U.S. auto manufacturing giant General Motors (GM.US) demonstrated at its Q3 2026 earnings call an operating strategy of bolstering its fuel vehicle business to support profitability, using cash flow to fund buybacks, and expanding revenue sources through software services.
The company reported record quarterly revenue of $50 billion, up 3% year-over-year; adjusted EBIT of $4.1 billion, up 22% year-over-year; adjusted diluted earnings per share of $3.70, up more than 30% year-over-year; and adjusted automotive free cash flow of $5.9 billion.
North American margins recovered to 8.7%, as improved full-size pickup mix, lower warranty costs, and reduced EV losses offset some cost pressures.
Management raised its full-year adjusted automotive free cash flow guidance to $11.5 billion to $12.5 billion, narrowed adjusted EBIT guidance to $14.5 billion to $15.5 billion, adjusted diluted EPS guidance to $12.75 to $13.75, and announced a new $20 billion multi-year share repurchase authorization, equivalent to more than 25% of current market capitalization.
Management believes the company is undervalued but did not commit to a specific buyback timeline; EV supplier settlement payments are expected to decline significantly in 2027, which could further unlock cash available for investment and shareholder returns.
GM management stated that future growth will center on the next-generation Silverado and Sierra pickups, expanded SUV and crossover production, OnStar and Super Cruise digital services, and the defense business.
Digital services recognized more than $800 million in revenue in the third quarter, up 15% year-over-year, and are expected to exceed $3 billion for the full year, with deferred revenue approaching $7.5 billion by year-end; the company expects Super Cruise penetration in 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 to $1.5 billion this year, and next-generation batteries in 2028-2029 are expected to further improve profitability; hybrid models have been included in planning, and artificial intelligence is being used in design, manufacturing, and fixed-cost optimization.
China operations have been profitable for eight consecutive quarters, the auto financing business remains stable, and new defense contracts support more than 30% annual revenue growth and double-digit margins.
GM management stated that looking ahead to next year's growth prospects, the key prerequisite for continued earnings growth in 2027 is that demand remains resilient and recent cost pressures ease: the company expects commodities, logistics, and dynamic random access memory costs to create a combined headwind of approximately $2 billion this year; if recent prices remain elevated, 2027 could still face approximately $2 billion in year-over-year cost headwinds.
Formal annual guidance is expected to be released in January 2027.
The following is the full transcript of the GM earnings call (AI-assisted translation):
Operator: Good morning, everyone, and welcome to General Motors' Q3 2026 earnings conference call. [Operator instructions] As a reminder, this conference call is being recorded on Tuesday, October 20, 2026. I will now turn the call over to Ashish Kohli, Vice President of Investor Relations.
VP of Investor Relations Ashish Kohli: Thank you, Amanda. Good morning, everyone. Thank you for joining us to review General Motors' Q3 2026 financial results. Our earnings materials were published this morning and are available on the GM Investor Relations website. This call is also being webcast. Joining us today are GM Chair and CEO Mary Barra, and GM Executive Vice President and Chief Financial Officer Paul Jacobson. Susan Sheffield, President and CEO of GM Financial, will also join us 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 the first page of the presentation materials, and today's call is subject to that statement. I'll now turn the call over to Mary.
Chair and CEO 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 American margin was 8.7%, up 2.5 percentage points year-over-year. The compelling products, technologies, and services we offer customers globally 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 our 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 demonstrates the Board's commitment. As this quarter's results and revised guidance show, our business is performing well even as we are executing a major new product launch and facing inflationary pressures in logistics, commodities, and memory. This is because, over the years, we have improved business resilience by strengthening our vehicle mix, developing new high-margin revenue streams, and maintaining strict discipline in production, pricing, and sales incentives. Looking ahead, external headwinds are clearly visible, and some are intensifying. While the road ahead is more challenging, assuming customer demand remains strong and commodity, logistics, and other recent cost pressures ease, 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, reduced EV losses, growth in software and services revenue, and the launch of the next-generation Chevrolet Silverado and GMC Sierra light-duty pickups. With their design, performance, technology, and innovative features, the current Silverado and Sierra have been strong performers. We have now maintained the U.S. market sales leadership position for 19 consecutive quarters, and since the current models launched in 2018, we have gained a full 10 percentage points of market share. Today, even in their final production year, our sales, market share, and financial performance remain strong. That is a direct testament to the value we deliver to customers. Our new pickups will build on that foundation, with interior and exterior designs that reach new heights in refinement and precision of detail. Our trim strategy allows us to serve customers at different price points while providing a clearer path for customers 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 that are closer to a luxury SUV experience. Sierra Denali remains the core pickup with both premium positioning and strong capability, while Denali Ultimate moves further toward the brand's flagship positioning. We are also making powertrain choices an important part of the product value ladder and a tool for optimizing sales mix. We will offer the TurboMax four-cylinder engine with class-leading standard torque, the segment-exclusive Duramax inline-six turbo diesel, and the all-new 5.7-liter and 6.6-liter V8 engines. Each engine is calibrated for different performance needs and lifestyles, and we will focus on what pickup customers value most: usable torque delivery, 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 delivering vehicles to customers. Production has begun at the Silao plant, and customers should see the first new vehicles arriving 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 the same as 2026. By 2028, we will have added capacity to support segment growth and market share gains. 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 Silverado and Sierra light-duty pickups and offer it as an option on most other trims. We expect Super Cruise penetration in 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 existing base is already solid and growing rapidly. Software and services deferred revenue grew 40% year-over-year. Driven by 1 million new OnStar subscriptions and a Super Cruise-equipped vehicle parc reaching 1 million units, we expect full-year deferred revenue to approach $7.5 billion. Super Cruise's premium driving experience and customers' frequent use of the technology explain why it is so popular. 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 in GM's defense business since our last call, including multiple new multi-year contracts that will help us achieve more than 30% annual revenue growth and maintain double-digit margins. This quarter, the U.S. Department of Defense announced increased production quantities for the Infantry Squad Vehicle, including a contract for the ISV-Utility variant. Under the U.S. Army's procurement targets, these contracts are part of a potential ISV procurement program totaling more than $1 billion, subject to congressional appropriations. The U.S. Army has contracted with us to provide a tactical vehicle prototype 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 for customer sales; 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'll now turn the call over to Paul.
Executive Vice President and CFO Paul Jacobson: Thank you, Mary. Good morning, everyone, and thank you for joining us. First, I want to thank the entire GM team. Your hard work and consistent execution are reflected in our operating performance and continue to be reflected in our financial results. This quarter, revenue was a record $50 billion, up 3% year-over-year. Adjusted EBIT was $4.1 billion, up 22% year-over-year; adjusted diluted EPS was up 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 to 17 million range, and demand from pickup, SUV, and fleet customers remaining resilient. This quarter, we sold more than 670,000 vehicles in the United States. Despite the impact of some model discontinuations, fuel vehicle sales still reached 645,000 units, up slightly year-over-year. Our light-duty full-size pickups continued to perform well in the final year of their product cycle, with sales up 9% year-over-year. This puts us on track to remain the industry leader in full-size pickup sales for the 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 this 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. To prepare for the shutdown, current pickup inventory sell-down is proceeding as planned, with inventory at targeted levels and sales incentives as a percentage of MSRP hundreds of basis points lower than during previous pickup changeovers. This is part of the overall operating discipline GM has maintained over the past five years. Based on this, we expect year-end total inventory to be within our target range of 50 to 60 days. On cash, continued strong cash generation, combined with our growth-oriented investments and ongoing share repurchases, is effectively driving continued EPS growth. In the third quarter, we repurchased $2.5 billion of stock, reducing diluted shares by approximately 27 million to about 866 million, down 9% from the third quarter of 2025. Since the start of October, we have repurchased another $1 billion of stock, bringing year-to-date repurchases to $6.3 billion and completing the previous Board-approved repurchase authorization. This morning, we announced a new $20 billion multi-year share repurchase authorization, equivalent to more than 25% of current market capitalization. The size and duration of this authorization strongly demonstrate the Board's confidence that our cash generation capacity is sufficient to support continued investment in the future while returning capital to shareholders. Now, let's go deeper into third-quarter results. Total company revenue was $50 billion, up $1.4 billion year-over-year. Fuel vehicle sales rose 8% year-over-year, while EV sales declined as we lap the comparison period following the expiration of consumer purchase incentives in the third quarter of 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 higher full-size pickup mix and lower warranty costs, partially offset by higher commodity costs and increased costs from reshoring production to the United States. Adjusted automotive free cash flow was $5.9 billion, up $1.7 billion year-over-year. The improvement was primarily driven by higher earnings and the timing of tariff-related cash receipts and payments. Regarding EV-related charges, as I mentioned last quarter, we moved quickly with suppliers and partners, and the major cash charges expected to be recognized as we adjust EV capacity and manufacturing footprint in response to regulatory changes have largely been recognized. In the third quarter, we recognized an additional $200 million in 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 has been paid, including $4.2 billion paid year-to-date in 2026. We expect to pay approximately $1 billion more in the fourth quarter, with the remainder to be 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 regional results. 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 began to take effect. Having absorbed a considerable portion of the pressure, our margin is now firmly back within our 8% to 10% target range, clearly demonstrating the team's progress. The improvement was broad-based, including higher full-size pickup mix, lower EV losses from capacity adjustments, 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 United States. OnStar digital services and Super Cruise recognized more than $800 million in revenue in the third quarter, up 15% year-over-year. We are on track to achieve more than $3 billion in recognized revenue in calendar year 2026, and we expect deferred revenue to approach $7.5 billion by year-end. Looking to 2027, we expect recognized revenue to again grow at a double-digit rate. Excluding China equity income, GM International's third-quarter adjusted EBIT was breakeven, down $200 million year-over-year, primarily 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 foreign exchange partially offsetting the pressure. China equity income was $32 million, marking the eighth consecutive quarter of profitability, and we expect this trend to continue in the fourth quarter. New energy vehicles accounted for more than 60% of GM China's third-quarter sales, and the team continues to focus on execution, cost efficiency, and product mix optimization to achieve sustained profitability. GM Financial delivered adjusted pre-tax profit of $700 million and paid GM a $250 million dividend this 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 to $3 billion and to pay GM a full-year dividend at a level similar to last year, 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 to $15.5 billion, compared with the previous range of $14 billion to $16 billion. Adjusted diluted EPS guidance is narrowed from $12 to $14 to $12.75 to $13.75, reflecting the benefit of share repurchases to date. Capital expenditure is expected to be in the lower half of the $10 billion to $12 billion range; adjusted automotive free cash flow is expected to be $11.5 billion to $12.5 billion, up from the previous $9.5 billion to $11.5 billion. This improvement comes from excellent operating performance, lower-than-expected capital expenditure, and the timing of tariff-related cash receipts and payments. Now let me update a few key assumptions supporting 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 to 17 million range, implying approximately 16 million for the rest of the year, consistent with what we observed in October. In North America, we expect fourth-quarter fuel vehicle sales to be below normal levels, primarily due to the launch of the all-new full-size pickups. We expect full-size pickup sales to decline by approximately 35,000 units year-over-year. The adverse impact of lower fourth-quarter pickup sales is expected to be largely offset by favorable North American pricing, including benefits from the new pickup launch. Year-to-date, North American pricing has contributed $400 million. We continue to expect full-year North American pricing to have a positive 0.5% impact, with the remaining benefit expected in the fourth quarter. Next, the EV business. Driven by EV capacity adjustments and a significant decline in volumes, we remain on track to reduce losses by $1 billion to $1.5 billion for the full year. As we lap the comparison period following last year's expiration of consumer purchase incentives, we expect losses to decline slightly further in the fourth quarter. On warranty, after a $600 million year-over-year improvement in the third quarter, cumulative year-to-date improvement is approximately $1.1 billion. For the full year, we now expect warranty cost improvement to be closer to the high end of the $1 billion to $1.5 billion range. Year-to-date, cost savings related to emissions regulation are approximately $500 million; since the related savings were already realized 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 removal of tariffs related to the International Emergency Economic Powers Act, we have absorbed approximately $1.8 billion in tariff costs year-to-date. We now expect full-year gross tariff costs to be near the low end of the $2.5 billion to $3.5 billion range. Finally, on taxes, we continue to expect a full-year effective tax rate of 20% to 21%. Within that, the fourth-quarter rate is expected to be higher, in the 25% to 27% range, driven primarily by several one-time discrete tax items related to the timing of recognition. Now let's turn to headwinds. As the conflict in the Middle East continues, commodity and logistics cost pressures have intensified further since we provided our second-quarter earnings 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% to 15%, and are approximately 50% above last year's average levels. Overall, inflation will add approximately $400 million in costs this calendar year, with the majority of the impact in the fourth quarter. As a result, we now expect commodity inflation, higher logistics costs, and rising dynamic random access memory costs to create a full-year headwind of approximately $2 billion. In the third quarter, we absorbed approximately $700 million in incremental year-over-year costs, primarily related to commodities, bringing year-to-date cost headwinds to approximately $1.3 billion. In addition, we will invest approximately $1 billion to $1.5 billion this year to reshore production to the United States, strengthen the supply chain, and expand software capabilities. We expect these costs to continue rising in the fourth quarter before new U.S. capacity comes online in 2027. Finally, on international operations, we expect GM International to remain weak, reflecting the adverse impact of changes in the Middle East situation. Now let's turn to 2027. Assuming market conditions and the tariff environment are broadly similar to 2026, and recent commodity cost pressures ease, we still believe we can achieve growth in revenue, margins, and adjusted EBIT next year. It is still 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 to $1.5 billion of pressure on 2027 adjusted EBIT, bringing total 2027 cost headwinds to approximately $2 billion. Our growth plan is supported by the product cycle and the consistent operating discipline investors have come to expect from GM. The growth opportunities center on four key GM-specific drivers. First, successfully launching the new pickups and achieving a high mix of high-trim models in the first year. Second, unlocking additional capacity for full-size SUVs and high-volume crossovers. Third, expanding OnStar, Super Cruise, and defense-related businesses. Fourth, managing costs in warranty, EVs, fixed costs, and reshoring production to the United States. Ultimately, we have proven time and again that we can act with discipline and execute 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 begin the Q&A session.
The following 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.
Goldman Sachs Research Mark Delaney: I understand the changing cost environment GM faces heading into 2027. I was hoping you could talk more about the levers GM can pull to address this. Especially given that you expect full-size pickup production to ramp at a deliberate pace, to what extent can GM use net pricing to help offset the impact of a rising cost environment?
Chair and CEO Mary Barra: Mark, as Paul mentioned, these cost increases occurred over just the past few months, so our team really hasn't 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 we 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 to reduce fixed costs. We think 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 always does, we will get after it, but these changes happened too recently. By the end of the fourth quarter, when we provide 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 GM is currently using. You said the assumption that 2027 is better than 2026 does depend on commodity, logistics, and memory-related cost pressures easing. By easing, do you mean spot prices merely need to stabilize at current levels, or do you actually need to see spot prices decline?
Executive Vice President and CFO Paul Jacobson: Yes, Mark, it is still a bit early to judge 2027 commodities. What we are really trying to say is that, as we emphasized favorable factors in July, our assumption is a stable environment. As I noted in my prepared remarks, we have actually seen fairly notable inflation over just the past 8-10 weeks. If prices stay at this level, the challenge going into next year will be greater. So we hope some of the recent increase will come back down. But as Mary said, we are still working through the budget process. So we are not going to give definitive guidance now on next year and where it ultimately lands. But clearly, the inflation added since our last disclosure makes things more challenging. That said, I think the underlying situation has not changed. The favorable factors are still there. The first year of the new pickup launch will give us a lot of mix benefit, but we will continue to watch and hope to continue demonstrating the execution capability you are familiar with. Still, as every year, our goal remains growth next year.
Operator: The next question comes from Itay Michaeli of TD Cowen.
TD Cowen Research Itay Michaeli: My first question is about the raised full-year free cash flow guidance. Paul, could you talk more about the drivers? I think you mentioned capital expenditure could be at the low end of the outlook range. Also, how much of the strong performance seen this year can continue into next year?
Paul Jacobson: Itay, thank you for your question. There are a few factors here. First, our capital expenditure may land at the low end of the range. As various projects come online, we do see capital expenditure moderating within the $10 billion to $12 billion range. So that frees up some free cash flow. Also, if you recall, when we talked earlier this year about tariff 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, both directly received refunds 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 remember, as the impact of most of the EV business cash restructuring charges passes, our U.S. GAAP cash flow, meaning 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's helpful. Just a quick follow-up: as the EV restructuring impact fades and you launch a series of updates in 2028, can you share how we should think about the volume needed for GM's EV business to break even around 2029? An update on your latest view of the path to EV profitability would be helpful.
Paul Jacobson: Okay. I think it is still a bit early to judge. As we said, EV profitability improved nicely this year, mainly from lower volumes after we adjusted the business and fixed cost reductions during restructuring. So that is a clear positive for 2026. We said the improvement in 2027 may be smaller, but it could still continue versus 2026. Then, in 2028 and 2029, with lithium manganese-rich batteries and next-generation cells and packs coming into use, we should see another step-change improvement in profitability. We will continue to watch volumes. 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 United States, with a strong portfolio and a commitment to improving the profitability of these products.
Operator: The next question comes from Dan Levy of Barclays.
Dan Levy: One of the assumptions you mentioned for 2027 is that customer demand remains strong. I know this has been a focus of debate in the industry. I think everyone has been surprised by the resilience the auto industry has shown. But with rates rising, we are hearing a new round of questions about consumer financial health. So, in light of the latest environment, can you talk about how you view the market's ability to continue absorbing these high-trim products and potentially increased pickup volumes as capacity expands? Also, help us distinguish between the overall consumer and your typical product buyer.
Paul Jacobson: Okay, Dan, I will start, 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 mix, and even in GM Financial, where delinquency and default metrics have not changed meaningfully. So I think the consumer has been very resilient. Still, we watch those confidence surveys, and historically we should continue to watch them. That does not necessarily mean a pessimistic view; it is more about appropriate caution, making sure our expectations match that backdrop and that our forward forecasts are based on a stable consumer. We think that stability will continue because we are not seeing any signs of demand weakness right now.
Dan Levy: Okay, great. My second question is about China. Obviously, we have seen a big increase in China exports. Can you talk about how much you are participating in that rapid export growth? Does that give you any cost benefits? Also, I know you mentioned GM International excluding China is slowing. How much of that is from competitive pressure from Chinese automakers in other regions? How much ability do you have to offset those 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 maintaining share. We also export some products from China. Once a market allows Chinese competitors in, we are in a good position to compete with products that fit the Chevrolet brand positioning and are competitively priced. So we have remained competitive in South America. In fact, with our portfolio, we are still performing strongly. And in South America, Chevrolet is viewed as a premium brand. So I think that gives us opportunities in some other markets as well. Back to China, I would say that within China, we actually are not seeing much benefit from that. As for our China business, we are very proud that we started restructuring early, and even with the weak economic environment in the local auto industry overall, our business remains profitable. So there may be some modest benefit from export opportunities. But overall, because of these challenges, we view that market as more difficult; at the same time, we do participate in export markets and maintain share through the strength of our portfolio.
Operator: The next question comes from Joe Spak of UBS.
Joseph Spak: Paul, I want to go back to one of your answers, I think maybe to Itay's question. I think when talking about 2027, you said, and I know it is early and a lot is still 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 because of lower EV-related payments, but are there other factors in free cash flow that we are not thinking about? For example, if earnings grow, why would free cash flow not increase with it?
Paul Jacobson: Yes, Joe. Sorry if my answer confused you. There are a few reasons. First, if the 2027 capital expenditure guidance range is still $10 billion to $12 billion, but it ultimately lands at the high end rather than the low end, then clearly, due to timing of spending, there could be some disconnect between EBIT growth and free cash flow. Second, this year we also had additional benefit from tariff 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 received in 2026 will not recur in 2027. There are usually also some small working capital differences between years. But beyond that, the two should move in a relatively linear relationship, because the conversion of earnings into cash, meaning the link between cash flow and earnings, is fairly stable.
Joseph Spak: Okay. My second question is, Mary, I recall you have 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 you will not pre-announce products on a call like this for competitive reasons. But can you tell us whether some of those 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 can talk about how you are thinking about leveraging that technology and scaling it in the United States.
Mary Barra: Sure. From a hybrid standpoint, we will launch hybrids across multiple segments in our portfolio, meaning key segments where we compete. If you look at the current situation, many hybrid products are concentrated in compact cars, midsize cars, and small vans, and we currently do not compete in those three segments. So you have to look at it in that context, and I think that is also why our sales remain so strong. In many cases, we are already running capacity at full utilization. For example, the Equinox compact SUV is already fully utilized 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 hybrids. They are already included in the plan and will not require additional capital expenditure or engineering development spending. We will share more as the launch timing approaches.
Operator: The next question comes from James Picariello of BNP Paribas.
BNP Paribas 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, can you give a rough size of the planned additional full-size SUV capacity in 2027?
Mary Barra: As we said, for full-size pickups, we have three assembly plants and three engine plants ramping, and our focus is on a successful launch. Everything is on track right now. 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 specifically quantified the corresponding vehicle volumes, but there will be shutdowns as the other two plants begin production. That is why we say 2027 pickup production will be roughly flat with 2026, because we are working through launches at six plants. The further growth opportunity comes in 2028. At that point there will be no more changeover shutdowns, and we will also benefit from the Orion plant. So 2028 will be an opportunity to increase pickup market share, not only in the United States but also globally.
James Picariello: Understood. I want to ask about GM 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 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 total company level, these impacts largely offset, because we would have sold many vehicles there, and as long as we get appropriate information early and prepare, we can actually divert many of those vehicles to the United States, and we have done that. The team has managed that very well, so at the group level, we have not lost volume. So as long as tensions in the Middle East persist, I would expect you to see the business mix shift 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 are indeed competitive. I think the team has done that well in other regions around the world. Remember, this quarter's international business 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 now 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 2027 earnings drivers. Obviously, the new pickup mix and pricing are favorable for you. But going into 2027, should we also consider company-wide or fixed-cost savings? I think that has clearly been an area of strong focus for you. I am wondering if you can provide more detail on what that could look like next year. Paul, I recall you talked about integrating AI across the organization, and I am wondering whether some of those investments may begin to pay off on the cost side.
Mary Barra: Andrew, absolutely. As I said, given the cost increases we have seen over the past 8-10 weeks, we are actually redoubling our efforts. But teams across the company are already actively working not only to make sure everyone uses AI efficiently, but also to make their work more efficient, make the design process more efficient, make manufacturing more efficient, and in fact every function is using AI. The key is how to translate those savings into fixed-cost reduction. I will not give a quantified number now. By the end of the fourth quarter, when we formally announce 2027 guidance, we can provide that information. But rest assured, there will be a lot of work in the fixed-cost area going forward, and that work is already underway today.
Andrew Percoco: Okay, that's helpful. On the buyback announcement, can you provide some information to help us understand the future pace of execution? Obviously, you mentioned that related payments to suppliers will decline next year. Is it reasonable to infer that the pace of buybacks in 2027 could accelerate versus 2026?
Paul Jacobson: Okay, Andrew, this is Paul. First, you are about to make me lose a bet, because I was sure you would ask about digital services revenue. I will answer this one. On buybacks, for obvious reasons, we will not comment in advance on exactly how we will execute in the future. But as we have discussed, we expect actual cash flow, meaning U.S. GAAP cash flow, to increase significantly year-over-year. I hope you, and the whole market, will look at what we did this year, because I know there was a lot of skepticism about our ability to return capital to shareholders given the EV restructuring, but we completed the previous repurchase authorization faster than anyone expected. So the Board has shown that it will continue to drive shareholder value in this way. We still believe that, with a double-digit free cash flow yield, we are amplifying the company's EPS growth effect. As you have seen over the past few years, our commitment on this front has not diminished at all; as long as the valuation remains low, we expect to continue doing so.
Andrew Percoco: Okay, very clear. I will ask about digital services offline.
Operator: The next question comes from Emmanuel Rosner of Wolfe Research.
Wolfe Research Emmanuel Rosner: Thank you for the detailed discussion of commodities and some of the related assumptions. I understand you said that if prices remain at current levels, 2027 could face about $2 billion in additional cost pressure. To achieve your expectation of 2027 EBIT growth, have you already assumed that $2 billion impact? Or does the actual pressure need to be below that level? Also, I understand it is too early to determine the offsets you can control to address some of the commodity cost increases. But in the past, you built a very strong track record of responding to downturns, such as cutting discretionary spending, taking controllable actions, and restructuring. Can you remind us what levers you have historically been able to use? How much can they help in the current environment?
Paul Jacobson: Okay, Emmanuel, thank you for your question. On commodities, as we clearly said, based on the current situation, we need prices to come down from these levels to have confidence in growth. But we are in the budget process and will continue working through it. So we will not specifically quantify headwinds or tailwinds now, because as we continue to refine the plan, we do not want to lock in expectations and market conditions prematurely. As we have publicly said, the Board will approve the budget in December, and we will issue guidance in January, and that will be the case for 2027 as well. Looking back over the past few years, I think we have proven that we are good at cutting costs. These things take time. Some actions can be adjusted quickly, but other larger items take longer. For example, a few years ago, we implemented a $2 billion fixed-cost reduction program, which was also very successful at the time. So we will continue to act and are evaluating these plans. As we have repeatedly emphasized, we are committed to delivering earnings growth every year and will do our best to move toward that goal.
Emmanuel Rosner: Okay, that's helpful. Just a quick follow-up on the improvement in this year's free cash flow guidance. I understand what factors are included. Can you quantify the portion of tariff refunds related to the International Emergency Economic Powers Act currently included in the full-year free cash flow assumption?
Paul Jacobson: We previously announced that we recognized a $500 million benefit in earnings. To date, about 60% of that has been collected in the form of refunds. In addition, we expect to receive a broadly similar amount from suppliers before year-end. So this year it is about $600 million to $800 million, and the related payments will continue to come in over the remainder of the year.
Operator: The next question comes from Michael Ward of Citi.
Michael Ward: I want to follow up on the $20 billion share repurchase. It looks like the amount you have spent on buybacks over the past three years is about $20 billion. Is this number more about some kind of timing, or is it meant to give you the ability to seize opportunities and remain flexible, to be more aggressive at trading levels like the current one?
Mary Barra: Mike, we will follow our capital allocation framework: reinvest in the business to achieve a 20% return on invested capital, while maintaining an investment-grade balance sheet. Then, as we have done over the past few years, return remaining cash to the owners of the company, meaning shareholders. So the real message we want to convey is that we believe the company is undervalued. Because of that, we think this is the best way to create shareholder value. As Paul has said, we will not set a specific timeline. We will execute opportunistically, as we have over the past few years. But I think the signal you should take from the size of the buyback is this: when we believe the stock is undervalued, the Board is committed to returning cash to shareholders.
Michael Ward: Okay. On the financing business, you have reduced auto leasing over the past few years. Is that something you intend to use again? Or would you use subvented financing? If the market needs it, what steps could you take through GM Financial to make vehicles more affordable for consumers? Would you strengthen leasing again? Or what is your long-term goal for GM Financial and the role it can play?
Paul Jacobson: Okay, Mike, Susan is also on the line. I can start and then hand it over to her. Obviously, over the past few years we have seen a lot of EV leasing, and we have devoted a lot of resources to it to help consumers adopt the technology and drive demand, and in many cases, combined with consumer tax credits, leasing was structurally advantaged. So I think the team is adjusting. We still place a lot of importance on GM Financial. Whether it is improving customer loyalty or providing accessible financing options, it is a great channel. We are also continuing to look for ways to grow GM Financial through GM insurance, and it can create attractive linkages with the GM rewards program. Clearly, this is an important tool that allows us to create value for consumers beyond simply building vehicles. Susan, please add anything you would like.
President and CEO Susan Sheffield: Okay, I think you have answered that. Our job is to support GM in selling vehicles, and the key is maintaining discipline in incentive spending. Beyond that, I really do not have anything to add.
Michael Ward: Okay. Is reducing leasing a deliberate overall move? Or is leasing still a tool that can be used in the future?
Paul Jacobson: Mike, I would say it is a trade-off. Leasing is certainly a tool, and I would hope we may do more leasing, but it also has to be considered in the context of the current incentive environment and how we use incentive dollars. I think our go-to-market strategy has continued to evolve over the past few years and has clearly become a competitive advantage. We have to use those dollars where they can have an impact. Sometimes, as consumer demand changes, the specific approach changes too, and we will respond to customer needs.
Operator: The next question comes from Alex Perry of Bank of America.
Alexander Perry: I want to follow up on pricing. Compared with the last major full-size pickup redesign, how should we think about potential pricing benefit next year? I remember you achieved very strong price improvement in 2019. If we use that as a case study for thinking about next year's pricing benefit, what is applicable and what differences should we consider?
Paul Jacobson: Okay, Alex, thank you for your question. We have been careful to ensure we do not directly apply historical experience models to forecast pricing for this generation of pickups. The main difference is that the current 2026 model year is performing better in its final production year than any previous pickup, and in fact better than any model program. So the kind of step-change improvement seen in the past will not be as pronounced this time. That said, we should still benefit from mix improvement, because when we begin ramping production we typically build more high-trim models first. Over time, that mix ultimately normalizes. But I would caution you not to directly use some of the 2018 and 2019 data, because the current pricing environment is very different from then.
Alexander Perry: That's helpful. My follow-up is about input costs. When considering the impact of higher fuel prices, and given some of the fuel surcharges we have heard about, what specifically has the rise in diesel prices done to the supply chain? Also, what impact has it had on end-customer demand for some heavy-duty platforms?
Mary Barra: I would say diesel prices have only just seen this sharp increase, so it is early to judge, and we will watch how it develops. But this year, our diesel models have been very efficient, and even before this latest increase, with oil prices already high, they still offered better fuel efficiency and therefore a lower cost of ownership than buying a hybrid pickup. So we have continued to see demand, and we are monitoring it closely. I think a lot will depend on how long consumers believe high fuel prices will last. I am excited about the new engines coming because they will not only improve performance across the board but also improve efficiency. So if diesel prices remain this high, it is too early to judge the impact. But until a month or two ago, we actually did not see a meaningful impact, and demand remained strong.
Paul Jacobson: Alex, on logistics, the impact passes through quickly, as you can see, maybe with only a two-to-four-week lag, but we feel it soon. This is also an important component of the $400 million cost pressure we mentioned in our prepared remarks.
Operator: The next question comes from Tom Narayan of RBC Capital Markets.
Gautam Narayan: My first question is about competitive pressure in 2027 and the potential impact on volume and pricing. One of your peers among the Detroit Three has high dealer inventory, especially pickups, and we are seeing incentives increase. Japanese automakers are also gaining share, especially in hybrids. I know you just said that is not an area where you primarily compete. But at the same time, European automakers are being squeezed by Chinese automakers in Europe and China, and they have talked at investor events about aggressively entering the U.S. market. Are these just normal industry conditions, or do they concern you?
Mary Barra: If you think back a few years to the semiconductor shortage, every company's vehicle production was constrained by semiconductor allocations. We saw everyone direct limited supply to the United States because it is a profitable market. So I think this is not new. We are well positioned because of the overall strength of our portfolio, and because the new pickups coming will raise performance to a new level across the board. Right now, most of what we build is capacity constrained. Whether pickups or SUVs, we are building as many as we can. I mentioned the Equinox earlier; we cannot produce enough to meet demand. That will be alleviated as we start producing that model in the United States. But I think this competition will persist. Specifically in pickups, we have seen that one competitor has long had higher incentives, with ups and downs, but this has been going on for years. Even so, our pickup still gained share, and we believe that after the launch and production ramp, there is still a big opportunity to continue gaining share based on the strength of the product. While doing that, we also have the opportunity to continue growing OnStar and Super Cruise revenue. So I think your observation of the market is accurate. With the strength of our portfolio, we are well positioned, and we have been through similar situations before, with actual performance showing that we can continue to do well.
Gautam Narayan: Understood. Mentioning Super Cruise is a good segue to my next question. You are confident about launching Level 3 autonomous driving in 2028. Several German automakers have tried Level 3, but progress seems less than ideal. I think they ran into insufficient consumer demand, partly because the operational design domain was relatively limited. I think your case is different. So can you talk about why you can offer a better service than their Level 3 systems? And what gives you more confidence in consumer demand?
Mary Barra: I think when it launches in 2028, the Cadillac Escalade IQ will be the first model with this technology. We will share more at tomorrow's GM Forward event. Our highway autonomous driving will be used on highways, and its operational design domain will not be as restricted as the examples you mentioned. It will also continue our focus on safety, which I believe everyone and customers have already seen through Super Cruise and therefore trust and use it. So I think they will see a highly capable product. I rode in the vehicle within the past month. Compared with a test ride a few months earlier, its composure on highways, at highway speeds, and in other respects has improved significantly. So I am very confident in the product coming. We will share more tomorrow. I think customers will use it and be willing to pay for it, because it will certainly improve their lives, and they will have many opportunities to use it.
Operator: I will now turn the call back to Mary Barra for closing remarks.
Mary Barra: Okay, thank you. And thank you all for your questions. As we discussed today, GM is performing very well, and that has not changed. Although the path of inflation remains uncertain, we are working to continue our momentum and deliver substantial cash returns to shareholders. Through strategic investment in new products and technologies, along with improvements in quality and operating efficiency, we are strengthening our core business. This year, while offsetting the impact of higher commodities, logistics, and other costs beyond our control, we have already raised full-year guidance twice. In the coming years, with the Silverado and Sierra light-duty pickups completing their launches, followed by the next-generation heavy-duty pickups, next-generation full-size SUVs, and all-new Cadillac sedans and crossovers, our portfolio will only get stronger. So I think you can see that we have a lot of product coming. At the same time, we will expand our highway autonomous driving capabilities, as I just said, starting with the Cadillac Escalade IQ in 2028; we will also develop cutting-edge battery technologies such as lithium manganese-rich batteries to help improve EV profitability and build closer relationships with customers through digital experiences. We believe this is a proven strategy that can create greater shareholder value in the future, and we look forward to delivering on it. Thank you for joining today's call, and have a great day.
Operator: That concludes today's conference call. Thank you all for participating.
Comments