General Motors Company (GM) Q4 2013 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the General Motors Company Fourth Quarter 2013 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded, Thursday, February 6, 2014. I would now like to turn the conference over to Randy Arickx, Executive Director of Communications and Investor Relations. Please go ahead, sir.

Thanks, Operator. Good morning and thank you for joining us as we review the GM financial results for the 2013 calendar year. Our press release was issued this morning and the conference call materials are available on the Investor Relations website. We’re also broadcasting this call live on the web. Before we begin, I would like to direct your attention to the legend regarding forward-looking statements on the first page of the chart set. The content of our call will be governed by this language. This morning, Mary Barra, General Motors' Chief Executive Officer will provide opening remarks followed by a review of the financial results by Chuck Stevens, Executive Vice President and CFO; Mary Barra will then conclude the remark portions of our call with some closing comments. After the presentation portion of the call, we'll open the line for questions from the analyst community. In the room today, we also have Tom Timko, Vice President, Controller and Chief Accounting Officer; and Jim Davlin, Vice President Finance and Treasurer to assist and answer your questions. Now I'll return the call over to Mary Barra.

Thanks, Randy and thanks for everyone for joining the call today. We did lot of hard work with GMT have made stronger than it was with just one short year ago. With all that headlines, I don't ever repeat them here. And surprise to say, during the last 12 months, we've received a flurry of great moves from Moody, J.D. Power, Consumer Reports, the automotive instant guides, (inaudible) and more. All of this element can help through the way for GM to this S&P 500, achieve an investment grade rating to clear out common stock dividend and report larger earnings in North America. These are all important milestones, but they are just milestones. We have more work to do and our sense of urgency will not let out one day. Our plan remains the same, we need to operate profitably everywhere we can change, deliver compelling design, excellent quality and a great ownership experience, strengthen and grow our brand, further strengthen our focused balance sheet and generate the kinds of financial returns that earn confidence of our long-term investors. All right, let’s turn to slide two and a take closer look at our 2013 financial results. To start, we delivered a record 9.7 million vehicles which is up 0.5% from 2012. Deliveries in United States and China combined increased by more than 0.5 units, although this was partially offset by declines in other markets, include Europe, parts of South America and in our consolidated international operations. Our global market share was even with 2012 and that revenue increased by more than $3 billion to just over $155 billion. Net income to common stockholders was $3.8 billion, that’s down from 2012, largely due to incremental tax expense and special items. Our automotive business meanwhile generated $11 billion in net cash from…

Thanks Mary, on Slide 4 we provided a summary of our 2013 calendar year GAAP and non-GAAP results. Net revenue for the year was a $155 billion, up 2.1% from prior year. Excluding the impact of FX translation, revenue was up 3.6% for the year. Our GAAP operating income was $5.1 billion, up from a large loss in the prior period due entirely the special items. Net income to common stockholders was $3.8 billion and diluted earnings per share came in at $2.38. As Mary indicated, the decline from the prior year was largely due to increased tax expense and unfavorable special items. Our automotive net cash from operating activities was a $11 billion or $1.4 billion increase from 2012. For our non-GAAP measures, EBIT adjusted was $8.6 billion in 2013 and EBIT adjusted margin was 5.5% as improved as an core operating performance across most of the business was partially offset by challenging environment and consolidated international operations. Finally, our adjusted automotive free cash flow was $3.7 billion for the year, $600 million decrease in 2012 largely due to the timing and sales allowances. On Slide 5 we provide the EBIT adjusted by region for 2012 and 2013. GMNA’s EBIT adjusted from significantly the $7.5 billion driven by new products. GME had an EBIT adjusted loss of $800 million, an improvement of more than $1 billion from 2012 driven by lower depreciation and amortization, and material and logistic savings. GMIO get EBIT adjusted at $1.2 billion, down significantly from the prior year as the challenging environment and consolidated operations more than offset the improved performance in China. GMSA’s EBIT adjusted was down slightly to $300 million for 2013 due to FX headwinds. GM Financial had record earnings before taxes of $900 million and corporate and eliminations was $500 million…

Thanks Chuck. In summary, we expected a year of modest growth in automobile industry volumes and followed GM results. More importantly, we are working to accelerate and work under wage to improved results on our way to becoming profitable everywhere we do business. As you know, our medium-term objective include earning 10% EBIT adjusted margins in North America, achieving breakeven results in Europe by mid decade, delivering mid-single-digit EBIT adjusted margins in South America, posting higher earnings in China and turning an improved results at our consolidated international operation. We clearly have a lot of work ahead to make all of our regions viably and consistently profitable. This is going to be a multiyear journey that we will see brand building, significant reductions in material and logistics cost and overall lower fixed cost. We are working on all of these things simultaneously in a very coordinated and fully aligned way. For example, about 70% of our Chevrolet volume in the United States will be delivered through unabated dealership by year end, up from about 60% today. The global business services team is beginning to implement strategies that are designed to significantly reduce our administrative cost. And we expect that this year we achieve through our product development, purchasing and brand strategy will improve every year. Rest assured, we are confident that we have the team, the product and the plans in place to get it done. I know we’ve covered a lot of ground today and I’m eager to hear what’s on your mind. So let’s turn out to the Q&A portion of our call. Randy?

Okay. Operator, we are ready for questions, please.

Thank you. (Operator Instructions) The first question comes from the line of Rod Lache with Deutsche Bank. Please go ahead.

Good morning everybody. Could you hear me?

Hi, Rod.

Hey. Couple of things, first just focusing on North America. In Detroit, I think you suggested that the earnings improvement from ‘13 to ‘14 would be similar to what we saw from 2012 to 2013. It’s around a $1 billion. It looks like you got a couple of percent volume growth, maybe 3% volume growth that could be $800 million. You just did $1.2 billion of positive pricing a quarter. So was hoping you can just give us a little bit more color? Are you essentially saying that maybe because the market share isn’t where you like it to be, pricing will come down or are you a little bit more cautious on volume or mix?

Rod, we haven’t really changed our outlook from what we shared back in January at the Deutsche Bank conference. And New York is the key driver year-over-year from a North American perspective. Industry, we still expect to be in the range of $16 million to $16.5 million, notwithstanding some of the challenges we had in January associated with weather. We expect mix to be a tailwind of year-over-year really driven by new vehicle launches. Pricing and new product will be up year-over-year with pricing on material will be down as we continue to see more competitive actions specifically impact carryover product. And we expect cost to be up year-over-year. Engineering D&A will be up. Advertising will be up to support brand building and launch and the material content on new products. As I indicated back in January, there actually, we would expect another step function improvement year-over-year, really being driven by the improved industry and our new product launches and some pretty favorable pricing on new products.

Okay. Can you talk a little bit about the first quarter in North America. Obviously, you got these two big launches, how significant they -- headwind is that and maybe just thinking longer term into 2015 or beyond. You are talking about getting the 10% margins by mid decade, is it reasonable to assume that you see that kind of progressing positively from '14 to '15 and then beyond. And what are some of the things that we should be thinking about is elements of improvement when we look at next year?

Okay. Yeah, first to the first quarter results or expectations for North America, clearly when you shut down full size SUV and go through a launch along with heavy duty pickups that has an impact on overall volumes and mix. On the other side, we're filling out our pipeline, with a new CTS and continue to get good traction on trucks. So I would say that the big kind of headwinds in North America really related to the launch cadence associated with wholesale utilities and heavy duty trucks as well as some incremental marketing expense related to the Super Bowl in the Olympics along with launches. Relative to our journey to 10% EBIT margins, nothing has changed versus the discussions we had in the past along with that. It is a three to four tranche phase in journey, the first, in 2013 was really driven by new products and improved margins associated with that and improve retail share we got. In 2014 we expect another step really driven primarily by product with some efficiencies on manufacturing and SG&A starting to filter into the latter part of the year. Going into 2015, we really start to expect to get some traction on cost, material, logistics, as we start to launch new products. And then, the last piece is really business model leverage and that's really all about driving improved retail share and improved loyalty, taking full advantage of global connected customer and that's can be kind of a last pieces as we moved through the cycle, so nothing to really change from what we've discussed in the past.

So just to clarify, you would think that 15 would be better than 14 even though when you look at new products, are probably going to be a record is a percent with the overall portfolio in '14?

Our expectations -- we were on our continuing upward trend in margins from ‘13 through mid-decade. Nothing has changed versus that.

Thank you. The next question comes from the line of John Murphy with Bank of America. Please go ahead.

Good morning. Just the first question on Slide 26, Chuck, you alluded to with the first quarter there being $300 million of restructuring charges. But given the cadence that you’re strong there, it would have appeared that actually went higher in the first quarter. Do you think it sort of aided for the restructuring charges through the course of the year?

In general terms, we talked about $1.1 billion. In Q1, we’re looking at this on a year-over-year basis. In Q1, I would expect that 30% to 35% of those restructuring charges were hit and then kind of worked its way down on the timeline through the rest of the year. The big restructuring items in Q1, number one there’s going to be a fairly significant charge associated with the bulk enclosure. We’ve got ongoing activities, their hidden restructuring and GMIO primarily related to severance payments as we start to look to hold an employee. And then the impact of the San Jose closure in Brazil and the severance enclosure related costs associated with that. So those are the three big items along with Chevrolet Europe in Q1. And you know again, as I think about the year, I would say that you know, more front -- of the $1.1 billion more front end loaded in the first quarter and then mitigating going through Q2 to Q4 coming down from there.

Okay, that’s very helpful. Then a second question on Slide 17. You kind of -- had alluded to when you’re talking about IO that there was a lot of competitive pressures on pricing. Are you seeing the Japanese taking advantage of the weaker yen outside of North America, in other markets? Is that kind of what you’re getting at there?

And we’ve seen that trend all year starting back in the first quarter of 2013 and it really is market specific. So we’ve really seen a lot of price pressure in Australia. For instance, Japanese are pretty strong and they primarily import from Japan. We’ve seen price competitiveness in South East Asia again; another area where the Japanese dominate and we’ve seen price pressure there. So it appears to me that they’re more overt about taking advantage of the weaker yen in those markets that they have been here in North America or the U.S. specifically.

Okay. And then just last, Mary, obviously product is a key focus of yours and the company’s now and it sounds like you’re making bigger and bigger investments in the product cadence is good here in the short-term and this is really seems to be the sweet spot in your product cycle. But as we look out into ’15, ’16 and ’17, once we get through the pickup trucks and the SUVs and the small and mid SUVs are launched in the next couple of years. I mean, do you think you be able to keep this very significant product cadence going forward or we are going to see a low after we get through this search? I mean, can you guys kind of commit, replacing 15% to 20% to 25% of your product portfolio, I am talking about the U.S. sort of on a consistent basis, let something you think you have the product engine to do now?

Absolutely, I mean, I think its -- most of our product cadence is really well product through the next four or five years. In addition to strong products and looking at what are the opportunity to commit significant changes whether it’s a powertrain, whether it’s electrification as we look at what the marketplace and what really the customer is looking for in the vehicle. So I feel very confident that we’ve got a good product cadence as we go out through the next several years and specifically with (Inaudible) in the vehicles that are on power train.

Great. Thank you very much.

Thank you. The next question comes from the line of Colin Langan from UBS. Please proceed.

Oh! Great. Thanks for taking my question. Any color in China, the margin was down rather significantly, I mean, is that, do you feel confident, you could get back those margins back where they were because you indicated was the combination of both pricing which sound like something that might be lingering for awhile and also about the new plans creeping up?

Yeah. For the fourth quarter specifically, the biggest driver that was the incremental cost associated to bring two clients. And we’ve talked about the pricing dynamic in China all year and that is a pretty competitive market. Looking forward, we expect to see continue margins in North -- in China in the 9% range. And then continuing price competitiveness, but our mix is going to improve substantially as we launch a number of SUVs in that market. So and Cadillac, we’re going to triple sales of Cadillac in China between 2013, 2015. So we would expect to continue see price headwind but we’re going to offset that with much improve mix and our expectation is, we hold margins somewhere in the 9% range.

Okay. And then thinking in GMIO outside of China, is it look like the GMIO consolidated got slightly worst from Q3. I thought, Q3 have some higher launching costs that were headwind. Why the sequential weakness in the region?

One, there is restructuring charges in GMIO in the fourth quarter of roughly $17 million. Two, as we start to prepare for the launch of the full-size SUVs and the trucks in the Middle East there was a lying down take there because they are selling down the GMT900 inventory that they have. So that’s was the headwind to large extent and mix and price from that standpoint. So those were the two big drivers quarter-to-quarter. But, I can say actually this, the region outside of China very, very tough dynamic there. We made a couple of road -- took a very decisive actions with the Chevrolet Europe decision that we made and the Australia decision and the whole purpose of that was to improve the foundation for growth going forward and there is more work to do in the number of other countries.

And then, GM South America, what was the size of the product termination impact, anymore specific and in fact there were product that were not effect your volume in the region going forward?

Yeah. I would like to avoid giving the specific product because we still sell them. So it was in the ballpark of $60 million to $70 million in Q4 on that product termination, fundamentally it's writing off the two and this is normal, that’s why it’s not restructuring and it’s not special. I mean when we end production, normal production of a vehicle, there is many unamortized herein, we write it off. So that’s was the impact there.

And why the decisions there to terminate the product all of the sudden?

As we look at our, again, the 2012 plan, we saw actually four legs to that, rationalize portfolio and sell new products, where we make more money than the product that replace and this is just part of the rationalization of reducing our reliance or eliminating legacy products, we don’t make very money on those.

Okay. Just one last question, the $600 million GM clear wage. Was that approved and how much of that will be cash and the very implications from your cost structure, obviously that’s a settlement, then I think the wager there now is kind of changing going forward?

Yeah, we accrued similar liability in 2012 when we had an unfavorable ruling and this specific litigation. We reversed it fundamentally because a very related case had a favorable ruling and internal and external counsel deemed the probability of exposing that to be low. So we reversed that. One part of the ruling that we’re still working through is the go forward provision. So this is the retroactive piece as the ruling came down in the (inaudible) case, the impact on go forward wages, you would improve bonuses et cetera and the calculation of (inaudible). So that could have a headwind on a go forward basis from a wage perspective, but we’re still working through the details on that.

And from the cash perspective, there is no cash outflow from the --

Not specific to the special item at all. No, it was a total non-cash transaction both sides.

Thank you. The next question comes from the line of Brian Johnson with Barclays. Please proceed.

Yes, good morning. I want to ask a question that’s really kind of targeted at Mary using the pickup truck market share is kind of a microcosm of how you might be thinking about pricing and promotion, how that might differ from -- for our management teams. So if you look at it, you’re trailing three months large pickup truck share was around 34%, 35%. That’s like 300 basis earnings below the 2012 headline. I certainly remember in the mid-2000s that withdrawal would be time for employee pricing for everyone. So I want to understand -- you know it is actually 33.9%. How are you thinking about that share? Is that your target given the new trucks at least in the half ton segment of the market? And what leads to change vis-à-vis product and or your pricing and or competitor actions to reboot that or it’s share kind of fine where it is?

Well, a couple of points; first the truck has gotten great review from a multitude of sources externally in one North American truck of the year. So we’re very confident in the product. We are still getting all the plans online that build that vehicle. If you look at it there has been -- you know, our new product is very effective in selling out the old product. And so there are still 13 to 14 out in the market place. So I think we still have room to get going. We will maintain our pricing discipline, but we will also walk in and react to the market to make sure we’re competitive within the market. But I’m very confident that we have solid full truck out. If you look at -- as I mentioned before, we have the heavy duty trucks coming out. In the first quarter, we’ve got the SUV and then the third part of our strategy is the mid-sized truck that will be coming out in the fall. So there’s just still a lot of going forward and we have a lot of confidence in these product and we’ll still maintain our pricing discipline.

And on the CV side, I asked this question a few quarter ago. But maybe you have a different perspective. It seems like we’re seeing kind of a global CUV boom. You’re talking about some product actions that kind of put you in that. But I guess the question is why do they seem somewhat late to some of these regions and is there a lesson learned there either around cycle time or getting the right balance between global platforms and local market demands that you’re going to kind of make different -- try to do differently going forward?

I think we have success with the Chevy Trax and the (inaudible) and the Opel Malta making that a very good success story. We have an SUV coming in China. This is a setting of the market that continues to grow and we’re going to get in and seize that. In some cases, I wish we were a little faster in getting the product into the market place. But we have a complete cadence that we’re working through and you know we have I think very good products that we’ve announced and are out in the market and what we’ll have upcoming. Again it’s a significant part of the market and I think we’ve got the right products cadence as we go forward.

Thank you. The next question comes from the line of Adam Jonas with Morgan Stanley. Please go ahead.

Thanks everybody. I’ve got a couple of questions. The first question is for chuck and then one for Mary. Chuck, any guidance on the pension expense year on year given how you finished up?

We're looking at overall relatively flat year-over-year. This year, we looked at all for 2013, I had one, but as I look into 2014, relatively flat, nothing material one way or the other.

Great. Chuck, what's for Chinese JV dividend now, meaning on trailing 12 months, how much you pull out of the business, it used to be around a $1 billion just curious, how much higher or similar it is?

Fundamentally, we will end up giving dividends relatively equal to the equity income over time.

Over time but any delay -- because I know it's based on the prior year and there's certain payout, I'm just curious can you quantify how much came out last year?

I'll have to get back with you on that Adam, I think it was slightly below the equity income in 2013, which we expect to catch-up this year.

Great.

$1.7 billion was the number in 2013.

So slightly below that?

No, that was the number that we got which was slightly below the equity income.

Okay, thank you. And then lastly, Chuck, GM Financial, you guys are guiding for stable profit this year, but I'm curious why when we're getting all these new consolidated operations coming in, any kind of one-offs that don't repeat or is it new headwinds that you're allowing for?

Yeah, I think there's incremental costs in building out the platform to help grow in the U.S. to take that business to 20% across all of the different aspects of the business lease financing. And also some integration in systems costs in the international business, there's a lot of work to do, over there from the systems perspective, so I would call it a non-recurring one-time investment in the business.

And Mary just lastly if you were to isolate the single biggest challenge or threat facing the company, both in your domestic market and then separately in your international markets, I'd love to hear your thought and if you were to highlight the biggest threats, for us?

I guess I will --

I'm a glass half empty kind of guy, so sorry.

Okay, and I'm a glass half-full kind of person, so I would characterize it as opportunities, I mean clearly I think we've got a strong product themes, I think we're getting the recognition in the product cadence that we need to continue to build our brands. I think we all know that there's a multi-year activity, you don't, recovering one year or two -- from a historical perspective, when we look what's in the car park, that's a huge opportunity. So winning products and my goal is that everything that we choose to compete in and around the world, we're going to win in those product. As we continue to do that we've got to work on the other three [Ps], as it relates to making sure we go to the market strongly, continue to build the brands. I still see there's tremendous opportunity in China, we have the three brands there, Buick is being very strong, Cadillac is a huge opportunity and there's a still a lot of room for Chevrolet in China so obviously those are great opportunities. Third, you've got to really focus on maintaining our cost structure. I think we've got a lot of good activity going on in very coordinated way to make sure we're not just looking at cost here or cost there, but systematically looking at our overall cost structure, whether it's been the fixed cost of the business or the material cost of the logistics, so I think that's another huge opportunity and we'll keep our focus on each of those.

Thank you very much, indeed.

Thank you. The next question comes from the line of Patrick Archambault from Goldman Sachs. Please go ahead.

Yeah, Thank you for squeezing me in. Couple of questions, just on the outlook. I know that the Trade Auto Show wasn't a long ways away but since then you've had a bit of a currency crisis, which has clearly impacted fourth quarter results, likely to impact fourth quarter and it's likely to be a big impact to your point? And first, Europe, especially considering you had a -- I think was it $100 million of restructuring in the number, it seems to have come in pretty well. Even though the outlook hasn't changed, would you consider the upside-downside regionally to have shifted a little bit, in particular the question would be for Latin America and Europe?

I think that's a reasonable characterization, as I indicated in the comments earlier. The risk profile on South America over the past several weeks has increased significantly. We still see, no line of sight and a resolution to the business operations in Venezuela, and at the same time Argentina seems to be a bit more -- significantly more fragile. So I would say the risk profile has increased and in South America I would say emerging market, currencies that move sideways pretty significantly across the world over the past several weeks. All right were not just sitting back and watching this happen, we’re taking you know aggressive actions where we can from both the price and cost perspective to address that. So I would say you know more downside risk now than we had you know a month or so goal on South America and I would say on the basis of how we finished in some of the momentum that feels like we’re starting to get into new year if I was more bullish on outlook versus you know two or four weeks ago I would say Europe feels like you know there could be some upside there.

And thank you, and particularly on the price increase of Europe I think if, I don’t have the page in front of me but you know it was sort of may be a slight negative but you know how would you characterize the pricing environment I mean with volume starting to pick up there, is that something that you anticipate is getting better?

No, and let me go back and make sure that we understand that the reference to outside of Europe let’s start with the foundation for 2014 because we need to declare on that. When we talked about 2014 versus 2013 we said that was going to be a transition here in Europe. Number one, our new key launch is in the most critical segments the GMC segment don’t happen to the latter part of 2014 and 2015, so you know we think that that’s going to be a dynamic that they are going to have to manage to. We also said that we expect a continued price headwinds in the market and I think in our case it's estimated by you know the age of the portfolio in the GMC segment. We’ve got significant year-over-year restructuring charges as a headwind in Europe as well and Russia. Russia is consolidated and part of European operations now with the weakness of the ruble gets created as a talked about back in January and not really a year-over-year headwind. So in the context of say you know we had that a lot and European results are as I indicated before are going to be down year-over-year and margins are going to be down year-over-year primarily driven by restructuring charges in Russia I think that you know my senses from that foundation that is probably some outside but it’s still going to be down year-over-year because of the restructuring primarily.

Okay, that’s very helpful to frame that and last question for me is just on the North America walk. You know I guess one thing that I didn’t sort of expect was the negative impact of mix I mean obviously was offset by tremendous pricing but you know can you just explain that a little bit I mean I guess you said country mix which I suppose would be Canada and Mexico but and sort it's the price just given the truck production that that would have been negative.

Yeah, you know I would say the mix results in the fourth quarter a bit of anomaly I mean we had indicated for the year that we are going to be flat to slightly positive on mix in North America, we ended up flat. We indicated for 2014, next it was going to be a tailwind and we continue to see that. The fourth quarter one, we had compared to year-over-year, every proportion of production allocated to Canada and Mexico so that had a headwind. Number two, in general, our passenger cars versus struts as a percentage of total sales or total production were up year-over-year, and then the last thing which really was a significant impact, there was a number of full-size pickups in blue from Mexico to United States but didn’t get passed that pay point or recognition point before in the year and that created another anomaly in mix, I would be view this as more than anomaly than a trend.

Okay, so those trucks will get recognized in the first quarter.

Yep.

Thank you, next question comes from the line of (inaudible) please go-ahead.

Another question regarding the North American walk-in so what do you mean for the 2014 outlook, your cost headwind on year-over-year basis worsened little bit to assist the run rate that we had seen in the past couple of quarters that about you know 500 million or so and you are pointing specifically to its being the materials included and then you the new products that you’ve been launching, so how should we think about that on the go forward basis, is that sort of run rate you think about the cost increases or was that a little bit more because of the launches?

Well, I think it's time to -- launch is the one you recognized, I’m talking specifically about Q4. Pricing and new products primarily, the new trucks that is well the Impala, the Corvette, CTS was favorable over a $1 billion and pricing on new products. The materials cost that goes along with that, so there is new content, right, features on the vehicles were $600 million to $700 million. So that's a big portion of the cost headwind in Q4. But net-net, it was accretive to earnings at $300 to $400 million or 30% to 40% variable margins. And that's the kind of dynamic you typically have when we launch a new product. So as I talked about 2014 before similar to 30, price was going to be up, primarily on new and major, material costs will be up and newly launched products but net of those two is positive to EBIT and that trend will continue.

Understood. That's very helpful. And then more strategically maybe for Mary, as you sort of settling the renewal, what are your strong near-term priorities and specifically if you can highlight if there is any sort of directional change that you would like to implement from the previous management?

Sure. There is no right or left turn. I think our growth opportunity is to accelerate the -- from a focus perspective is keeping a strong customer focus. We've got to continue to make sure that we've the right vehicles out there with the right quality. We have work to do but we're on it and building strong brand. We need to continue to maintain our focus balance sheet and again, one of our key areas of focus is to operate profitability everywhere we operate. And we know we have to work to do on that. So we are focused on that. I think one of the opportunities, that’s creating the President position and I was very involved in putting that role together. I think there are opportunities across our regions that we can seize more quickly to have a very stronger go-to-market strategies also to make sure that we are seizing the opportunities in the product portfolio more quickly and really managing on a global basis. So, again, it's really to move forward with the plan and I think we've got a strong foundation, but we really need to now take advantage of it.

Great. Thank you very much.

Thank you. The next question comes from the line of Ryan Brinkman with J.P. Morgan. Please go ahead.

Hi, good morning. Thanks for taking my question. I know you don't host monthly sales calls in the U.S. any longer. So, I got to ask in this form, whether you have any comments on the slower start in software GM sales in January? Are you able to quantify the impact of weather on your sales and shares, I think some of the regions in the U.S. where you share was a bit lower like California or maybe less impacted by the winter storms? It looks like you're maintaining your full year start outlook, so just maybe comment on how much of January slowdown industry wide and for GM is related to potentially one-off factors?

Yeah. I would say, the impact for us in December and January and it look like, at least if you are seeing here so far in February, was really primarily weather related. The SAAR in the month of January ran at $15.1 million and it was actually down year-over-year. And we over index to the Northeast, North Central, Midwest and that's where the bad weather was. And I would say by and large that had the impact in not only in our sales, but also on the SAAR. The good thing is January is the lowest month of sales from an industry perspective. So you can have a $15 million or $15.1 million SAAR for the month of January and quickly recover. And we would expect to recover most of the sales that we lost in the January as we go through the rest of the first quarter, assuming the weather behaves and into the spring selling season. And we're still holding on our prior view of U.S. industry $16 million to $16.5 million like. So we're going to -- obviously, we're going to continue to monitor our industry and our own inventory levels. And make sure that the industry does recover and it's not, as Mary said earlier, we're going to continue to apply our disciplined approach to managing supply and demand. But right now, nothings really changed based on January results.

Okay. Thanks. That's helpful. And obviously you're returning a lot of capital to shareholders with your new dividend. But I'm curious what your thoughts are relatively to repurchases and if you were to implement the repurchase plan at some point, whether it might make sense to do it sooner rather than later, it gives them the pullback in your shares in your characterization of 2014 as a transition year with much better results to come suggesting that you may not get a another chance to buy your shares so cheaply in the future.

Yeah, I think back in January we laid out a pretty clear planning level -- capital allocation for 2014. One, we’re going to continue to support the capital spend that we need to maintain that product pipeline and continue to enhance that going forward. We’ve got the one plus billion dollars of restructuring that we’re going to have to fund. In 2014, we’ve got the rest of the Ally International Acquisition in the front for $700 million in that business. We did the rest of the Series A redemption which will be a call of $3.9 billion of capital and $2.2 billion of dividend, 1.8 times and $400 million Series A. So that’s $16 billion of capital allocation. And we think that’s a pretty good plan and the dividend really made a strong statement around how we plan to return capital to shareholders. With that said, I think we’ve proven to be opportunistic in the past, you know situations arise and we’ll monitor that we go through the year. The facts, you know fundamentally, the plan that we’ve laid out that we’re executing till this year.

Great, thanks. Then just last questions if you could elaborate on the lower cost in Europe. That looks like overall cost there, hoped to be -- $500 million. And I think restructuring was a drag year-over-year. Can you just remind of that so maybe the underlying costs improved even more sort of pocketed, where did that come from, your distribution bench with PSA, salary personal reductions commodities et cetera? Just trying to -- anything that can help us gauge the sustainability of cost improvement in Europe because people really ask; can you sort of maintain that as volume returns? Thanks.

Yeah, looking specifically at Europe from a cross perspective, overall in the quarter, half a billion -- purchasing, so material performance and some of this will be associated with the Gefco logistics -- alliance that we have our partnership. It was about $100 million in savings, engineering with $100 million in savings. (Inaudible) and D&A $200 million savings offset by -- partial offset by the restructuring. This is not -- extrapolated on our run rate basis going forward when we look at year over results obviously, you know a lot of the actions that was taken over the past couple of year that reduced our roll of fixed cost base, the next big step, once we get past 2014 will be the ongoing savings associated with the call that $200 million to $250 million a year in savings. But I think another thing that maybe underappreciated in some of the views on Europe; we had that significant impairment that we took in 2012 that fundamentally rolls down most of the assets and significant savings in D&A. We’re investing €4 billion or $5 billion, much of that going into tooling. And that depreciable base has started to increase. And we think over the next three or four years, year-over-year we’re going to have increased D&A versus where we were in 2013 as we launched new products. So not all of these are run rate savings. I think we’ve fundamentally driven the business at least on a fixed cost perspective to the right level, we’ll continue to look at streamline that, but not material changes until we get past the bulk enclosure. And then beyond that as it was indicated from the PSA alliance, a lot of material savings will eventuate when we work on the joint programs going forward which are later over the next two or three years.

Great, thank you.

Thank you. The last question for today comes from line of Itay Michaeli from Citi. Please proceed.

Great, thank you. Good morning. Chuck, a question on the North American margin past 10%; I think when you outlined it initially, it was (inaudible) seven to 10 was a third -- product and then two thirds cost savings, split the material logistics. Just wondering how far along are you now on the fixed cost and logistics and perhaps how far along will you be (inaudible) when we close out 2014?

Yeah, think about this in a kind of three big tranches I would suppose. Roughly 100 basis points of the product related -- 100 basis points of material and logistics and 100 basis points kind of business model leverage over time. I think that we -- as we refine this from 2011, 2012 to now, the fixed cost efficiency we’re going to drive and administration SG&A and manufacturing, fundamentally we’ll offset incremental D&A and incremental marketing cost. So the way I think about it -- a good outcome for us would be flat fixed costs as we continue to grow the business. So I’d say, as we get through 2014, kind of the first tranche of product-related margin expansion. We will have fundamentally played out and then the material and logistics piece will start to kick in with the next generation programs. Because that’s where you are really get an opportunity to drive scale and leverage that scale with global architectures and business model leverage as I have talked about earlier would be the latter piece, not in the ‘15 and ‘16 timeframe.

Okay. That’s helpful. And then the question on the 2015 outlook that GMIO consolidated, I think in Detroit you do specifically referred to improvements driven by product launches and restructuring benefits, hoping you could perhaps quantify the restructuring benefits we should expect there in 2015 as well as to have what kind of product refresh rate might you have next year versus this year there?

Yeah, I would just say, eliminating the -- we don’t talk about specific operations within our regional results but we lose money in Chevrolet Europe. So that would be one of those benefits once we get passed that transition. We are looking to significantly improve profitability or reduce our losses in Australia. So those are the two benefits of the actions that we’ve taken that should help improve. We think about product launch cadence, I mean just think about the Middle East, full size SUV, full size pickups, four launches of those products in the Middle East. We have significant work to do in the other markets as well from a launch cadence perspective we’ve talked about. The B-SUV, the Trax, Encore and Mokka, there is more of those coming down the pipeline. And fundamentally, in the emerging market, the BC-type vehicle is going to be very-very important for those markets looking forward. So I think we talked about 2015 being improved from 2014. We didn’t quantify it.

Great. Just quickly lastly, any updated thoughts on the tax rate for 2014?

From a book tax perspective, its going to be in the low 30% range. We made a change in including equity incoming to denominator to be similar with ‘14 industry practice which should take us to 30%, 31%, 32% from where we were in 2013.

Perfect. Thanks so much.

Yes.

Thank you Mr. Arickx. I will now turn the call back to you. Please continue with your presentation or closing remarks.

Thank you, Operator, and thank you everyone for your time today. I appreciate it.

Thank you ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines. Thank you and have a good day.