GM
#Factored in.
I mean, we factored in the expectations from ---+ at least ALG and other's expectations for what's happened with used car pricing.
So a continued normalization of used car pricing.
Obviously we factor into our pricing and cost of funds, expectations, continuously rising interest.
So that's factored in.
Going back to the conference, <UNK>, in January, we laid out all of the downsides and headwinds that we saw in 2017, and what we were doing to mitigate that in the context of our guidance.
And the factors you mentioned were part of that ---+ pricing dynamic, continued investment, and new technologies, the pricing environment in the US and China, for example, raw material headwinds in 2017 versus 2016, FX from a global perspective.
That dynamic is not getting any better.
But when you look at the things that were under our control ---+ costs, our product launch cadence, which will improve mix and pricing ---+ we again are confident that we're going to see strong results again in 2017.
Just to answer those in the order that they came in, <UNK>, as we move through the 2016 calendar year, our lease penetrations came down.
You may recall, earlier in the year, first quarter, second quarter 2016, lease penetrations were up in the high-20%s, and we moved them down to where we ended.
As I said, mid-20% is the appropriate level, and that's something that we would continue to manage.
Relative to our lease residual exposure, or our thinking of lease residual, I've covered this before, vis-a-vis, some of the competition.
We've got a different mix.
Because GM Financial has been leasing vehicles and been the captive lease provider only for the last couple of years, we have a significantly different mix ---+ lower penetration of passenger cars, higher penetration of trucks and SUVs.
And I'm not going to give you specifics on what we're assuming from used car.
All I would say is, we're anticipating continued moderation and normalization of used car pricing, not inconsistent with third-party-type data that you could get out there, over the next two to three years.
I would say, in total, in the range of about 7% over the next two to three years.
But I'm not going to give a year-to-year specific.
And one of the fundamentals relative to how we're running the business residual [modeling], we're working with GMF, our Express Drive, 100% of our vehicles being re-marketed by GMF, so that we can efficiently absorb and distribute in a way that is not detrimental to residuals, the vehicles that are coming off lease.
And that's one of the reasons we've significantly reduced our daily rental sales as well.
So taken in balance, I think we've got a reasonably balanced view of what's going to happen, from a residual perspective, over the next number of years.
Yes, I would say the following.
Over the last number of years, the pricing environment has been moderating.
If you look at overall incentive spend as a percentage of transaction price, it's been inching up on a consistent basis, which is certainly not unexpected where we are in the cycle.
We continue to be very disciplined.
Our actual incentive spend, compared to the industry, has come down.
Back three or four years ago, we were running at 110% of industry.
In the 2016 calendar year, we were closer to 103% or 104%.
And I think that just highlights the strength of our product lineup.
I would expect to see incentive spending inch up again in 2017.
We said that we expected continued pricing challenges, or competitive pricing environment, in the United States and China.
Within that though, when you look at our launch cadence, let's remember, in 2016 we have the oldest compact and mid-crossover lineup in the industry, and still perform very well.
That's going to be completely refreshed, which should provide an opportunity.
Trucks continue to perform very well, demand is strong.
We're running all of our plants on three shifts, full-on.
So supply and demand in balance.
Where we have challenges is, our cars, and we're aligning supply and demand on that by cutting production.
So on balance, a more challenging pricing environment, but we think we're well-positioned within that, given our product launch cadence.
At the last point, that is correct.
To your first question, that Q4, I would say was run rate, when we have ramped up the AV engineering and cruise automation at roughly plus or minus $150 million a quarter.
We weren't spending very much at all until we got into the fourth quarter.
And I would expect to see a run rate similar to that in 2017, roughly $150 million a quarter.
That will, we believe, be sufficient.
Because we've already got the architecture, with the Bolt, to put us in a strong position from an AV standpoint.
And when you look at the overall corporate sector, you've got that year-over-year roughly $450 million increase, plus there's some incremental legal expense in 2017 versus 2016 related to the ignition switch activities.
And as I think about that, beyond 2017, who knows.
But that should start to moderate beyond then.
The EBIT bridge is on a consolidated basis, so it would exclude China.
We report China equity income ---+ the drivers of China equity income in 2016 similar to 2015.
Pretty similar.
Volume is positive, mix is positive, pricing has been a 5% headwind, material cost performance has been a positive.
And then as we've ramped up plants, the fixed cost has inched up net-net.
In that dynamic, we've been able to maintain the equity income.
But you've seen the margin compression, which we've talked about before, on a go-forward basis, due primarily to pricing, that the margins were going to compress.
And we saw that play out in 2016.
I think the drivers of the industry over there are very consistent.
Higher volume, better mix, pricing, is going to be a headwind kind of in the same zip code, in the 5% range.
Material cost efficiency will be a tailwind.
And then, between their cost-down, efficiency-up and full run rate on the plants, fixed cost will be up slightly on a year-over-year basis.
But generally consistent with what's been driving the business the last couple of years.
Yes, for the fourth-quarter 2016 versus 2015, inventory build ---+ because you've got to look at the change, and the change was about 100,000 units.
And when I look at the net impact of that, about $100 million.
Volume was up, but mix was unfavorable, because a lot of the stock was building up stock of passenger vehicles, which we're now addressing.
So that's the impact in the fourth quarter.
Absolutely consistent with what we talked about back in December, we will be building inventory as we move through the first half of the year.
We will be addressing the passenger car part of this with the shift reductions that we've announced.
But we'll build inventory of our crossovers leading into the launch, as well as trucks.
And then inventory will normalize in the second half, very similar to the dynamic we had when we transitioned from the GMT 900 to the K2.
And then we would expect to end 2017 in the same zip code as 60- and roughly 70-day supply.
Well, the electrification costs, depending on ---+ they end up in the vehicles themselves.
And if it's engineering costs associated with electrification, it goes to the region, fundamentally based on engineering resources deployed.
The reason that we're separating autonomous is because we would expect over time, as we continue to move that business ---+ along with Maven ---+ forward into a commercial piece of the business, that we want to make sure that there's visibility around that on the commercial side of autonomous vehicles.
Because we would expect to commercialize that obviously.
That would have been part of our overall engineering expense.
So certainly a portion of the engineering expense, but I'm not going to break that out separately.
You know, as it relates to trade overall or NAFTA, it is just really too soon to tell.
But I mean I think we've got a seat at the table and are providing input, because clearly we don't want to create a situation where we impact jobs in the United States.
Which will quickly happen, when you look at how integrated the supply base is, and how things go back and forth.
So it's really way too soon to speculate.
What we're looking for is fair, free trade, because we believe that, with every country ---+ because we believe then the strength of our product line will allow us to do well around the globe.
So in all the conversations, we're making sure people understand possibly some not-understood aspects of the business, so a very informed decision can be made.
As <UNK> said, we do support overall tax reform, but the details are key.
And that's why we're having such an active voice in making sure the business is understood, the jobs we provide, et cetera.
I would expect that our pricing dynamic, if you're speaking specifically to North America, will be ---+ year over year, on new, will be a little bit more robust than the $200 million a quarter in 2016, based on the crossover launches.
Yes.
Thank you.
So I just have a couple of quick closing comments here, and I want to share a couple of key takeaways.
First, the Company is producing strong financial results.
And I think we've given you a lot of reasons and specifics of why we plan to continue to do just that in 2017, and realize stronger financial results.
We believe, overall, GM is a better, more disciplined and more focused Company.
And you'll see us continue to drive that focus across all 220,000 employees around the globe.
Because we believe there are more efficiencies that we can deliver, higher quality, and continue with strong products, as well as our investment in the future of mobility.
All of this to drive strong shareholder value.
We are taking the steps to make sure, in the very important area of the future of mobility, that we have a leadership role, and we're building on a strong foundation in many of these areas.
And overall, if you step back and look at 2016 as a whole, we're demonstrating that we can do what we say what we're going to do, and continuing to build that track record of delivering on our commitments.
So we look forward to a very strong 2017.
And I want to thank all of you for participating on the call.
