General Motors Company (GM.US) Q3 Earnings Call: ICE Business Provides a Stable Foundation, EV Cost Reduction and Autonomous Driving Monetization Open Up Growth Space

Title context: General Motors Company (GM.US) Q3 Earnings Call: ICE Business Provides a Stable Foundation, EV Cost Reduction and Autonomous Driving Monetization Open Up Growth Space Text: U.S. auto manufacturing giant General Motors Company (GM.US) showed at its Q3 2026 earnings call an operating setup of stepping up its internal combustion engine (ICE) business to support profitability, using cash flow to support buybacks, and expanding revenue sources through software services. The company's quarterly revenue reached a record $50 billion, up 3% year over year; adjusted EBIT was $4.1 billion, up 22% year over year; adjusted diluted earnings per share were $3.70, up more than 30% year over year; and adjusted automotive free cash flow was $5.9 billion. North America margin recovered to 8.7%, as an improved full-size pickup mix, lower warranty costs and narrower EV losses offset part of the cost pressure. Management raised full-year adjusted automotive free cash flow guidance to $11.5 billion-$12.5 billion, narrowed the adjusted EBIT range to $14.5 billion-$15.5 billion, adjusted the adjusted diluted EPS range to $12.75-$13.75, and added a new $20 billion multi-year share repurchase authorization, equivalent to more than 25% of the current market value. Management believes the company's valuation is low but did not commit to a specific buyback timetable; EV supplier settlement payments are expected to fall significantly in 2027, which is expected to further release cash actually available for investment and shareholder returns. General Motors Company management said future growth will center on the next-generation Silverado and Sierra pickups, expanded output of SUVs and crossovers, OnStar and Super Cruise digital services, and the defense business. Digital services recognized more than $800 million of revenue in the third quarter, up 15% year over year, and are expected to exceed $3 billion for the full year, with deferred revenue expected to approach $7.5 billion at year-end; the company expects the Super Cruise take rate on full-size pickups next year to reach 4-5 times this year's level, with the overall equipped vehicle parc growing nearly 50%. The EV business is expected to reduce losses by $1 billion-$1.5 billion this year, and next-generation batteries are expected to drive further profitability improvement in 2028-2029; hybrid models are already included in planning, and artificial intelligence is also being used in design, manufacturing and fixed-cost optimization. The China business has been profitable for eight consecutive quarters, the auto finance business remains stable, and new defense contracts support more than 30% annual revenue growth and double-digit margins. General Motors Company management said that looking ahead to next year's growth prospects, the key precondition for continued earnings growth in 2027 is that demand remains stable and recent cost pressures ease somewhat: the company expects commodities, logistics and dynamic random access memory costs to create a combined drag of about $2 billion this year; if recent prices remain high, 2027 could still face a year-over-year cost headwind of about $2 billion. Formal annual guidance is expected to be announced in January 2027. Below is the full transcript of General Motors Company's earnings call (translated with the assistance of AI tools): Operator: Good morning, everyone, and welcome to General Motors Company's Q3 2026 earnings conference call. [Operator instructions] As a reminder, this call is being held on Tuesday, October 20, 2026, and is being recorded. I will now turn the call over to Ashish Kohli, Vice President of Investor Relations at General Motors Company. Vice President of Investor Relations Ashish Kohli: Thank you, Amanda. Good morning, everyone. Thank you for joining us to review General Motors Company's Q3 2026 financial results. Our call materials were released this morning and are available on General Motors Company's investor relations website. This call is also being webcast. Joining us today are Mary Barra, Chair and Chief Executive Officer of General Motors Company, and Paul Jacobson, Executive Vice President and Chief Financial Officer of General Motors Company. Susan Sheffield, President and CEO of General Motors Financial, will also join for the Q&A session. On today's call, management will make forward-looking statements about our expectations. These statements are subject to risks and uncertainties that could cause our actual results to differ materially. These risks and uncertainties include the factors set forth in our filings with the U.S. Securities and Exchange Commission. Please read the safe harbor statement on page one of the presentation materials, to which the content of this call is subject. With that, I am happy to turn the call over to Mary. Chair and Chief Executive Officer Mary Barra: Thank you, Ashish. Good morning, everyone. First, I want to thank our employees, dealers and suppliers. In this industry, delivering solid results quarter after quarter and year after year requires commitment, focus and resilience. The agility, teamwork and dedication everyone has shown are outstanding, and I am deeply grateful. Through the third quarter of this year, we delivered $12.3 billion in adjusted EBIT, $12.2 billion in adjusted automotive free cash flow, and $10.97 in adjusted diluted EPS, the latter up more than 35% year over year. In the third quarter, our North America margin was 8.7%, up 2.5 percentage points year over year. The compelling products, technologies and services we offer customers around the world give us confidence in our ability to continue delivering long-term growth in earnings and cash generation, as well as our ability to return capital to shareholders. Our journey to improve cash flow generation began five years ago, and accordingly, we increased investment in the business and continued to strengthen the balance sheet. Then, in 2023, given our low valuation, we began using surplus cash to repurchase shares. Since then, our fully diluted share count has been reduced by 37%. The new $20 billion multi-year repurchase authorization announced today further reflects the board's commitment. As this quarter's results and revised guidance show, our business is performing well even as we are launching a significant new product and facing inflationary pressure in logistics, commodities and memory. This is because, over the years, we have made the business more resilient by strengthening our vehicle portfolio, developing new higher-margin revenue streams, and maintaining strict discipline in production, pricing and incentives. Looking ahead, the external headwinds are clear, and some are intensifying. Despite a more challenging road ahead, assuming customer demand remains strong and commodity, logistics and other recent cost pressures ease somewhat, we still believe 2027 will be another strong year, and better than 2026. On the favorable side, we expect incremental benefits from improved warranty costs, lower EV losses, growth in software and services revenue, and the launch of the next-generation Chevrolet Silverado and GMC Sierra light-duty pickups. The current Silverado and Sierra have been strong performers in design, performance, technology and innovative features. We have now held the U.S. sales leadership position for 19 consecutive quarters, and our market share has increased by a full 10 percentage points since the current models launched in 2018. Today, even in their final model year, our sales, market share and financial performance remain strong. That is direct proof of the value we deliver to customers. Our new pickups will build on that foundation, with interior and exterior design reaching new levels of refinement and precision in detail. Our trim strategy allows us to meet customer needs across price points while giving customers a clearer path to upgrade to higher-value configurations. For example, Chevrolet's High Country sub-brand has become more premium, modern and sporty, with materials, features and technology closer to the Deluxe Corporation SUV experience. Sierra Denali remains the core pickup combining premium positioning with strong capability, while Denali Ultimate moves further toward the brand's flagship positioning. We are also making powertrain choice an important part of the product value ladder and a means of optimizing the sales mix. We will offer the TurboMax four-cylinder engine with class-leading standard torque, the segment-exclusive Duramax inline-six turbo-diesel, and all-new 5.7-liter and 6.6-liter V8 engines. Each engine is tuned for different performance needs and lifestyles, and we will focus on what pickup customers value most: usable torque, smooth and predictable power delivery, real-world fuel economy, reliable towing capability, durability under load, and a refined ride. To ensure quality and durability, we subjected the new V8 engines to more than 100,000 hours of dynamometer testing and completed more than 1.6 million miles of real-world validation before vehicles are delivered to customers. Production has begun at the Silao plant, and customers should see the first new vehicles arrive at dealerships later this year. The Fort Wayne plant will follow in the first quarter, and the Orion plant will begin producing these pickups in the second quarter. We expect 2027 pickup production to be roughly flat with 2026. In 2028, we will have added capacity to support CKH HOLDINGS market share gains in the segment. Pickups will also be an important driver of Super Cruise adoption and digital services revenue growth, as we will make the technology standard on high-trim versions of the Silverado and Sierra light-duty pickups and available as an option on most other versions. We expect the Super Cruise take rate on full-size pickups next year to reach 4-5 times this year's level, reflecting strong customer demand and our ability to scale the technology across key customer groups. The installed base is already solid and growing rapidly. Software and services deferred revenue grew 40% year over year. Driven by 1 million net new OnStar subscriptions and a Super Cruise-equipped vehicle parc of 1 million, we expect full-year deferred revenue to approach $7.5 billion. The premium driving experience of Super Cruise, and customers' frequent use of the technology, explain why it is so popular with customers. Super Cruise-equipped vehicles cumulatively drive well over 1 million miles per day hands-free. Nearly 70% of customers use the feature at least once a month, and I believe the Super Cruise-equipped vehicle parc can grow nearly 50% next year. Finally, I want to recognize the significant progress General Motors Company's defense business has made since our last call, including several new multi-year contracts that will help us achieve more than 30% annual revenue growth and maintain double-digit margins. In the quarter, the U.S. Department of Defense announced an increase in production quantities for the Infantry Squad Vehicle (ISV), including a contract for the ISV-Utility multi-purpose version. Under the U.S. Army's procurement objectives, these contracts are part of an ISV procurement program with a potential total value of more than $1 billion, subject to congressional appropriations. The U.S. Army has contracted with us to provide a prototype tactical vehicle based on the Silverado HD for its heavy ISV competition. Since June, we have signed contracts with four customers for the factory-armored Suburban Shield executive transport vehicle. Our EPIQ mobile energy system is now certified and available for sale to customers; we also delivered the first components for the Patriot PAC-3 to Lockheed Martin less than a month after formal contract signing. As Lockheed said at the time, these components typically take months or even years to produce, and our ability to deliver quickly highlights the effectiveness of defense-commercial collaboration and demonstrates our capabilities. These developments are very positive for our country, our partners, taxpayers and the business. Thank you, and I will now turn the call over to Paul. Executive Vice President and Chief Financial Officer Paul Jacobson: Thank you, Mary. Good morning, everyone, and thank you for joining us. First, I want to thank the entire General Motors Company team. Your hard work and consistent execution are reflected in our operating performance and continue to be reflected in our financial results. Revenue reached a record $50 billion in the quarter, up 3% year over year. Adjusted EBIT was $4.1 billion, up 22% year over year; adjusted diluted EPS rose more than 30% year over year to $3.70. The overall industry environment remains healthy, with third-quarter seasonally adjusted annualized sales in the high end of the 16 million-17 million range, and demand from pickup, SUV and fleet customers remaining resilient. In the quarter, our U.S. sales exceeded 670,000 units. Despite the impact of some model discontinuations, ICE sales still reached 645,000 units, up slightly year over year. Our light-duty full-size pickups continued to perform well in their final year of the product cycle, with sales up 9% year over year. That keeps us on track to lead the full-size pickup segment in sales for a seventh consecutive year in 2026. With the all-new light-duty pickups expected to begin deliveries late in the fourth quarter, we plan to carry that momentum into 2027. Regarding the model changeover, we completed a four-week shutdown at the Silao assembly plant and began producing the new pickups last week. To ensure a high-quality launch, initial production will proceed at a deliberate pace and ramp to more normal levels over the coming months and quarters. At the Fort Wayne plant, we plan to begin a four-week shutdown in mid-December and resume production in January. In preparation for the shutdown, sell-down of current pickups is proceeding as planned, inventories are at intended levels, and incentives as a percentage of MSRP are several hundred basis points lower than during past pickup changeovers. This is part of the overall operating discipline General Motors Company has maintained over the past five years. Building on that, we expect year-end total inventories to be in the target range of 50-60 days. On the cash side, continued strong cash generation, combined with support for our growth-oriented investments and ongoing share repurchases, is effectively driving continued EPS growth. In the third quarter, we repurchased $2.5 billion of shares, reducing diluted shares by about 27 million to about 866 million, 9% below Q3 2025. Since the start of October, we have repurchased another $1 billion of shares, bringing year-to-date repurchases to $6.3 billion and completing the previously board-approved repurchase authorization. This morning, we announced a new $20 billion multi-year share repurchase authorization, equivalent to more than 25% of the current market value. The size and duration of this authorization strongly signal the board's confidence that our cash generation is sufficient to support continued investment in the future while returning capital to shareholders. Now, let me walk through third-quarter results in more detail. Total company revenue was $50 billion, up $1.4 billion year over year. ICE sales rose 8% year over year, while EV sales declined as we lap the year-over-year comparison following the expiration of consumer purchase incentives in Q3 2025 and adjust EV production to demand. Adjusted EBIT was $4.1 billion, up $700 million year over year. The improvement came from core business performance, including a higher full-size pickup mix and lower warranty costs, partially offset by higher commodity costs and increased costs from reshoring production to the U.S. Adjusted automotive free cash flow was $5.9 billion, up $1.7 billion year over year. The improvement was mainly driven by higher earnings and the timing of tariff-related cash receipts and payments. Regarding EV-related charges, as I mentioned last quarter, we acted quickly with suppliers and partners, and in adjusting EV capacity and manufacturing footprint in response to regulatory policy changes, the major cash charges expected to be recognized have largely been recognized. In the third quarter, we recognized an additional $200 million of cash charges, bringing cumulative cash charges recognized since the end of the first half of 2025 to $7.4 billion. To date, $4.6 billion of that has been paid, including $4.2 billion paid year-to-date in 2026. We expect to pay about another $1 billion in the fourth quarter, with the remainder paid in calendar year 2027. As a result, free cash flow available for shareholder returns next year should benefit from a significant year-over-year reduction in EV supplier settlement payments. Now, let me cover third-quarter results by region. North America continued to perform strongly, delivering adjusted EBIT of $3.6 billion, up $1.1 billion or 43% year over year. Margin was 8.7%, up 2.5 percentage points from a year ago when tariffs first took effect. Having worked through a substantial portion of the pressure, our margin is now solidly back in the 8%-10% target range, clearly demonstrating the progress the team has made. The improvement was broad-based, including a higher full-size pickup mix, lower EV losses from right-sizing capacity, and continued warranty cost reductions. These gains were partially offset by commodity inflation, higher logistics and dynamic random access memory costs, and increased manufacturing costs from reshoring production to the U.S. OnStar digital services and Super Cruise recognized more than $800 million of revenue in the third quarter, up 15% year over year. We are on track to achieve more than $3 billion of recognized revenue in calendar year 2026 and expect deferred revenue to approach $7.5 billion at year-end. Looking to 2027, we expect recognized revenue to grow by double digits again. Excluding China equity income, General Motors Company International's third-quarter adjusted EBIT was break-even, down $200 million year over year, mainly due to a $100 million negative mark-to-market adjustment on the Momenta investment and higher manufacturing and logistics costs, with South America volume growth and CKH HOLDINGS foreign exchange factors offsetting part of the pressure. China equity income was $32 million, marking the eighth consecutive profitable quarter, and we expect the trend to continue in the fourth quarter. New energy vehicles accounted for more than 60% of General Motors Company China's third-quarter sales, and the team continues to focus on execution, cost efficiency and mix optimization to achieve sustained profitability. General Motors Company Financial delivered adjusted pre-tax profit of $700 million and paid a $250 million dividend to General Motors Company in the quarter. Consumer credit performance remained resilient and in line with our expectations. The business remains on track to deliver full-year adjusted pre-tax profit guidance of $2.5 billion-$3 billion and to pay General Motors Company a full-year dividend similar to last year's level, further demonstrating its strategic value within the group. Now, let me cover calendar year 2026 guidance. After another strong quarter, we are updating our full-year outlook as follows: we now expect adjusted EBIT of $14.5 billion-$15.5 billion, versus the prior range of $14 billion-$16 billion. The adjusted diluted EPS range narrows from $12-$14 to $12.75-$13.75, reflecting the benefit of share repurchases to date. Capital expenditures are expected to be in the lower half of the $10 billion-$12 billion range; adjusted automotive free cash flow is expected to be $11.5 billion-$12.5 billion, up from the prior $9.5 billion-$11.5 billion. The improvement comes from excellent operating performance, lower-than-previously-expected capital expenditures, and the timing of tariff-related cash receipts and payments. Next, let me update a few key assumptions underpinning the revised guidance. First, the industry environment. The U.S. market remains resilient. We expect full-year seasonally adjusted annualized sales in the middle of the 16 million-17 million range, implying about 16 million for the rest of the year, consistent with what we observed in October. In North America, we expect fourth-quarter ICE sales to be below normal levels, mainly due to the launch of the all-new full-size pickups. We expect full-size pickup sales to decline by about 35,000 units year over year. The unfavorable impact of lower fourth-quarter pickup sales is expected to be largely offset by favorable North America pricing, including the benefit from the new pickup launch. Year-to-date, North America pricing has contributed $400 million. We continue to expect full-year North America pricing to have a positive 0.5% impact, with the remaining benefit expected in the fourth quarter. Next, the EV business. Driven by right-sizing EV capacity and a significant decline in volume, we remain on track to reduce losses by $1 billion-$1.5 billion for the full year. As we lap last year's expiration of consumer purchase incentives, we expect a further modest reduction in losses in the fourth quarter. On warranty, after a $600 million year-over-year improvement in the third quarter, year-to-date improvement is about $1.1 billion. For the full year, we now expect warranty cost improvement closer to the high end of the $1 billion-$1.5 billion range. Year-to-date, cost savings related to emissions regulation are about $500 million; because those savings were already achieved in last year's fourth quarter, we expect minimal incremental benefit in this year's fourth quarter. On tariffs, after excluding the benefit from the revocation of tariffs related to the International Emergency Economic Powers Act, we have absorbed about $1.8 billion of tariff costs year-to-date. We now expect full-year gross tariff costs near the low end of the $2.5 billion-$3.5 billion range. Finally, on taxes, we continue to expect a full-year effective tax rate of 20%-21%. Within that, the fourth-quarter rate is expected to be higher, in the 25%-27% range, driven mainly by several one-time discrete tax items with timing-related impacts. Now for the headwinds. As the Middle East conflict continues, commodity and logistics cost pressure has intensified further since we provided our second-quarter update. Copper prices are at record levels, and hot-rolled coil steel prices are at four-year highs. Since July, spot prices for both hot-rolled coil steel and copper have risen 10%-15% and are about 50% above last year's average levels. Overall, inflation will add about $400 million of costs this calendar year, with most of the impact in the fourth quarter. As a result, we now expect commodity inflation, higher logistics and dynamic random access memory costs to create an unfavorable impact of about $2 billion for the full year. In the third quarter, we absorbed about $700 million of incremental year-over-year costs, mainly related to commodities, bringing the year-to-date cost headwind to about $1.3 billion this calendar year. Separately, we will invest about $1 billion-$1.5 billion this year to reshore production to the U.S., strengthen the supply chain and expand software capabilities. Ahead of new U.S. capacity coming online in 2027, we expect these costs to continue rising in the fourth quarter. Finally, on international, we expect continued softness in General Motors Company International, reflecting the unfavorable impact of the changing situation in the Middle East. Turning to 2027. Assuming market conditions and the tariff environment are broadly similar to 2026, and recent commodity cost pressures ease somewhat, we still believe we can achieve revenue, margin and adjusted EBIT growth next year. It is too early to predict where commodity prices will ultimately settle in 2027. However, simply annualizing the incremental commodity inflation since July would put an additional $1 billion-$1.5 billion of pressure on 2027 adjusted EBIT, bringing the total 2027 cost headwind to about $2 billion. Our growth plan is supported by the product cycle and the consistent operating discipline investors have come to expect from General Motors Company. The growth opportunities center on four key General Motors Company-specific drivers. First, executing the new pickup launch well and achieving a high mix of high-trim models in the first year. Second, unlocking added capacity for full-size SUVs and high-volume crossovers. Third, growing related businesses such as OnStar, Super Cruise and defense. Fourth, managing costs in warranty, EVs, fixed costs and reshoring production to the U.S. Ultimately, we have proven time and again that we can act with discipline and deliver on our plans. We hold ourselves to high standards, and the team is working hard to deliver another year of growth for shareholders. We have an outstanding vehicle portfolio, and these products will only get stronger in 2027 and beyond. Thank you, and we will now move to the Q&A session of the call. Below is the Q&A session of the earnings call (AI-assisted summary and translation): Operator: [Operator instructions] The first question comes from Mark Delaney of Goldman Sachs Group, Inc. Goldman Sachs Group, Inc. Equity Research Mark Delaney: I understand the change in the cost environment General Motors Company faces heading into 2027. I was hoping you could talk more about what levers General Motors Company can pull to address this. In particular, given that you expect full-size pickup production to ramp at a deliberate pace, to what extent can General Motors Company use net pricing to help offset the impact of a rising cost environment? Chair and Chief Executive Officer Mary Barra: Mark, as Paul mentioned, these cost increases occurred just over the past few months, so our team really has not had enough time to find offsets. Looking to next year, continued warranty improvement will be a clear favorable factor. We have seen that improvement this year and believe we can continue it next year. As we said, while new pickup production will be roughly flat, we do think there are still some opportunities in pricing and mix. We also see growth opportunities in OnStar and Super Cruise. EV profitability will continue to improve. In addition, we will continue working on reducing fixed costs. We believe there are many opportunities there, especially as we continue to implement and leverage artificial intelligence to improve the business and increase efficiency. So, as this team has always done, we will get to work, it is just that these changes happened too recently. By the time we finish the fourth quarter and issue full-year 2027 guidance, we will provide more information. But clearly, we have work to do, and we plan to do it well. Mark Delaney: Understood. My follow-up is to clarify the assumptions General Motors Company is currently using. You said the assumption for 2027 to be better than 2026 really depends on commodity, logistics and memory-related cost pressures easing. By easing, do you mean spot prices only need to stabilize at current levels, or do you actually need to see spot prices decline? Executive Vice President and Chief Financial Officer Paul Jacobson: Yes, Mark, it is still a little early to judge 2027 commodity prices. What we really want to convey is that, as we said in July when we highlighted favorable factors, our premise is that the environment remains stable. As I noted in my prepared remarks, we have actually seen fairly significant inflation over just the past roughly 8-10 weeks. If prices stay at this level, the challenge will be greater going into next year. So we hope some of the recent increase can retrace. But as Mary said, we are still working through the budgeting process. So we will not give definitive guidance now on next year and how it will ultimately turn out. But clearly, the inflation added since our last disclosure makes things more challenging. So I think the fundamental situation has not changed. The favorable factors are still there. The new pickup launch in its first year will give us a lot of mix benefit, but we will continue to monitor and hope to continue demonstrating the execution capability you are familiar with. But as every year, our goal remains to grow next year. Operator: The next question comes from Itay Michaeli of TD Cowen. TD Cowen Equity Research Itay Michaeli: My first question is on the raised full-year free cash flow guidance. Paul, could you talk more about the drivers? I think you mentioned capital expenditures may be at the low end of the outlook range. Also, how much of the strong performance seen this year can carry into next year? Paul Jacobson: Itay, thanks for your question. There are several factors here. First, our capital expenditures may land at the low end of the range. As various projects come online, we do see some reduction in capital expenditures within the $10 billion-$12 billion range. So that releases some free cash flow. Also, if you recall, when we talked earlier this year about refunds related to the International Emergency Economic Powers Act, we raised EBIT guidance but did not raise cash flow guidance due to uncertainty. We have made some progress in obtaining those tariff refunds, including both refunds received directly by us and indirect benefits passed through to us after suppliers received refunds, which contributed to the cash flow improvement. Looking to 2027, if we can achieve earnings growth, we expect free cash flow to be roughly stable or even slightly higher. But keep in mind that as the impact of most of the EV business's cash restructuring charges passes, our U.S. GAAP cash flow, that is, the cash actually available for investment, should increase significantly. So despite the recent commodity inflation, we remain positive on overall cash generation in 2027. Itay Michaeli: That is helpful. Just a quick follow-up: as the impact of EV restructuring passes and you roll out a series of updates in 2028, could you share, say, around 2029, how we should think about the volume General Motors Company's EV business needs to break even? It would be helpful to get an update on your latest view of the path to EV profitability. Paul Jacobson: Okay. I think it is still a little early to judge. As we said, EV profitability improved nicely this year, mainly from lower volume after we right-sized the business and from fixed-cost reductions during restructuring. So that was a clear benefit for 2026. We said the improvement in 2027 may be smaller, but it may still continue versus 2026. Then, in 2028 and 2029, as lithium manganese-rich batteries and next-generation cells and packs are deployed, we should see another step-change improvement in profitability. We will continue to watch volume. We believe EV penetration may continue to rise at current oil and fuel price levels, and we need to make sure we are prepared for that. We are the second-largest EV producer in the U.S., with a strong vehicle portfolio and a commitment to improving the profitability of these products. Operator: The next question comes from Dan Levy of Barclays. Dan Levy: When you talk about 2027, one of the preconditions you mention is that customer demand remains strong. I know this has been a focus of industry debate. I think everyone has been surprised by the resilience of the auto industry. But with interest rates rising, we are hearing a new round of questions about consumer financial health. So, given the latest environment, could you talk about how you see the market's ability to continue absorbing these high-trim products, and potentially higher pickup volumes as capacity expands? Also, help us distinguish between the overall consumer and the typical buyer of your products. Paul Jacobson: Okay, Dan, let me take that first, and Mary can add if I miss anything. I think, as we have said for years, many consumer confidence surveys have become disconnected from actual spending behavior, and that shows up in our average transaction prices, in trim-level sales mix, and even in General Motors Company Financial, where delinquency and default metrics have not changed meaningfully. So I think the consumer has been very solid. Still, we pay attention to those confidence surveys and, based on history, should continue to watch them. That does not necessarily mean we are pessimistic; it is more about being appropriately cautious, making sure our expectations match this backdrop and that forward forecasts are based on a stable consumer situation. We believe that stability will continue, because we are not seeing any signs of weakening demand. Dan Levy: Okay, great. My second question is about China. Obviously, we have seen a sharp increase in China exports. Could you talk about how much you are participating in this rapid export growth? Does that bring you any cost benefits? Also, I know you mentioned that General Motors Company International excluding China is slowing. How much of that comes from competitive pressure from Chinese automakers in other regions? How much ability do you have to offset these impacts? Mary Barra: I think if you look at some of the markets where Chinese automakers are doing business, especially South America, we are still holding market share. We also export some products from China. Once a market allows Chinese competitors in, we are well positioned to compete with products that fit the Chevrolet brand positioning and are price-competitive. So we have remained competitive in South America. In fact, with our portfolio, we are still performing strongly. And in South America, Chevrolet is seen as a premium brand. So I think that also gives us opportunities in some other markets. Back to China, I would say that within China, we actually do not see much benefit from that. As for the China business, we are very proud that we started restructuring early, and our business remains profitable even amid the subdued economic environment in the local auto industry overall. So the export opportunity may bring a small benefit. But overall, given these challenges, we see that market as more difficult; at the same time, we do participate in export markets and maintain market share through the strength of our portfolio. Operator: The next question comes from Joe Spak of UBS Group AG. Joseph Spak: Paul, I want to go back to one of your answers, maybe to Itay's question. I think when talking about 2027, you said I know it is still early and many things remain to be determined but you seemed to say that if earnings grow next year, you expect free cash flow to be stable or even higher. I am a little confused. I know distributable free cash should increase due to lower EV-related payments, but are there other factors in the free cash flow impact that we are not considering? For example, if earnings grow, why would free cash flow not increase accordingly? Paul Jacobson: Yes, Joe. Sorry if my answer confused you. There are several reasons. First, if the 2027 capital expenditure guidance range remains $10 billion-$12 billion but ultimately lands at the high end rather than the low end, then obviously, due to timing differences in spending, there could be some disconnect between EBIT growth and CKH HOLDINGS free cash flow. Second, this year we also had additional benefit from refunds related to the International Emergency Economic Powers Act, which we do not expect to repeat next year. So, on a comparable tariff cash receipts and payments basis, some of the benefit we had in 2026 will not recur in 2027. There are also usually some small working capital differences between years. But beyond that, the relationship should be relatively linear, because the conversion of earnings into cash flow that is, the link between cash flow and earnings is fairly stable. Joseph Spak: Okay. My second question is, Mary, I recall you said in the past that you would study hybrid and plug-in hybrid models. I think earlier this month, Mike Anderson said you would listen to customers and that these models are part of the plan. I know, for competitive reasons, you will not pre-announce products on a call like this. But could you tell us whether some of these investments and spending are already happening? Is additional investment needed? I know you already have a lot of related technology in international markets, so maybe you could talk about how you are thinking about leveraging that technology and scaling it in the U.S. Mary Barra: Sure. From a hybrid perspective, we will launch hybrid models across multiple segments in our portfolio, that is, the key segments we participate in. If you look at the current situation, many hybrid products are concentrated in compact cars, midsize cars and small vans, and we do not currently participate in those three segments. So that needs to be viewed in that context, and I think that is also why our sales remain so strong. In many cases, we are already running capacity flat out. For example, the Equinox compact SUV is already at full capacity even without a hybrid version. So I think we are still playing to our strengths. As Paul just said, as this trend continues, we are well positioned in EVs, but we will also launch hybrid models. They are already included in planning and will not require additional capital expenditure or engineering investment. We will share more information as launch timing approaches. Operator: The next question comes from James Picariello of BNP Paribas. BNP Paribas Equity Research James Picariello: On first-quarter pickup production, you expect full-year production next year to be roughly flat. Is the impact of the planned first-quarter shutdown similar to the 35,000-unit reduction in the fourth quarter? Also, could you give a rough sense of the added full-size SUV capacity planned for 2027? Mary Barra: As we said, for full-size pickups, we have three assembly plants, and three engine plants are also ramping, and our focus is on ensuring a smooth launch. Everything is on track. As we said, by the end of this year, the first pickups from the first plant will roll off the line. Then, we will indeed have some shutdowns. We have not specified the corresponding vehicle volumes, but there will be shutdowns as the other two plants launch production. That is why we said 2027 pickup production will be roughly flat with 2026, because we are working through the launch at these six plants. The opportunity for further growth will come in 2028. There will be no more changeover shutdowns then, and we will also benefit from the Orion plant. So 2028 will be an opportunity to increase pickup market share, not only in the U.S. but also globally. James Picariello: Understood. I wanted to ask about General Motors Company International excluding China. Regarding the Middle East challenges, what assumptions are included in your fourth-quarter expectations? Should we expect another quarterly EBIT loss? I know it is still early, but given the various favorable and unfavorable factors, how should we think about this business next year? Paul Jacobson: Okay, James. On the Middle East, I would say that at the overall company level, these impacts largely offset each other, because we would have sold many vehicles there, and as long as we get appropriate information in advance and prepare, we can actually redirect many of those vehicles to the U.S., and we have done so. The team has managed this very well, so at the group level, we have not lost volume. So as long as tensions in the Middle East continue, I expect you will see the business mix skew further toward North America rather than international, especially the Middle East. Also, I think we are continuing to work with the team to mitigate the impact of international competition as much as possible and create value in segments where we can and do compete. I think the team has done that well in other regions around the world. Keep in mind that this quarter's international results were also affected by about a $100 million negative mark-to-market adjustment on the Momenta investment. So if you look at the underlying business, it actually performed slightly better than the financial results suggest. Mary Barra: James, just to clarify, we are already producing these pickups at the first plant, and they will be in showrooms before the end of the year. Operator: The next question comes from Andrew Percoco of Morgan Stanley. Andrew Percoco: I want to go back to the