General Motors CFO Paul Jacobson Talks GM Dodging Tariffs With Production Shift to The US
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Bloomberg Audio Studios. Podcasts, radio, news. Paul, we're talking to you. I'm normally focused on automaking as a business. It's now very close, closely related to the kind of stuff that Joe and Kayleigh talk about every day because of the tariffs. You've announced a $4 billion investment or plans to invest $4 billion over the next two years, bringing production back to America. This is essentially what Donald Trump wants.

is pushing for. This is what he wants companies to do, and now you're actually making it work. How much is this going to offset the $5 billion worth of hits GM is expected to take from the tariffs? Well, Matt, first of all, thanks for having us. I think this announcement that we made is worth much more than just the tariff side of it. Tariffs are obviously a piece of it as we're reacting to the new dynamic that's going to be out there.

And it'll offset a good bit of it. So we'll move about 300,000 units of production. Some of it is new production and incremental. Some of it is a shift, but re-optimizing our manufacturing footprint and taking advantage of some underutilized capacity in the U.S.,

But it's also about creating security for our people. You look at the Orient plant, we would tailor that to produce and scale EVs really fast. The market has obviously changed and pivoted a little bit. This gives us an opportunity to reallocate that plant, better utilize it for internal combustion engines on trucks and full-size SUVs where we know the demand is really strong for them. And that's great for our utilization, our efficiency, as well as for our consumers and our people as well.

So it's about more than just tariffs. But with this, we'll be about 2 million vehicles produced in the U.S. for the U.S., and we're continuing to make those investments. I bought a Silverado ZR2 a couple of years ago. Mine came out of Mexico. You're going to be moving most of that production, I guess, to the U.S., right? Most Sierra production to the U.S. Equinox production, does that come mostly to the U.S. too? What are we seeing in terms of the models that are moving out of Mexico? Yeah, we'll have Equinox ice production in Spring Hill.

I'm sorry, in Fairfax. Spring Hill is going to be the blazer. But Fairfax is going to be another great implementation of where we're going to be able to produce ICE and EVs on the same production line, creating that flexibility for us to be able to respond to consumer demand as it continues to grow. Have you changed sourcing for any of the parts? Because it's not obviously just about the final assembly with these vehicles. There's a ton of content and information

You want to have that, I guess, as much domestically sourced as possible as well to save on costs. Well, I think, you know, with what the administration has set up here with the MSRP offsets is giving us time to help retool our supply chain. So incentivizing growth and production in the U.S.,

recognizing that the supply chain takes time to shift. So we're going to continue to work with our supply base to try to maximize the efficiencies across the entire value chain and utilize those offsets where we need to and shift production where it makes sense and where we're able to. I should say to save on tariff costs because you obviously source a lot of these parts outside of the U.S. because the actual production costs are lower. How much higher is it, how much more expensive is it to build

a part, like an engine or a transmission to assemble a truck in the US than it is, say, in Mexico? - Well, it's far more complex than that, Matt, because I mean, there's obviously the hourly labor differential and that's a big piece of it.

but we can save money in logistics we can save money in plant utilization and filling up capacity so when you when you fill up a plan it actually makes it more efficient for every vehicle out there not just the ones that you're you're moving production into so we look at that as an enterprise-wide calculation and think we can we can get to an equivalency where ultimately we can be competitive with producing in the u_s_ as well one of the things that you

can produce fewer of in the U.S. is magnets, the rare earth minerals that we've all learned much more about than we ever expected to in the last week or so. How is your access to those rare earths right now? Because there's concern that production in a lot of U.S.,

factories could slow. Yeah, we haven't experienced any slowdown as of yet. It's clearly a risk that everybody is watching from that standpoint. But what I would say is our supply chain team does an excellent job, similar to what they did through the chip

semiconductor shortage that we had a few years ago. Our team did a great job of responding, maintaining agility, working with our suppliers to try to balance production as best we can. And they've done a great job so far with this situation as well. What is your thought on any kind of vertical integration? I mean, the concern or the problem, I guess, with

Rare earths isn't just the mining, but also the refining of them is mostly done in China. Have you tried to convince suppliers to do more of that here? Are you trying to get your own supply here? We've done a number of initiatives, whether it's with Lithium Americas or a joint venture with POSCO.

uh... around a lot of battery raw materials particularly the lithium side which is a little bit easier to do and and a little bit less capital intensive but we've we've helped fund that we've taken equity positions we've helped to fund products uh... and projects across the board

But we've been working on this for a long time, really since COVID is trying to increase the resiliency of our supply chain, both from a pandemic, from just a de-risking perspective. And we're in a pretty good situation with where we are. We still have some work to do, but there's a lot of things that we can do thinking creatively with our partners.

What are you thinking about prices right now? You obviously raise prices on a regular basis, right? If we're not experiencing deflation, you're going to try and stick with the pack there. Are you facing pushback from consumers when you try and raise prices? Well, you know, our portfolio has performed really, really well.

And we've adopted a strategy of being very disciplined in our production, not overproducing like some of the challenges of the past. And that's a strategy that's worked for us. We announced on our earnings call about six weeks ago that we don't need to take any price to help with the offset initiatives that we've targeted going forward because we want to be in the position where we're responding to demand from our customers and being more stable. We don't want to raise prices because of tariffs. And then when tariffs come down, expect that prices drop.

are going to come back down. We want to be more consistent with our customer base and that's a strategy that's worked really well for us. Can you do it in other ways through MSRP? I mean some manufacturers are raising maybe delivery price, you can also raise the price of options packages and still keep MSRP level.

Well, again, we haven't done anything specific to respond to tariffs. We've looked at where packages are for options, where our logistics costs are, et cetera. And we try to price what we can. But that's irrespective of tariffs, and it's something that we've done. I think when you look at our pricing model over the last few years, it's been more consistent than many of our competitors with less volatility and discounting. And that's good for our customers as well. So we're going to continue to do that.

across the board where we can and make sure that we're delivering value for our customers. The bean counters at Bloomberg Intelligence want me to ask questions about cash flow here and how that looks right now with the tariff effect. You've had obviously great sales as I guess

some demand is pulled forward. Do you have to divert some cash though to deal with tariffs from anything else? Well, I mean clearly in the short and intermediate term, tariffs are going to be a drain on our cash flow. We announced about four to five billion dollars of impact this year and we think we can offset about 30 percent of it going forward. But that is going to be a cash hit. Now when you look at the performance of the company, our cash flow generation has been really strong.

It'll continue to be really strong even after the tariffs, and we're going to work to continue to drive that efficiency. But we've got to create that stable cash flow across the board because this is still a cyclical industry, and we need to be able to absorb these shocks. And I think the team's done a really good job of managing and being disciplined in order to continue to drive strong cash flow even in the face of some of these short-to-intermediate-term hits. What are you expecting in terms of SAR? Because we've had...

pretty strong sales numbers over the past couple of months I think upwards of 17.3 million does that continue through the rest the year? No, we don't expect it to. We would love to see that happen but you know what we said about six weeks ago is we're planning for a year about 16 million units which is similar to last year in April and the first half of May we were trending much closer to 18 million as we saw a lot of customers trying to get ahead of what they expected to be price increases

We've seen that come out over the last couple of weeks, but it's really retreated back to where it was before that pull ahead demand. So we're encouraged by the fact that that consistent demand is still there and that's gonna be important for us as we continue to push forward. But if we see a slowdown, we'll have to adjust to it and make sure that we create that agility that we have really come to be known for over the last few years. But right now, the customer seems pretty stable even though we've seen that pull ahead demand come out.

You've had the best margins of the big three, enjoyed I think 8.5% margins or thereabouts. Does it hang at that level through 2025? Well, obviously the tariffs are going to be an operating hit to us going forward, which is why we're focused on making sure we take actions quickly. There were a number of actions that we already took. We called them no regrets actions.

where we increased the line rate in Fort Wayne to build more trucks in the U.S., etc. Here we're taking the next step of deploying capital to increase that production. These are steps that we think are necessary for us for the long term to be able to drive that type of consistent margin performance that we want to be known for.

I want to ask about the shares as well as your free float. It's gotten pretty small. How much further can you go with buybacks? Well, I mean, we're going to continue to follow our disciplined capital allocation policy. The first thing we do is reinvest in the business.

That's a capital budget of about 10 to 11 billion dollars. We just announced last night that that'll be 10 to 12 billion dollars for 26 and 27, reflecting a little bit of additional spend for what we're doing. The second is we prioritize the balance sheet. The balance sheet's been as strong as it's been in decades, with a pension fund that's nearly fully funded and debt that's very manageable.

And then the third leg of that still was returning cash to shareholders. So we reinstated the dividend a couple of years ago, and we've been deploying that cash to return to our shareholders to make sure that all the constituencies benefit from the success that we've been having, our employees, our customers, and our shareholders. As a contractor, I don't pay for materials I don't use. So why would I pay for stuff I don't need in my mobile plan? That's why the new MyBiz plan from Verizon Business is so perfect.

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