General Motors Management Discusses Q3 2012 Results - Earnings Call Transcript
Executives
Randy Arickx - Director of Investor Relations - General Motors
Daniel F. Akerson - Chairman, Chief Executive Officer, Chairman of Executive Committee and Member of Proxy Committee
Daniel Ammann - Chief Financial Officer, Senior Vice President, Member of Proxy Committee and Director of Opel
Stephen J. Girsky - Vice Chairman of Corporate Strategy Business Development Global Product Planning and Global Purchasing & Supply Chain, Interim Head of Opel/Vauxhaull Unit, Chair of European Opel Brand, Director, Board Member of European Opel Brand, Member of Proxy Committee, Member of Finance and Risk Committee and Member of Public Policy Committee
Chuck Stevens - Chief Financial Officer for North America
Analysts
John Murphy - BofA Merrill Lynch, Research Division
Adam Jonas - Morgan Stanley, Research Division
Timothy J. Denoyer - Wolfe Trahan & Co.
Itay Michaeli - Citigroup Inc, Research Division
Brian Arthur Johnson - Barclays Capital, Research Division
Rod Lache - Deutsche Bank AG, Research Division
Christopher J. Ceraso - Crédit Suisse AG, Research Division
Ryan Brinkman - JP Morgan Chase & Co, Research Division
Operator
Ladies and gentlemen, thank you for standing by, and welcome to the General Motors Company Third Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, Wednesday, October 31, 2012. I would now like to turn the conference over to Mr. Randy Arickx, Executive Director of GM Communications and Investor Relations. Please go ahead, sir.
Randy Arickx
Thanks, operator. Good morning, everyone. Thank you for joining us as we review our third quarter 2012 results. A press release was issued earlier this morning, and the conference call materials are available on the Investor Relations website. I would also like to mention that GM is broadcasting this call live via the Internet.
Before we begin, I'd like to direct your attention to the legend regarding forward-looking statements on the first page of the chart set. As always, the content of our call will be governed by this language.
This morning, Dan Akerson, GM Chairman and CEO, will provide opening remarks; followed by a more detailed review of the financial results with Dan Ammann, Senior Vice President and CFO, who will be joining us by phone. Steve Girsky, Vice Chairman, will also provide an update on our plans in Europe. Dan Akerson will then conclude the remarks portion of our call with some closing remarks.
After the presentation portion of the call, we will open the lines for questions from the analysts community. Also, in the room today we have Nick Cyprus, Vice President, Controller and Chief Accounting Officer; Chuck Stevens, CFO of North America and South America; and Jim Davlin, Vice President, Finance and Treasurer, to assist in answering your questions.
With that, I'll turn the call over to Dan Akerson.
Daniel F. Akerson
Thank you, Randy, and thank you to everyone on the call. It's been a tough week. Before I get down to business, I want to say a word of thanks on behalf of GM to all the first responders, relief teams and volunteers who are doing so much to help people who lost family, friends or their homes in the storm of the past week. I'm sure all of us in the room and on the call know someone whose life has been changed by this disaster, and they are in our prayers. As someone who has roots in the East Coast, it makes me glad to see so many people, companies pulling together to speedy recovery. It will make a big difference for many people.
All right. Let's get to our results. This was a solid quarter for GM in almost all respects. As you can see this at just a glance by looking at all of the green up arrows on Slide 2. I wont review Slide 2 line by line. Instead, I'd like to draw your attention to 3 key indicators.
The first is our global EBIT-adjusted of $2.3 billion. This is about $100 million better than a year ago despite the ongoing negative impact of the European sovereign debt crisis on our business and the industry.
The second point I'd like to make is that 4 out of 5, our 5 business units, were profitable. It's true both for the quarter and for the year-to-date, and it stems from our geographic diversity, strong brands, financial rigor we are instilling in the business.
Finally, we generated $1.2 billion in automotive free cash flow. Well, it's not on the chart. This brings free cash flow to $3.2 billion for the year-to-date, which is $1 billion better than a year ago.
What's important about this metric is that it's net of spending on new products, plant and equipment, which is set at roughly $8 billion annually, up from about $6.2 billion last year. In fact, we've kept our capital spending stable at this high level while some competitors pulled back. We're not about to do that. We're here to create a sustained competitive advantage in the marketplace, and we can afford to invest in a straight-line basis because of our fortress balance sheet, solid profitability and global footprint.
As we invest, we're also confident that we will continue to improve our margins by mid-decade. It will be a function of volume growth, even stronger brands, less complexity and lower SG&A and product cost, all of which is built into our business plan.
If you turn to Slide 3, I'll review some of the third quarter operating highlights that show how we are executing against this plan. Let's start with the overall portfolio. We have continued to invest in new Opel and Vauxhall products even as we work harder to reduce our breakeven level. In fact, there are 23 new vehicles coming by 2016, and the 3 newest have been generating a tremendous amount of interest among our dealers and consumers months before they hit the showroom.
For example, the Mokka, which we will be the first vehicle in its segment from a German brand, already has more than 45,000 orders, with particularly strong interest in Germany, the U.K. and Russia. 1/2 of the orders are for the top-of-the-line Cosmo series and 70% of those orders are equipped with 4-wheel drive.
In addition, the Adam, which goes on sale early next year, was the hit of the Paris Motor Show. It will be produced in our plant in Eisenach, making us the first manufacturer to build the vehicle in this segment in Germany.
With the addition of the cascade of convertible, which also launches in early 2013, we'll have 3 new vehicle segments where we didn't compete before, which is a foundation for us to sustain and grow the top line of Opel.
Turning now to Chevrolet. The brand is clearly on a roll. Chevrolet dealers delivered 1.25 million cars, trucks and crossovers worldwide in the quarter, which made it the brand's eighth consecutive quarter of record global sales. What we're seeing is a convergence of customer needs around the world, needs that Chevrolet is able to satisfy with highly functional and very desirable global vehicles, like the Spark, Sonic, Cruze and Colorado. Nowhere has the impact of this global convergence been more powerful than the United States, where small cars have helped drive a 63% increase in consideration for Chevrolet passenger cars since the fall of 2010.
Increased consideration translates into a 56% increase in U.S. mini, small and compact car sales in the third quarter versus a year ago. But even the sales of smaller vehicles increased, so did our pickup trucks ATPs. They were up by $2,200 per unit, thanks to strong sales of new -- of the crew cab and heavy-duty models and lower incentives.
As we move into the fourth quarter and 2013, Chevrolet is going to stay on the throttle as we continue to launch the Malibu 4-cylinder and Turbo and begin the launches of the Impala and the new all-new large trucks in North America. We'll continue the global rollout with the Trax and Spin crossovers and the Colorado midsize truck, the TrailBlazer SUV and the Onix small car and much more.
The third quarter also saw us put Cadillac on the growth trajectory with the launches of the ATS compact luxury sedan and the XTS large luxury sedan. With these 2 models, Cadillac now covers 80% of the U.S. luxury model market by volume compared with 50% previously.
New products have also been driving the performance of our regional brands like Buick and Baojun. Consideration of Buick has doubled in the United States in one year and the strength of vehicles like Verano.
And in China, Buick, Chevrolet and Baojun and other brands combined to deliver a percent -- 10% year-to-date sales increase to a record 2.1 million units. Even as we execute the most comprehensive product plan in our history, we are making progress on equally far-reaching initiatives that will fundamentally improve our operations over time.
In our consolidated GMIO operations and in GMSA, South America, we posted solid profits and significant margin improvement versus posting losses into -- in the third quarter of 2011. This is evidence of the impact we can have by bringing the right focus and discipline to our operations. For example, this quarter, we simplified our product development program management.
Under our new flatter structure, an executive team engineer leads programs from inception to production with single-point accountability, and here she is accountable for product cost, quality and the competitive set.
In addition, we are undertaking a top to bottom transformation of GM's IT infrastructure. Benchmarking proved what we knew intuitively. GM's outsourced IT model was expensive, inefficient and outmoded. Now all of that is changing, and it's going to help us manage the business with even more speed and precision.
In Europe, we continue to execute our revitalization program. We have drawn down our inventories as we said we would, which helped us meaningfully impact our cash flow for the quarter. We expect that the weakness in Europe will continue to impact our business and the industry for the next several years. So we're being conservative in our planning assumptions around volume and revenue.
But with our new leadership team and our comprehensive focus on brand building and cost reduction, we are targeting improved year-over-year results in 2013 and breakeven results by mid-decade. Steve Girsky is going to join the call after we complete our discussion on the quarter to provide more insight into what we have accomplished so far and what you can expect to see going forward.
Those are just a few examples of what's going on in the front line and behind the scenes. There are many more projects covering finance, marketing, sales, operations and other stuff.
But in the interest of time, I'd like to turn the call over to Dan Ammann, who will share more detail about the quarter.
Daniel Ammann
Thanks, Dan. On Slide 4 we provide a summary of our third quarter 2012 GAAP and non-GAAP results. Net revenue was $37.6 billion, a $900 million increase from the prior year. Included in this was a $1.3 billion negative impact year-over-year due to FX translation.
Operating income was $1.6 billion for the quarter. Net income to common stockholders was $1.5 billion, down $200 million from 2011. This decline was more than accounted for by an effective tax rate of about 20% in the third quarter compared to less than 6% from the prior year.
Earnings per share was $0.89 on a diluted basis compared to $1.03 from the same period in the prior year and automotive net cash from operating activities was $3.1 billion.
At the bottom of the page, we have non-GAAP metrics, EBIT-adjusted was $2.3 billion for the third quarter, $100 million improvement from the prior year. The EBIT-adjusted margin was 6.1%, up slightly, reflecting solid margin expansion outside of GM Europe. Automotive free cash flow was $1.2 billion, up significantly from the prior year.
Moving onto Slide 5. This quarter we had $100 million special item in the impairment of goodwill in GM Korea. This charge reduced earnings per share by $0.04 on a fully diluted basis.
On Slide 6, we provide the EBIT-adjusted by region for the third quarters of 2011 and 2012. GMNA's EBIT-adjusted was $1.8 billion. GME had an EBIT-adjusted loss of $500 million. GMIO had EBIT-adjusted of $700 million. And in South America, EBIT-adjusted was $100 million for the quarter. GM Financial had earnings before tax of $200 million, a small increase from the prior year. Corporate sector and eliminations was $100 million expense. This nets to an EBIT-adjusted of $2.3 billion for the third quarter of 2012, up $100 million from the same period in 2011.
Slide 7 shows our consolidated EBIT-adjusted for the last 5 quarters. At the bottom of the slide, our GAAP operating income margin was 4.3% for the third quarter, 0.6 percentage point decline from Q3 of 2011. Our EBIT-adjusted margin was 6.1%, a 0.1 percentage point improvement from the prior year. Our global production numbers are 16,000 units higher than the third quarter of 2011 and our global market share was 11.6%, 0.5 percentage point decline from last year but relatively consistent over the last 4 quarters.
On Slide 8, we provide an explanation of the $100 million increase in year-over-year EBIT-adjusted for the third quarter. Our EBIT-adjusted was $2.2 billion for Q3 2011. Volume was $300 million favorable. Mix was unfavorable $500 million, largely attributable to changes in the car truck mix in GM North America. Price was $600 million favorable for the quarter, due to the strength of our new product introductions and continued pricing discipline on the vehicles that we've launched in prior years.
Total costs were up $300 million, which includes a $200 million reduction in pension income as well as unfavorable policy and warranty adjustments of $300 million for the quarter, offset with favorable material cost performance.
Additionally, as proof of our ongoing cost controls, SG&A was down year-over-year while revenues were higher. This totals to $2.3 billion for Q3 of 2012.
We now move onto our segment results with the key performance indicators for North America on Slide 9. For the third quarter of 2012, our U.S. total share was 17.6%, down 2.1 percentage points versus the prior year, when many of our competitors still had supply disruptions due to the natural disasters in Japan. Our incentive levels on an absolute basis have increased $130 per vehicle from the prior year period.
On a percentage of ATP basis, our incentives for the quarter were 10.3%, up 0.4 percentage points from the prior year. This puts us at 107% of industry average levels for the third quarter of 2012.
On Slide 10, we show GMNA's EBIT-adjusted for the last 5 quarters. At the bottom of the slide, revenue was $23.3 billion, up $1.4 billion from 2011. GMNA's EBIT-adjusted margin was 7.8% for the third quarter, down 2.2 percentage points from the prior year. Our U.S. dealer inventory has been declining from the first quarter and is down to 689,000 units. This translates to 82 days supply versus a 67 day supply at the end of Q3 2011. Full-size pickup truck inventory was approximately 242,000 units as of September 30, 2012, and 209,000 on the same date in 2011.
We've adjusted our expectations for year-end dealer inventory to be in the range of 660,000 to 670,000 units from the previously forecasted 650,000.
GMNA production was 763,000 units for the quarter, a 23,000 vehicle increase from the prior year. And GMNA market share was 16.9% for the quarter, 1.9 percentage points lower than the prior year, again due to the supply-chain challenges in 2011 at some of our competitors.
Turning to Slide 11. We provide the explanation of the $400 million year-over-year decline in GMNA's EBIT-adjusted. EBIT-adjusted was $2.2 billion for the third quarter of 2011. Volume was favorable $300 million. Mix was unfavorable $400 million, due primarily to lower production of full-size trucks and utilities and increased production of small and compact cars. Price was $300 million favorable. Costs were $300 million unfavorable, due largely to $200 million unfavorable pension income and $300 million in unfavorable policy and warranty adjustments, partially offset with $200 million in favorable material and freight costs.
Other was $400 million unfavorable, due to the absence of $300 million in Canadian dollar foreign exchange gains in 2011 and the absence of $100 million favorable lease adjustment in 2011. This totals to an EBIT-adjusted of $1.8 billion for the third quarter of 2012. Relative to our earlier expectations, Q3 GMNA out-performance for the quarter was a function of out-performance with respect to price and material cost and some modest element of engineering expense retiming.
On Slide 12, GME reported an EBIT-adjusted loss of $500 million for the third quarter, a deterioration of $200 million from the prior year. At the bottom of the slide, revenue was $5.1 billion for the quarter, down $1.1 billion from the prior year. Of this decline, approximately $500 million was due to FX translation as a result of weaker Eurozone currencies. The EBIT-adjusted margin in the region was negative 9.4%. GME's production for the quarter was 196,000 units, 27% less than the prior year as we adjusted production to reduce company inventory.
In fact, we reduced finished goods inventory by about 22,000 units or $400 million from the second quarter of 2012. This contributed to GME being slightly positive from a cash flow perspective for the quarter. GME's market share in the region was 8.6%, a 0.2 percentage point decline from 2011.
On Slide 13, we provide the major components of GME's $200 million year-over-year decline in EBIT-adjusted. Volume was $100 million unfavorable, due to a reduction of 35,000 wholesale units. Mix and price were also each $100 million unfavorable. The challenges in these market-driven items illustrate that we must continue to win with new product introductions to be successful in turning around the business in Europe. Cost was $100 million favorable because of material cost performance. This totals to GME's EBIT-adjusted loss of $500 million for the third quarter of 2012.
Moving on to GMIO. On Slide 14 we show the region's EBIT-adjusted for the most recent periods, including the equity income from our joint ventures. GMIO posted EBIT-adjusted of $700 million in the third quarter including equity income of $400 million. At the bottom of the slide, GMIO's revenue from our consolidated operations was $6.7 billion, up $600 million from the prior year despite an unfavorable impact of $300 million from FX translation.
GMIO's EBIT-adjusted margin from consolidated operations was 4.4%, a full 5 percentage point increase from the prior year and our fourth straight quarter of improved performance.
Our China JV net income margins decreased 0.8 percentage points from a strong performance in Q3 2011 to 9.7% in the current period. GMIO's total production for the quarter was up 88,000 units from the prior year due to increases in both our joint venture and consolidated operations.
Market share in the region was 9.4% for the third quarter, a year-over-year decrease of 0.2 percentage points. Our market share in China was 14.4% for the quarter, equal to the performance in the prior year and up 0.7 percentage points year-to-date.
Turning to Slide 15. We provide the major components of GMIO's $300 million increase in EBIT-adjusted. The impact of volume was $100 million favorable. Mix was $200 million unfavorable due to increased production of small and compact cars with lower margins. Price was $200 million favorable due to the strong performance of both our new and older products. Cost was flat for the quarter, reflecting our cost discipline. Other was $200 million favorable due to a net gain from the acquisition of India operations and some favorable foreign exchange. This totals GMIO's third quarter 2012 EBIT-adjusted of $700 million.
On Slide 16, we move onto the GM South America region and look at EBIT-adjusted for the last 5 quarters. At the bottom of the slide, revenue was $4.3 billion, $100 million decline from 2011. However, FX translation was a negative impact of $500 million on revenue in the quarter.
The EBIT-adjusted margin in the region was 2.6%, a 3.6 percentage point improvement from the same period in the prior year where we posted a loss, reflecting the discipline and focus we brought to improving margins in this part of our business. GMSA's production was 222,000 units, down 21,000 units from the third quarter of 2011.
Market share in the region was 17.9% in the quarter, a 0.8 percentage point decline from the prior year. This loss of share in the market was due entirely to our older product offerings as our recent product launches have gained an average of 9 percentage points share in their respective segments.
On Slide 17, we look at the components of the change in year-over-year performance in South America. Volume was $100 million unfavorable. Mix was 200 favorable -- $200 million favorable, due entirely to higher margins for our recent product launches, including the Cruze and the S10 pickup. Price was $100 million favorable, due to actions we're taking in Venezuela and Argentina to offset inflation. Cost was unfavorable $100 million and other was unchanged for the quarter. This totals to $100 million in EBIT-adjusted for the quarter.
Slide 18 provides our walk of automotive free cash flow for the third quarter. After adding back noncontrolling interests, preferred dividends and undistributed earnings allocated to Series B and deducting GM Financial, our automotive income was $1.7 billion for the third quarter. We had $100 million in special items, and our D&A and impairment expense was $1.5 billion.
Working capital was a $500 million use of cash, due primarily to a decrease in accounts payable related to sequentially lower production in the quarter. Pension and OPEB cash payments exceeded expenses by $200 million in the quarter.
Other was a $400 million source of cash, $1.4 billion improvement from the prior year. This is largely due to differences associated with noncash P&L items, as well as accruals in terms of policy and warranty, sales incentives and taxes in expense versus cash.
This totals down to automotive net cash provided by operating activities of $3.1 billion, an increase of $1.3 billion versus the third quarter of 2011. This sizable improvement in operating cash flow, even while net income was down slightly, is further evidence of the quality of earnings realized this past quarter.
After deducting capital expenditures of $1.9 billion in the quarter, our automotive free cash flow is $1.2 billion, a $900 million increase from the prior year period.
On Slide 19, we provide a summary of our key automotive balance sheet items. We finished the third quarter with $37.5 billion of total automotive liquidity, consisting of $31.6 billion in cash and marketable securities and $5.9 billion of available credit facilities.
Our book value of debt is $5.6 billion. The $500 million increase from the second quarter is largely due to the consolidation of GM's India operations and some foreign exchange translation. Series A preferred stock remains at $5.5 billion.
U.S. qualified pensions are underfunded by $13.4 billion, including the remeasurement of our U.S. salary plan, which we'll discuss momentarily. Our non-U.S. pensions are underfunded by $11.4 billion at the end of the third quarter, and our OPEB liability is $7.2 billion.
Slide 20 provides a summary of our order financing activities. GM Financial reported their results this morning and will be holding an earnings conference call at noon. Our U.S. subprime penetration in the third quarter has increased over the prior year to 8.1%. Our U.S. lease penetration is 16.2% in Q3, a 4.7 percentage point increase from the prior year. Lease penetration in Canada is at 7%, down 2.4 percentage points, largely due to an industry shift to APR subventions.
GM new vehicles as a percentage of GM Financial originations increased to 44%, and GM Financial's percentage of GM's U.S. consumer subprime and leasing business was 18% in the quarter. GM's annualized net credit losses remain very low at 2.5% and earnings before tax was $200 million for the quarter, up $22 million from a year ago.
Slide 21 updates the estimates of the financial impact of the salary pension transaction that we disclosed in June. We now expect to reduce our U.S. pension liability by almost $29 billion through a combination of voluntary lump sums and annuitization transactions. Of the participants who are offered a lump sum, approximately 30% have elected to receive one. Our total cash contributions of the salary plan to affect these transactions will now be approximately $2.6 billion, which is lower than our prior estimate of $3.5 billion to $4.5 billion.
The P&L charge in the fourth quarter is expected to be $2.9 billion pretax, and we continue to expect the ongoing unfavorable impact to pension income to be $200 million per annum. We expect to complete the transaction with Prudential in early November.
Slide 22 gives a more detailed look at the year-to-date activity of the salary pension plan. The plan had liabilities $36 billion and was underfunded by $2.6 billion at January 1, 2012. Remeasurements of the plan deteriorated the funded status $1 billion, primarily due to a decrease in interest rates, partially offset by favorable asset returns.
For the year, we expect to pay approximately $2.4 billion in benefits from the plan. Because of reducing the obligation by $28.7 billion through a combination of annuitizations and lump sums will be $30.8 billion, resulting in a net cost of approximately 107% of the GAAP liability in order to eliminate nearly $29 billion of pension obligation.
The estimated cash contribution to the plan is expected to be $2.6 billion, leaving us with a salary plan that will have a slightly more unfavorable funded status to the beginning of the year with a far more manageable total obligation.
Before turning it over to Steve, I'd like to address our view of the fourth quarter on Slide 23. GM's consolidated Q4 EBIT-adjusted is expect -- is estimated to follow typical seasonal trends and will be similar to or slightly better from the same period last year. Within that, we expect those same general comments to apply to GMNA.
If these positive trends continue, we may reverse a significant portion of our valuation allowance on deferred tax assets in the U.S. and Canada. This action could result in an impairment of goodwill in these countries.
Lastly, excluding potential reversal of tax valuation allowances, we expect the consolidated effective tax rate for the fourth quarter to be similar to the approximately 20% we had in the third quarter after adjusting for special items.
Now here's Steve Girsky for an update on GM Europe.
Stephen J. Girsky
Thanks, Dan. Good morning or good afternoon, everybody. I just want to take a few minutes and go through a few slides, talk about the situation in Europe. I want to talk about what we're doing. I want to allude to what's different compared to what the way it used to be run. And the message I want to leave you with is despite the terrible economic environment in Europe, we're not sitting still. And in fact, I think there are some green shoots sprouting at Opel between in the mud. This is an organization, remember, that has lagged way behind their peers in terms of a number of measures, financial market, what have you.
So the first slide talks about how we've refocused our actions with this schematic. We basically have the customer in the middle. It's a very simple model. We have work streams going on, on variable profit and fixed cost. Those 2 drive our breakeven, and we also have a work stream on cash generation. Everything we do has the customer in the middle. It's a very simple model. It's not complicated. The business used to be run in an overly complex manner.
The next slide talks about what we've done on the team. I just want to remind everybody that we play some of our strongest company leaders on the Opel Supervisory Board, Ammann,, Bara, Socia, Tim Lee. The point of this is that Opel is not an island unto itself. It's an integral part of the company.
I can tell you, in prior years, Opel would basically run itself. They wouldn't ask nor would they get a lot of help from the organization. And today we're getting a lot of good idea flow from around the corporation into Opel and, frankly, back the other way as well, and we'll allude to some of that.
We've also made significant changes in the operational leadership of the organization. Basically if you take the top 18 people who were here a year ago at this time, there's only about 4 or 5 left. We brought in people from the outside. AlixPartners' restructuring executive, Thomas Sedran; from Volkswagen, Michael Lohscheller, who was the CFO of Volkswagen of America; from Skoda, Alfred Rieck, who ran Skoda Sales and Marketing in China.
In addition, we've utilized our bench strength and/or transferred or promoted some of our best internal talent to prominent positions in Europe. And as I said before, of the course of the year, we have changed a significant portion of the leadership team to drive a culture of urgency, accountability and new ideas in the region. We basically put together a strong mix of talent here. We got people from outside the company. We got people from outside the European organization. And we got some people from within the organization. And the goal is to generate positive cash flow and profitability in Europe.
The next slide looks at some of the actions we've taken. We've refocused our go-to-market strategy and are focused on improving the image of the Opel brand and strengthening the quality of the market share. I would say looking at -- from the outside looking in, this was a difference between us and the others. Our brand image has deteriorated over the last several years. The bankruptcy was part of it. The poor relations with the works council was another part of it. And we are working very hard. We know we're behind here, and we're working very hard to bring us back to the -- to where we were and frankly, better than that.
This gets accomplished by doing things such as marketing, deposit a brand attributes and not just the price point. We know our product is good. Our products win awards over there, and we put our money where our mouth is. So for example, in Germany, we have our Love it or Return it marketing campaign. This was an idea, by the way, that was not generated in Europe. It was generated outside of Europe, and we took it into Europe and it's had great acceptance. Basically we're enthusiastic about our product. We think you would be too, if you buy one of our products and you're not enthusiastic about it, give it back, okay? And frankly, we've gotten, I think, 10 cars back so far out of the 25,000 sold. That's 0.04% of the people who have given their cars back. Not 1%, not 0.5%, 0.04%.
We've also been reengaging in the participation of local soccer sponsorships in Germany, after being removed from the space for over 10 years. We have third-party studies done in September and October that have shown that consumer consideration in Germany is already modestly improving after years and years of decline.
Also in September, Opel gained share in 9 European countries. Again, these are small proof points, but they are -- indicate a positive trend and reflect the green shoots that I've talked about before.
We're also maintaining internal discipline, not to chase bad market share. For example, in the U.K., we've lowered our daily rental sales, while at the same time improve our retail share. So overall share in the U.K. is down a little bit, but our retail share is way up.
In fact, Vauxhall is now the fastest-growing retail brand in the U.K. We will continue our product development assault. As been mentioned before, 23 new models, 13 new engines through '16. We are not walking away from product. We continue to put product on the road. These numbers include near-term launches and entirely new segments for Opel/Vauxhall, like this year's Mokka and Adam and next year's Cascada. We have 45,000 orders on hand from the Mokka from dealers and customers. Frankly, we can only deliver about 30,000 this year. It's been a long time since Opel has had a product that's this tight.
In addition, we see upside opportunities in growth markets in Central and East Europe. Opel sales are growing twice as fast as the market overall in Russia, and there's similar growth opportunities for the brand in Turkey. And as part of this strategy, Opel has now entered Australia with a strong product lineup.
We're taking aggressive actions to improve the profitability on all our current and future products. As evidenced in this year's variable profit on the current generation, Astra has improved by EUR 500 per vehicles through a combination of favorable pricing and material cost reductions, all accomplished without sacrificing customer-valued attributes and features of the vehicle. We have extended this initiative out to the entire lineup of current vehicles.
We're also looking to expand the availability of auto finance in the region for our potential customers. Most European OEMs go to market with a captive finance arm. Getting a captive finance arm in the U.S. has helped a lot. Obviously, we don't have a captive finance arm in our arsenal.
For perspective today, GMAC is only active in 8 countries in Europe. As we previously announced, we are active bidder for Ally's international business, which would deliver benefits from both a cost of funds perspective, as well as open up opportunities to improve vehicle sales with more attractive consumer finance offerings.
Finally, our alliance with PSA will help us leverage our joint development at the 4 recently announced product programs to increase our scale in the region at significantly lower development costs. We're in the process of finalizing our joint purchasing efforts and assign our logistics needs in GMA to the Gefco subsidiary, PSA, where we expect to start seeing measurable savings in 2013.
Let me talk about cost and cash preservation. We have reduced company and dealer-owned inventory by 100,000 units since February. Inventory in this organization peaked in February. February through September of this year, we would -- we've reduced by 100,000 units, and we would expect another 20,000 unit reduction by the end of the year.
Of this 120,000 unit improvement, about 90,000 units will be from company-owned inventory, representing a 47% reduction. Something that's different here than in other markets is Opel had a significant amount of company-owned inventory. We know from history in the past that, that is not a good strategy, and we are rapidly working to take that down.
This intense focus on inventory management is a prime reason for GM Europe attaining positive cash flow during the third quarter. I realized it's a small step. I realize it was largely inventory reduction, but this was a big reach for this organization. And again, it's a small win to be positive cash flow in this difficult environment for an organization that hasn't had a lot of wins over the years.
GME's total fixed costs are expected to be down $300 million in '12 from '11. We're targeting another $500 million reduction in fixed cost from '13 through '15. It's important to note that these are net fixed cost reductions, not growth fixed cost reductions and include absorbing and offsetting general economic increases and expected increases in pension expense, as well as restructuring expenses in D&A.
Including these cost savings is the 2,600 headcount reduction in 2012. This is -- frankly, this is not new news to the people internally. Frankly, we're 2,300 people through this. We're not in a habit of announcing things and doing them. We'd rather do them and then announce them. We're getting this done largely from voluntary separations and early retirements, and we will continue to drive further headcount reductions in the future, in line with demand.
As previously announced, we've also implemented short-work provisions, were expected to bring a moderate level of savings in the near term. These savings also recognize the efficiencies we have gained with our recent Ellesmere port labor deal. Some of the beneficial provisions from the deal include frozen wages, introduction of entry-level employees, closed entry into the defined-benefit pension plan, reduced shift premiums and much greater operating and work role flexibility.
The management has also targeted capacity utilization over the medium term. We're taking our Astra production from 3 plants to 2. In addition, we have no allocation of future product to the Bochum site after the run-out of the current Zafira. This is one of a number of issues that are subject to negotiations and or consultations with the relevant work -- relevant unions and works councils.
We've announced recently, in fact yesterday, an important initiative with the state -- with the government and state of North Rhine Westphalia to establish an all-new inclusive work group that will explore ways to strengthen economic development, including work streams of future utilization of the Bochum site and their highly skilled workforce. This initiative does not preclude or force any solution, but it's a responsible action taken now to prepare for issues that based on the current scenario we will likely face in the future.
We are also implementing -- reduced our third shift in Eisenach in the first half of '13, and we'll make a final determination in the status of our Strasbourg transmission plant, which is currently under review. These are all actions in addition to the 2010 disclosure -- closure of our Antwerp Belgium assembly plant.
Let me go to slide 28. This recaps our balance plan for GM Europe to restore profitability. Three streams: revenue, variable cost and fixed cost, and we got work streams going on in each place. I should emphasize, we've taken -- we've intentionally taken some prudent and conservative assumptions.
For example, our 15 total European industry estimate is less than 5% rebound versus the low 2012 levels. We believe our heavy investment and new product and entry into new segments, together with our improved go-to-market strategies, will allow us to sustain our current market share and hopefully grow it. But we're not banking on that.
And additionally, we have no significant pricing reduction outside the material content recovery in our assumptions. The full run rate recognition of any future plant closings would be incremental to our base line assumptions. The point is we're developing a plan that is not highly dependent on external environment dramatically improving over the next several years.
So let me conclude with the last chart. GME's adjusted loss for 2012 is going to be somewhere in the $1.5 billion to $1.8 billion, depending upon the level of Q4 restructuring activity.
For '13, we're targeting GME's EBIT-adjusted results to be slightly better than 2012, this is in spite of our expectations for 2013 total European industry demand to be 4% to 5% less than 2012's depressed levels.
Lastly, we're targeting GME to be in a breakeven EBIT-adjusted position by the middle of the decade.
With that, I want to turn it over to Dan Akerson.
Daniel F. Akerson
Thanks, Steve. I'll keep my closing statement very brief because we've covered a lot of ground today. And we're looking forward to a robust Q&A. So I'll end with a couple of thoughts.
As you look at the company and compare to where we stood 12 to 18 months ago, you can see that we have adhered closely to our strategy to make GM a more nimble, profitable and formidable competitor. Our product lines are in very good shape, and we are starting to see green shoots take hold on tough issues like complexity reduction, pensions and Europe.
We've demonstrated real progress through storing our consolidated operations in GMIO and our GM South America business to solid profitability. And we are now -- have GME targeting breakeven results by mid-decade. That's because we now deal with problems in the business methodically, systemically and as a team.
Our opportunities are even greater than our challenges, and I hope it's clear than ever that we are running the business in a way that will continue to drive strong results, address risk and create a foundation for continued success.
Thank you, and now let's open the line for Q&A.
Randy Arickx
Okay. Operator, we're ready for Q&A.
Question-and-Answer Session
Operator
[Operator Instructions] Our first question comes from the line of John Murphy, Bank of America Merrill Lynch.
John Murphy - BofA Merrill Lynch, Research Division
Just 3 questions, one in North America, one in Europe and one on GM financial. First on North America, I mean, it was a good quarter. It went pretty well, but you still have a pretty good margin gap with Ford. I was just wondering what do you think you can do to close that roughly 400 basis point margin gap we saw in the third quarter. I mean, it seems like you guys have a lot of great product. They're holding the line on pricing. I'm just trying to understand what's driving that gap and how you close it.
Daniel F. Akerson
Sure. Chuck, do you want to take that?
Chuck Stevens
Yes. We track where we're -- how we're performing versus Ford very closely. We've been doing it over the past 2.5 years. We've got a good understanding of the gap. Obviously, it's widened thus far this year. I think that there's 3 specific work streams. One, and we've talked about it a couple of times, we're going to go from having the oldest portfolio in North America to the freshest portfolio in North America over the next couple of years. And a big portion of that portfolio refresh is going to roll through to the bottom line when you think about full-size pickups and the improvement in margin versus Ford where we're currently at a pretty significant discount. Secondly, Ford is about 2 years ahead of us relative to getting scale on global architectures, and we've talked about increasing our volume on global architectures from somewhere around 40% to 80%, which would put us in the range of Ford and Volkswagen. And I think that's going to be, obviously, a big opportunity for us that's got a bit longer tail. The third, and I think both Dan and Dan talked about it, was transformation initiatives, specifically around SG&A, some of the IT in-sourcing activities and other fixed-cost initiatives that we're working on. And I think that will have a short- and mid-term benefit. So just to sum it up, we have a clear understanding of the gap. We know what we have to do to close it. There are short, mid- and longer-term parts of our road map to close that gap. And I think the first and most important tranche of that will be the product launch cadence over the next couple of years.
John Murphy - BofA Merrill Lynch, Research Division
That's very helpful. And, Steve, just on Europe. As we look at what's going on, on there, I mean, it seems like you're reducing the headcount. I'm just curious how much opportunity there is for natural attrition if you leave it on a sort of on a net basis, shrink your workforce pretty significantly between now and 2015. That was one of the special parts of what happens here in North America to get you back to profitability. And also, as you go through this curve between now and 2015, will you be looking for any help from your suppliers to save more cost? Because it seems like the suppliers are making a decent amount of money over there, you're not. It seems like there's some cost-sharing that should be going on.
Stephen J. Girsky
So let me get to the first one, John. We've got 3 buckets really. We use natural attrition, we our early retirements and then we use voluntary separations. Those are 3 tools that we've been using. So far, I would say the opportunities going forward are as good as they've been in the past. I'm not going to give you a specific number because frankly, we're solving for a cost number, not a headcount number. But the goal here is to manage our fixed cost down over time, and that's the target. The second one was the material cost. The material cost performance in Europe, frankly, has been among the best in the company. And we're going to continue to work this. We had a big project around Astra. It's been successful. We need to take that, frankly, across the European perspective. But to be honest with you, Mary is taking that across the whole company. So I would say there's more. But this is not "let's go beat up our suppliers and squeeze them for another dime" or something like that. This is are there creative solutions where we can reduce the cost of our products or do things differently, and that's what we're working on. And a lot of that came out of Astra, and there's more there. So we think there's money in the near term, and then there's also money longer term, which Mary Bara has alluded to in the past.
John Murphy - BofA Merrill Lynch, Research Division
Okay. And then just lastly on GM Financial, I mean, with 44% penetration of your sales, you're getting sort of to the old-school levels where GMAC used to run as far as penetration. And if you get Ally Financial, the international ops, it seems like you're almost recreating GMAC before you got into the mortgage business. Is this the kind of thing that we should think about in out years? You could be earning $1.5 billion to $2 billion as you rebuild the business there?
Daniel Ammann
Yes. Just to clarify, on the 44%, that is the percentage of GMF business that is GM, not the other way around. So GMF still does a reasonable amount of third-party subprime business primarily used business. So just to clarify on that. But having said that, I mean, GM Financial, we're running at a clip of $200 million a quarter for the last several quarters. I'd call that $800 million a year. So we're off to a very good start from a fundamental profitability contribution perspective on the one hand, and also helping us sell more cars on the other. So we're very pleased with how this initiative has taken hold over the last couple of years that we've had ownership with this business. We are, as everybody is aware, pursuing the Ally international business. And we see a similar opportunity there to not only have that business be profitable and own a nice return in its own right, but also most importantly, help us sell more cars around the world and have some of the same success there that we'd have with this business. So having said all that, we don't want to go back and recreate a $300 billion monster, which is what GMAC was at the peak back in 2006. So we see a happy medium where we have a strong capability from a financing perspective, but we're also letting other financing providers be very active in the market and bring liquidity and attractive pricing into the marketplace. So we're taking a balanced approach.
Operator
Our next question comes from the line of Adam Jonas of Morgan Stanley.
Adam Jonas - Morgan Stanley, Research Division
A question -- couple of questions on Europe. First, short [ph] on the guidance for the fourth quarter. When you allowed this $300 million of, say, wiggle room of the full year European loss based on how much you restructure, can I ask within the larger company EBIT guidance of a flat to slightly improved profit year-on-year, how much have you allowed for the restructuring of Europe of that $300 million?
Daniel Ammann
I just say it's within that range of sort of flat to slightly better. So don't read too much precision into that. We're just trying to give some directional perspective, both at the European level within the range we've talked about, but at the company level.
Adam Jonas - Morgan Stanley, Research Division
Okay. Also on fleet in Europe, can you confirm roughly how much of Opel has been running fleet this year, if we include, say, the corporate business fleet in Germany? Is it -- how about this, is it off -- how does it compare to last year qualitatively?
Stephen J. Girsky
Our share of -- let's put it this way, this is the way -- the fleet is different, as you know better than me, in the different markets. So the bad fleet in U.K. is going way down, okay? In fact, retail share, I think, is up by, John Stapleton can correct me if he's on the call, about 6 points in the U.K. In Germany, our share of the self-registered cars is going down also, as we are trying to withdraw from that business. So I look at it as Adam, self-registered and daily -- what's our share of self-registered and daily rent business, sort of we call it short cycle business, and that share is going down for Opel/Vauxhall in Europe in the most recent months. Chevrolet is -- I don't have the numbers in front of me, but we could get you that.
Adam Jonas - Morgan Stanley, Research Division
All right, that's clear. And just a final technical question again on Europe. In the 2010 10-K, when you disclosed the agreement of the intercompany facility, I know you don't provide details anymore to intercompany facility, but at the time there was, I think, a EUR 0.7 billion equity commitment. Now given all the losses since then, it might be reasonable to think that the -- that equity balance might be a negative number, if not a large negative number. I just wanted to confirm, is there any legal or regulatory implications in Germany of having a business with negative equity capital? Is there anything that might force a top-up from GM? Or can you just keep going negative without any regulatory threshold?
Daniel Ammann
Well, obviously, if there were any legal or regulatory issues that were -- if they were to arise, we would deal with them. But as Steve commented on, we're very focused on cash around the whole company as evidenced by the cash flow results of the quarter. But in particular in Europe, through the inventory reductions, which we talked about last quarter as needing to happen that now happened and contributed to the European business, actually generated a little bit of cash in the quarter.
Stephen J. Girsky
By the way, Adam, just -- I just got a note, Europe fleet, all fleet is about low 40s. Mokka will be in the low 20s.
Operator
Our next question comes from the line of Tim Denoyer of Wolfe Trahan.
Timothy J. Denoyer - Wolfe Trahan & Co.
One on GMIO in terms of the sustainability of the margin premium. Can you talk about how much of the margin premium was from the consolidation of the India ops? And can you give a little bit more color on what the drivers were there and if you expect those going forward?
Daniel Ammann
Sure. I mean, the India op consolidation was a double-digit number, not a triple-digit number. The -- in terms of the overall performance, we've been focused really over the last year or so on a series of operational actions, market by market, country by country, both on the revenue and sales side, quality of sale, cost, SG&A. So you've seen the flat cost result this quarter despite their meaningful growth in the business. So this is -- a lot of this is fundamental operational discipline. Having said that, I wouldn't just roll this quarter's result forward and extrapolate this fully into the future. I'd say to characterize the IO business sort of operating environment right now, we're seeing some of the strengthening that we have in the consolidated operations from a margin perspective is offsetting some of the pricing pressure that we're continuing to see in China. It's no secret the China market is growing more slowly than it had been. We're getting a bit more than our share of that, which is encouraging. But there is pricing pressure on that market, and we expect to see that continue to come through. So I think what we end up here is a bit more balanced profit contribution in IO between the consolidated operations and China. And obviously, the more diversification, the more balance we have in our earnings, the better off we are.
Timothy J. Denoyer - Wolfe Trahan & Co.
Yes. And just a follow-up on some of the specific markets. Is it Russia and Thailand that are really sort of driving some of that balance? And did you see any impact and do you see any ongoing impact from the labor issues in Korea in the quarter?
Daniel Ammann
No. I'd say Russia, Thailand and Korea is actually -- Korea in its context is both an end market and is a major manufacturing hub for us is contributing nicely to the -- to some of the improvement here as well. So I'd say it's fairly broad based and reflective of some pretty heavy operational focus that we've had going into a lot of the markets around the IO region.
Timothy J. Denoyer - Wolfe Trahan & Co.
Okay. But did you lose a third shift in Korea because of the labor contract?
Daniel Ammann
No, no. We're business as usual in Korea.
Operator
Our next question comes from the line of Itay Michaeli of Citi.
Itay Michaeli - Citigroup Inc, Research Division
Steve, just a couple of questions on the breakeven target at mid-decade, and I apologize if I missed it. But did you share what your view of the overall market would be, market share assumption? And then lastly, I was hoping you quantify what the assumed contribution margin is at GM Europe by mid-decade and how that compares perhaps to your 2010 and 2011?
Stephen J. Girsky
I don't know how much of that do we...
Daniel Ammann
Itay, it's Dan. I'd say that the -- we're not bidding on a significant improvement in the economic outlook. I'd say what we're looking for in terms of that mid-decade objective is a level of stabilization and things stop declining and maybe tick up a little bit, but not a huge hockey stick at all. And then between the buckets of sort of revenue variable profit and fixed cost, variable profit margins, as Steve mentioned, we are getting some nice improvement from a material-cost perspective on some of the initiatives that we've had. We're getting improvement in terms of the model mix. We've got significant opportunities to improve further on that country mix, so on. That the new products that we're launching to have better variable profit margins than some of the existing product, which is encouraging. And then we've given you the fixed cost target that Steve laid out as being another element of it. So I'd say in total, it's not fundamentally different from what you've seen in the North America turnaround over the last few years, which is you end up with something that looks somewhat like sort of the 1/3 to 1/2 on the cost side, 1/3 to 1/2 on the revenue and variable profit side and sort of balanced between those, and I think we'll see something similar here in terms of the prospect to break even.
Stephen J. Girsky
And I would just add, we're not banking on big share improvement in this plan. That's not -- but we're putting the tools in place to grow our business, okay? This credit company, the new product, the Mokka, the Adam, the Cascada. I saw a German review of the Cascada. They compare to an a5, which gets $5,000 to $10,000 more in revenue than ours. So we're putting tools in place to grow our business, but that's not what we're banking on here.
Itay Michaeli - Citigroup Inc, Research Division
Absolutely, that's helpful. And just to clarify, how much of the PSA savings is embedded in the mid-decade target? Is some of that within the $500 million of fixed cost savings?
Stephen J. Girsky
Most of that is outside of the window. Most of it -- because the programs are largely outside of the window, most of it is out of the window.
Itay Michaeli - Citigroup Inc, Research Division
Great. And then just last question, Dan. I think I heard you mentioned that you're targeting higher inventory at year end in North America. Could you talk about what's driving that decision? Is that just a more optimistic outlook of demand? Or what particularly drove that increase in the inventory target?
Daniel Ammann
It's just as we look at the sales performance and sales outlook relative to production. It was a change from 650,000 to 660,000 to 670,000 area. So it's not a big change, we just wanted to signal that ahead of time. So nothing -- there's nothing significant to read into that.
Chuck Stevens
I would say the day supply at the end of the year is still relatively consistent with where we had guided before. And last year at the end of the year, somewhere in the range of 65 to 70 days. So part of that is stronger industry as well.
Operator
Our next question comes from the line of Brian Johnson of Barclays.
Brian Arthur Johnson - Barclays Capital, Research Division
Want to talk a little bit more about Europe, both from a kind of -- more from a strategic perspective. But first a little bit of just on the volume revenue side housekeeping. When you say no share improvement, is -- that really means no share improvement? And are you assuming, therefore, that you're holding share in Western Europe? Or are you seeing a little bit of share decline in Western and increase in Eastern?
Stephen J. Girsky
Yes. There'll be some mix shift from West to East. I don't have it in front of me, Brian. We can -- if it's important, we can figure it out. We'll get it to you.
Brian Arthur Johnson - Barclays Capital, Research Division
Okay. And then kind of 2 strategic questions. As you put this plan into place, and I'm sure this -- we can make the same comment about your competitor, have you been thinking about the rise of Volkswagen and their aggressive push for share in Europe and make sure that you're not just closing the gap on profits today but have a viable business that wherever they push their scale and price points to in the future will be breakeven or better than breakeven?
Stephen J. Girsky
So we have 2 ways to handle this. One is we rely on the global scale of GM, and the other is we rely on PSA scale to get intra-region scale. So that's -- there's 2 ways we're going to go about this. And basically that's what we -- basically our 2 options. We got a global GM that we can leverage and an original PSA that we'll leverage.
Brian Arthur Johnson - Barclays Capital, Research Division
Okay. Are there any purchasing savings from PSA in this plan? You mentioned the plant investment [ph]
Stephen J. Girsky
Yes. Well, remember, the savings are actually outside the window, but ideally there will be purchasing savings both on the technical and the commercial side.
Brian Arthur Johnson - Barclays Capital, Research Division
Okay. So this plan, other than Gefco, isn't assuming PSA.
Stephen J. Girsky
Not a lot. Small maybe in the last year.
Brian Arthur Johnson - Barclays Capital, Research Division
Which gets to the last strategic question. A lot of noise in the press that GM is looking to sell Opel, looking to form a JV together with PSA, that Fiat is knocking on your door, wanting a 3-way joint venture in Europe, which is we'd point out, could have some accounting benefits at the minimum. I guess, 2 questions. One, anything to any of that? And two, how do you keep the -- everyone in Europe focused on the ground game when they pick up the press everyday and read the rumor of the day?
Stephen J. Girsky
Well, we're doing -- so we're not going to comment on any of that stuff naturally. You can't solve a problem by magically making something -- accounting go away. So we got to focus on our problems, and we're very transparent with the organization internally, what our issues are. We're keeping it in front of people. The product is speaking for itself. I mean, Brian, we haven't had a product as tight as the Mokka in Europe in a long time. I mean, that's a -- we're basically going to fill 60%, 65% of what people want of that car, okay? So that's going great. The reviews on the Adam are spectacular. We keep that stuff in front of people. We focus on cash flow. Getting positive cash flow in the quarter was a big win for these guys. Remember, we used to be way behind everybody else here. We used to be way behind in share, in revenue, in profits, we're way behind. And you know what, granted it's still bloody out there, but we're making some progress. And we just got to keep pointing out these small wins to these people, keep building on them because small wins lead to big wins. We know there the competition is bad. The pricing environment is difficult, and we're just going to work our way through it. We've got a plan. The plan relies a lot on GM and the help we get and the idea flow we get in GM, and we're just going to keep doing that. So we got to keep the noise away. I think we've been doing a pretty good job of keeping our noise down as far as it goes with the works council and stuff like that. And you could start to see that, frankly, in some of the surveys we do about brand consideration in Opel. So we're doing the best we can on it.
Operator
Our next question comes from the line of Rod Lache of Deutsche Bank.
Rod Lache - Deutsche Bank AG, Research Division
Just first a couple additional questions on Europe. Is there like an external inventory reduction target that you have for this year? How much non-GM inventory you're taking down, which is what ultimately drives your revenue in that region? And then also, is the PSA relationship consistent with what you envisioned when you established it? Has it changed at all? And is there the potential for other parties to get involved, just as a broad brush comment to get additional intra-regional scale ?
Stephen J. Girsky
Is that the same -- a different way of asking the same question, Rod, or what?
Rod Lache - Deutsche Bank AG, Research Division
Yes.
Stephen J. Girsky
Let me ask you, so on inventory, I thought I gave you the target. Didn't we give a target?
Daniel Ammann
Yes. We have an additional opportunity in the fourth quarter to take it down further from where we are. We made a pretty big move in Q3. So we're looking to get the company-owned inventory down to the order of 100,000 units by the end of the year, which is 75,000, 80,000 unit decline from where it was early this year. So that's been a big focus and a big effort, and will contributed nicely to working capital overall. And just while we're on that topic, I'd point out that we've had a pretty big focus on working capital across the company over the last period of time, and we're starting to see some of the results of that flow through from a cash point of view, as we see additional opportunity going forward on that as well.
Rod Lache - Deutsche Bank AG, Research Division
I was more focusing on the dealer-owned inventory, which drives the revenue.
Stephen J. Girsky
The dealer-owned inventory will continue to go down as well. The number that Dan said, we hope to be under 100,000 company-owned, just so you know that's the stretch target. The dealer inventory...
Daniel Ammann
We're not pointing out a specific objective on that.
Stephen J. Girsky
By the way, one of the changes we made here and call it crazy, but this company used to build cars without dealer orders, okay? We don't do that anymore, okay? I know it's something that used to happen but it doesn't happen anymore, and that's driving a lot of this working capital, say, inventory cash generation here. The other thing I'd point out is it's going to be hard for you guys to bookkeep these numbers since the inventory peaked in the middle of the first quarter. So it's not like it's going to be easy, you can -- ends on the quarter, so to speak.
Rod Lache - Deutsche Bank AG, Research Division
Is the PSA relationship changing at all versus what you envisioned, just given the situation in Europe or...
Stephen J. Girsky
Is it changing? I don't know if it's -- I don't think it's changing. We're -- continue, to work on the programs. I mean, there's small issues here and there, but nothing to speak of.
Adam Jonas - Morgan Stanley, Research Division
Okay. And can I ask just 2 other regions? North America, how should we be thinking about launch cost? You've got this massive number of launches here over the next 2 or 3 quarters? Anything we should be kind of keeping our eyes out for? And then lastly, any benefit in China at this point you're seeing from some of these market share shifts with Japanese obviously suffering a bit here at this point.
Daniel Ammann
I'll take the China question, and then Chuck can address the launch cost question. I'd say in China, we haven't seen any sort of fundamental change at this point. I mean, I think we're getting a little bit of benefit as are others. So we're not looking at that as a permanent trend at this point in time. I think it's a sort of temporal disruption, and we'll see how it develops. But we're -- it's a blip from our perspective at this point. We'll watch out how it transpires.
Chuck Stevens
Okay. Rod, on the launch-related cost, in the short-term in Q4, I would say quarter-to-quarter, we're probably going to see a little bit from a manufacturing perspective. We are getting ready to start up the Arlington contiguous stamping plant, which will support the next-generation full-size utilities. We're also taking up a third shift in Arlington. So those are related to the next-generation products from a manufacturing perspective. On a year-over-year basis kind of looking forward, we had quite a significant increase this year in manufacturing projects. So I don't see a big headwind next year from a manufacturing standpoint. There could be some increase. But in the scheme of things, I don't think it's going to be substantial. The biggest spend we'll have next year is really from a marketing perspective. I mean, we've got 13 Chevrolet launches next year, Cadillac CTS, and all of those take some marketing support. So I would think that marketing spend would go up year-over-year. We're still working through the 2013 detailed plans, but that's my feel at this point.
Operator
Our next question comes from the line of Chris Ceraso of Credit Suisse.
Christopher J. Ceraso - Crédit Suisse AG, Research Division
Just sort of maybe to pick up where Chuck left off on marketing spend. Do you think that there's a pricing gap for your trucks in the marketplace relative to the peers that you expect to close with the new product? And what's the scope of that? Is it $2,000 or $3,000 a vehicle? What's your expectation on pricing for the new product?
Chuck Stevens
We've been pretty consistent in our discussion around our gap versus Ford. We've got the oldest truck we've been tracking for the last couple of years, give or take a discount of $500 to $1,000 a vehicle, a combination of MSRP and incentives. I would say that our expectations at a minimum we'd be able to close that gap once we launch the next-generation truck. Obviously, at the end of the day, market dynamics will play a hand in that. Dodge has been extremely aggressive lately, especially in regular cab and extended cab. But the expectation is with the newest truck, with what we think this truck is going to be from a customer acceptance perspective, that we should be able to at least close the gap that we've had versus Ford.
Christopher J. Ceraso - Crédit Suisse AG, Research Division
Okay. And then not to beat a dead horse, but just to come back to the Europe inventory. If I think about the what's at the dealers and what's company-owned relative to the pace that you're selling, do you have a current number for where your days supply is in Europe broadly? And where do you want that to be?
Stephen J. Girsky
So it's in the low 70s, call it, give or take combined. That would be a combined number. We'd like to, frankly, take it lower. Part of that is will be driven by the fact that we don't build cars without dealer orders. More importantly, if you look 3 or 4 years ago, the -- call it 2/3:1/3 or 60:40 was the dealer versus company-owned, and that has reversed itself, which is bad -- which is not a situation we want to be in. So we're trying to get it back. Now just understand, we are a little different in that we have cars on boats that count in our inventory. So it's -- so of the low 70s, there's some, call it, a low double-digit number that's sort of in transit. So that's a little different than others may have. Did that help you?
Christopher J. Ceraso - Crédit Suisse AG, Research Division
Yes, that's perfect. And then maybe one on the notion of brand building. At Opel you mentioned sponsorship for soccer again. Can you come back to that and talk about the Man U deal? Is that going to be Opel? Or is that going to be Chevy?
Stephen J. Girsky
No, that's Chevy.
Daniel F. Akerson
That's Chevy.
Christopher J. Ceraso - Crédit Suisse AG, Research Division
What's the -- if Chevy's going to rebuild the brand at Opel, why would you do such a big splash on a Chevy brand?
Stephen J. Girsky
That's a Chevy global deal, because Man U's got fans around the world, and frankly Opel can't afford that. Opel sponsored a football team in Germany called Dortmund. It's quite a good team because the team, frankly, was almost bankrupt 3 or 4 years ago, and they've hired a new coach who is very charismatic. He's a brand ambassador for Opel, and the team has turned themselves around from being near bankrupt to being one of the most successful teams in Germany. And we think it's a great story for Opel, and it's really that. And the love it or give it back are really starting to resonate with people there.
Christopher J. Ceraso - Crédit Suisse AG, Research Division
So this is metaphor for the brand, the football club to turn itself around?
Stephen J. Girsky
It's uncanny how similar it is.
Daniel F. Akerson
And let me jump in there on Man U. This is Dan Akerson. First of all, Europe is still is somewhat of a patchwork quilt in terms of fan loyalty to specific clubs. I read some of the commentary about Man U and why did we do that for Europe. Quite frankly, we did not do it for Europe. Man U is not going to sell well in Germany or France. Man U, there are 350 million fans, rabid fans of Man U in China. They have more fans in China than there are people in the U.K. This was for emerging market strategy for Chevrolet on a global basis, as Steve said. And then you have specific regional brands such as Buick or GMC or Opel, where you have a below the global market perspective, and that's why we're looking at it from that perspective, as Steve outlined. But Man U is a global play, it's not a European play.
Stephen J. Girsky
And by the way, if you look up Dortmund, they beat Real Madrid last week.
Daniel F. Akerson
Steve has become a soccer fan.
Operator
Our final question comes from the line of Ryan Brinkman of JPMorgan.
Ryan Brinkman - JP Morgan Chase & Co, Research Division
Maybe one for Steve. Could you please speak to situation of your capacity utilization in Europe? Where does it stand currently? Where do you think you need it to go in order to breakeven? And then where would it need to additionally go in order to earn an acceptable rate of return? You mentioned the potential actions regarding Bochum and the shifted Eisenach, how far did those steps along get you?
Stephen J. Girsky
We are in the low 70s by our math right now. We need to -- there's a number of activities that we'll pursue to improve that. Some of it is reducing shift since we've alluded to. Some of them are bigger, some of them are -- we have the -- we've said in the past, as the opportunity to produce non-Opel product in these plants, we can explore that also. So we have plans in place over the next 4 years or so to take that up materially. I don't want to get into any more detail around that. Both sides of the equation.
Ryan Brinkman - JP Morgan Chase & Co, Research Division
a separate question maybe for Dan. Can you talk about some of the drivers of the net income margin that you earn on your equity stake in the China JVs? It looks like on Slide 14 that there's been an 80-bp decline year-over-year and there's in general been a modest downward year-over-year trend of this figure in recent quarters. But I don't think that you call out the drivers like you do in the case of your consolidated operations. You mentioned pricing pressure in China on the call, but is it also maybe fair to suggest that the lower margin relates in maybe large part to adverse mix shift? For example, earning the same amount of margin or close same amount of margin on Chevy as it on Buicks winnings but selling more rulings relative to Buicks.
Daniel Ammann
I'd say both of those have contributed, both the mix of ruling versus Chevy Buick and increasingly Cadillac. So that, that makes us moved a little unfavorable for us as it has for the whole industry. And then on top of that, just some pricing pressure. So it's both of those.
Ryan Brinkman - JP Morgan Chase & Co, Research Division
Okay, last question then, just regarding the pension derisking. We're intending questions on that. It looks like the cash contribution required to conjunct with the Prudential transaction is going to be quite a bit less than you'd guided to. So does this mean that a percentage of salaried retirees who accepted the buyout offer maybe track better than you had originally thought? And if so, how might that factor into any potential desire to make a similar offer to additional GM retirees?
Daniel Ammann
Well, as we announced, the take-up rate on the lump-sum side was 30%, which obviously says to us that a lot of retirees valued having that alternative put in front of them. So it was a good deal for them and provided them with flexibility and optionality for their -- the time and savings and plannings. We're very pleased with how these transactions have come together overall. We think it's a good deal to move $29 billion of pension liability off the balance sheet to effectively a price of $1.07 billion or 7% premium. So we think that's compelling, and it's an important part of our overall -- our pension strategy for the year. And we see continued opportunity to further manage our pension obligations as we move down the road. We're not going to do anything radical above and beyond the strategy that we've laid out and been executing to over the last couple of years, which is your steady and progressive derisking and funding of our pension plans.
Operator
Mr. Arickx, I will now turn the call back to you. Please continue with your presentation or closing remarks.
Randy Arickx
Thank you, operator. Thank you, everyone, for your time and attention this morning.
Stephen J. Girsky
Thanks.
Operator
Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines. Have a great day, everyone.
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