table that we don’t think is going to create long-term value. And we’re going to aggressively go at what we are working on of improving the business as we just talked about with some — especially the small and the compact crossover segments. The global family of vehicles has been very important around the globe for doing that. Steve referenced that a bit.

So there is the work we’re doing on the car we feel very good about. And we feel we’re getting to the final chapters in that. But then also our conviction around EV, our conviction around AV. We think it sets up General Motors to be uniquely positioned to participate strongly in the future of mobility.

Rocky Gupta — Treasurer and Vice President of Investor Relations

Great. Thanks. Dan Levy, go ahead.

Dan Levy — Credit Suisse — Analyst

Thank you. First, just a question for Dhivya or Matt on China. Fully recognizing that coronavirus presents a whole new set of risks here. Can you maybe help us provide some parameters on what — you’ve said down earnings but what might be a floor? Why this might not be as bad, whether it’s because you’ve already had downtime factored in, this gives you an opportunity to destock? And also on China, if we look back historically, the $2 billion a year that you’re generating in equity income, the 9% margins, given everything that’s happened in cycle at this point, is that just not at all a relevant comp for considering the forward results in China?

Dhivya Suryadevara — Executive Vice President and Chief Financial Officer

Does Matt want to take that?

Rocky Gupta — Treasurer and Vice President of Investor Relations

Yeah, Matt, do you want to start with that?

Matt Tsien — Executive Vice President and President of GM China

Yeah. Let me just start and then maybe Dhivya you can add to that. Obviously, the coronavirus situation right now is very concerning. It’s a very fluid situation, with updates that we’re getting on a daily basis. As Mary had said at the beginning, our focus, first and foremost, is on the health and safety of our employees, and we certainly are very concerned about the situation on an overall basis.

In terms of the impact on sales, there will be I believe a near-term impact on the overall industry. Fundamentally, dealerships have been closed for the Lunar New Year. In some regions, they’re slowly ramping back up. In many other regions, they still remain closed. So we expect that there will be an impact on volume in the near term. [Technical Issues] only speaking as the crisis passes there will be some pent-up demand. So there will be probably some bounce on the other side of it. But in terms of predicting what the overall impact of it would be to our equity income, I think it’s a little bit too early to sort of make that call. We obviously do the very best we can to get our operations started up when they could be started up and to manage our costs and expenses, to maximize our outcome.

Dhivya Suryadevara — Executive Vice President and Chief Financial Officer

I would just add that. What you’re basically witnessing is a level of equity income is almost like a downturn scenario in China. And from a level of margin standpoint as we go forward, cycling through some of the specific issues that Matt has talked about, whether it’s four cylinder engine complementing our three cylinder offering or EVs rolling out at a better margin level, that, Dan, is by what I would say catalysts for getting the equity income back to a more normalized level. But we anticipate that happening over a couple of years as opposed to a few quarters.

Rocky Gupta — Treasurer and Vice President of Investor Relations

I think we’ve got — sorry, Matt, go ahead. Were you saying something? I think we’ve got time for one more question. John, go ahead. Did I interrupt you? Were you saying something? Cool.

John Murphy — Bank of America Merrill Lynch — Analyst

Thanks. When I think about the extremely high truck returns that you mentioned, I harken back to the beginning of the presentation and the Hummer truck. From a consumer perspective, you’re going to be judged on and compared with Tesla’s Cybertruck, and that means certain requirements around battery size, powertrain efficiency — they’re going to be difficult to compete with. And then internally you’re competing with very high margin — the truck segment. So how do you balance those two? Do you have to sacrifice one for the other? Or do you think that you can have your cake and eat it too?

Mary T. Barra — Chairman and Chief Executive Officer

Well, first of all, I think we can have our cake and eat it too, because I think understanding the truck buyer and understanding those will be initially attracted to the GMC Hummer EV, and we think it’s accretive to what Dhivya talked about and I’ll let Mark talk about the proof points.

Mark Reuss — President

I can’t answer everything on how that truck — our competitions are going to actually come to market with that and when. So a little bit hard to tell from what [Indecipherable] inside information on that. But what I do know is that what we’re going to deliver hasn’t been really shown in its entirety yet. And I think we’re here to win. We’re not here to compete. So I don’t think there’s anything inside GM that’s going to compete with that either.

It sort of will be a very different application. Time is up, Rocky, I know. But I don’t think — I think we are here to win. So that’s all I’m going to say, and I feel really good about it and you haven’t seen the interior, you haven’t seen the exterior. I think on May 20, and you’ll see that. Hopefully, you will feel as good as I feel. I think you will.

Rocky Gupta — Treasurer and Vice President of Investor Relations

Great. Thanks. I’d like to thank all the speakers on the stage. And Mary, would you like to wrap up with any words? Thanks, Matt.

Mary T. Barra — Chairman and Chief Executive Officer

If I could have you for just one second, if you give me one minute to close? Thank you, all. Sorry. So I do want to thank you, all, for being here today. I know we’ve covered a lot and we have more to cover. I appreciate your questions. I know there is a bit more. We’ll be able to answer those questions as we go forward.

But today, our goal, as I said, when we started was to leave you with the confidence in our vision and the strategy that we’re executing and that you believe that General Motors is well positioned to lead in the future of mobility and in the industry. We have strong franchises, as we’ve talked about, with our trucks, with our full-size SUVs, with our mid-sized SUVs, and I believe we have the strongest product portfolio in our history.

We also are investing and have business leadership positions in growth areas like EV and AV and we’ll tell you a lot more about EV when we get to March 4. Our strong underlying business performance is driven in part because of the difficult decisions we’ve made over the last few years and our commitment that we are going to be disciplined with our capital and really work to make sure every dollar we invest is going to earn its appropriate rate of return for you, our investors, our owners.

Also, we are working hard to make sure our employees understand. When you go through this much transition and this much transformation in a short period of time, you need to make sure your employees understand how they fit in so they’re with you. We’re spending a lot of time to make sure our employees are part of this mission, and I can tell you, as I said, they get excited when we talk to them.

So just to close, I hope we see you all on March 4, and we can hopefully continue to earn your confidence in the program that we’re executing. We’re moving fast, the world is moving fast and our competitors and moving fast, but we’re going to continue to execute.

So thank you, all, very much. Appreciate all your time today.

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