00:00 Speaker A
All right, General Motors is out with much better than expected earnings and a raised full year outlook, but the auto giant is still warning that tariffs from the Trump administration will hammer profits by as much as $4 billion. The company is also restructuring its EV business as it takes a more subdued view on the industry’s outlook. I caught up with GM CFO Paul Jacobson earlier today on the NYSE trading floor to get an inside look into the results and outlook.
00:26 Speaker B
Well, you know, I think this is just a testament to the resiliency of the GM team when you look at what we’ve done over the last several years in terms of uh reducing our inventory levels, being lean and being able to respond quickly to the changes around us. This is just another example. And as we started the year, uh tariffs were all the noise and we said that we were going to be able to adjust and work through it and now we’re on a track uh to be able to um to lean on that track record and ultimately look to a 26 that could be better than 2025.
00:51 Speaker C
If we were to have this conversation in April when the tariffs for first day, I think this would be a different conversation. But I mean tariffs are still impacting your business, right?
00:59 Speaker B
Yeah, so we uh uh revised our down our start over, sorry. We revised our guidance downward on the terrace side um to by about $500 million dollars. So terrace are getting a little bit better, but I think the important message for the street is that it’s stabilized. So, as we look at uh Korea getting finalized and hopefully as we get into 2026 with Mexico and Canada and then the announcements that the administration just made on Friday with the expansion of the MSRP offsets, we really feel like we can be successful in that and it’s an administration that really wants the US auto industry to be successful.
01:24 Speaker C
Within your business, where are you seeing the most pressure from tariffs?
01:27 Speaker B
Well, I think we’ve seen it across the supply chain overall. You know, when now we announced $4 billion of capital expenditures over the next couple of years to bring more US assembly or more assembly into the US and on shore. Um so that’s really what we’ve had to do is adjust to that. So as we work with our suppliers and we work with our own manufacturing footprint, that’s something that over time we think we can get back to the 8 to 10% target in margins in North America.
01:45 Speaker C
That what $4 billion dollar hit this year or three and a half to 4 billion gross impact from tariffs this year. Is that the run rate investors should expect for next year.
01:51 Speaker B
So, for next year, you know, we we still haven’t given any formal guidance yet because there are a lot of things that are changing. What we do know is we have an extra quarter uh to lap in 26 versus 2025. Uh but with the Korea deal being finalized and what we would expect tariffs to go down from 25% to 15% as that deal gets finished. And then whatever can be done in Mexico and Canada, we think that there’s a lot of opportunity for tariffs to be stabilized. And then when you apply our self-help because we’ve said now that we can get about 35% uh of those tariffs met in the business by, you know, go-to-market strategies, by our manufacturing footprint and by really focusing on discipline in our fixed costs. We think that net tariff burden next year can be lower than it was in 2025.
02:26 Speaker C
Now, I talked to a lot of uh CFOs and this has been an environment where teams have had to go get creative. You’re not necessarily going to raise prices on a piece of apparel because consumers are stretched. Like where have you been able to creatively raise prices to help offset tariffs.
02:38 Speaker B
Well, I think, you know, we’ve got a new model year that has just come out and you know, with every model year, we’ve got opportunities to add content and create value for the consumer. So I think we’ve been able to do that uh across the board, but I think it goes back to that disciplined strategy. So our incentives were about 300 basis points below the industry average and that’s a testament to the quality and the and the refinement of our vehicle portfolio. We’ve got a lot of strong demand that allows us to lean into that and work with our mix uh on our trucks and our full-size SUVs to help bring up some of that revenue and that margin performance to help offset it.
03:04 Speaker C
Is the consumer resiliency surprising you?
03:06 Speaker B
Uh, I wouldn’t say it’s surprised us. I think, you know, at the end of the day, we’ve we’ve had a lot of strength that is really kept up for the last several years in the face of a lot of adversity. So, um many of our customers across the board, uh we’ve seen increased demand for higher trim levels over the years, etc. It’s held up pretty well. But also, when you look at our portfolio, we’re also at the low end of the of the uh cost side on uh on vehicles with the $20,000 Chevy tracks, for example, that we’ve had tremendous success in. So I think being able to be a global producer that allows us to uh package a portfolio of vehicles across the consumer spectrum has really served us well.
03:38 Speaker C
GM uh CEO Mary talked about in her shareholder letter for for earnings, onshoring or reshoring of jobs. Walk us through how this will unfold over the next few years about in terms of bringing jobs back to the US and will you be building more plants here to support that?
03:52 Speaker B
Well, really what we’re doing, Brian, is kind of shifting some of the under capacity that we’ve had in the US, filling that up and shifting that to other plants uh globally. Uh but, you know, Orion is a great example of that. This is a plant that we were bringing up for a lot of EV demand. That’s clearly not going to happen over the next several years. So, instead of uh continuing down the path of making a lot of EVs that the customers maybe aren’t ready for at that level of demand, we’ve shifted that into internal combustion engine production. Gives us a little more incremental production on full-size SUVs, but allows us to domestically produce a lot of full-size trucks uh that are going to help to ease that tariff burden going forward. So that’ll come online at the end of next year in early 27, uh and we’re very excited about that. and I think it’ll be a I think it’ll be a big win for our customers.
04:31 Speaker C
In this regard, are the president’s plans working?
04:33 Speaker B
You know, I I think they are for us. I mean, he’s already he’s always supported the US auto industry and I think this is a really important industry for the country uh as a whole. and as we look at that tariff burden, making sure that we raise the concerns about ensuring that we’re competitive with all the importers that are in the market. Um, things like the MSRP offset expansion have really helped us uh in a way. I mean, ideally, would we rather not have tariffs? Probably. I mean, our margins would be about 300 basis points higher, but this isn’t something we’re making excuses for. We’re just going in and trying to perform and we think we can be on that path to get back to 8 to 10% margins.
04:59 Speaker C
If I read the earnings release correct, Paul, uh what a $1.6 billion charge almost for the EV business. Um, what are your EV plans and why are you scaling things back?
05:07 Speaker B
So, you know, if you look at what we’ve done over the last few years, we were building a lot of capacity because the regulatory environment was pushing us into a world where we were going to have 40 to 50% EVs required by 2030. Uh clearly natural demand hasn’t gone there. Uh we’ve seen some increases in that. We’re seeing a little bit of an adjustment right now as the consumer um uh realizes that the $7,500 consumer tax credit has gone away. So it’s going to take a little while for that to stabilize, but we think it will grow naturally, but it’ll be much, much slower going forward. So we’ve got to go in and and fix and right size some of that extra capacity that we think we’re going to have for the next five years. That will allow us to be more efficient with our incremental production and grow in relation to where demand is going to be. So the $1.6 billion in the third quarter represents some capacity at Orion, some tooling and some equipment, uh as well as the cafe credits which um, you know, the the president changed uh uh earlier this year. So as we look at that and filling that up going forward, we still have a little bit more adjustment to do on total EV capacity, but we think it’ll position us to win for the long-term.
05:58 Speaker C
Are EVs still a viable business longer term?
06:02 Speaker B
Yeah, we think for sure they are. When you look at the success that we’ve had, we’ve clearly established ourselves as the number two uh producer of EVs in the United States market. And uh I had a ride in the Cadillac Escalade IQ this morning. It’s an amazing vehicle across the board. So uh we can help you get one if if you’re interested in purchasing one. But you know, it it’s a vehicle that has all the range and all the performance capabilities and I think it is going to be the future. This slower demand is going to give us an opportunity to uh improve our battery chemistry and our form factors, realizing thousands of dollars per vehicle or savings and ultimately be in a position to scale up as the consumer does. But we think they’re going to win in the end.
06:33 Speaker C
One number uh among many that that caught me by surprise was the performance of GM Financial. I mean, profits up year over year, but this comes at a time where we’ve seen what the tri color bust, uh we’ve seen first brands bust, concerns about people not being able to pay off their auto loans. How do you see this unfolding from a GM perspective over the next over the next year?
06:47 Speaker B
Well, Susan Sheffield and the entire GM Financial team do an amazing job of making sure number one, they’re serving our customers, but number two, they’re protecting and and strengthening their own balance sheet across the board. So when you look at the credit quality of the loan portfolio as well as their availability to consumers, I don’t think there’s anybody better in the captive industry uh than what the GM Financial team is doing and it’s clearly been a strong asset for us in helping to be creative to meet our customers where they are.
07:05 Speaker C
Do you see a a a problem happening though in the industry? We heard Carmax even talk about people not making car payments. Like how how bad could this get?
07:12 Speaker B
Well, we’ve got mostly a a significantly a prime portfolio. So we we’ve seen a little bit of changing in delinquencies but nothing that is really different to the sort of pre-covid area era where a lot of invest a lot of customers had money in their pockets after the after the covid um uh grants and and so on that went out. Um but we’re not seeing anything that’s unusual in terms of delinquencies across our customer base.
