GM Sees Up to $2 Billion Profit Jump in 2026, More Buybacks

0:01Bloomberg Audio Studios Podcast Radio News. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. Earnings Palooza in full swing here. General Motors, the latest report as well. It expects profit to grow as much as$2 billion this year. And like RTX, plans to return more of that to shareholders with a higher dividend as well as buybacks. Earlier, GM's CEO Mary Bauer joined Bloomberg's Matt Miller to discuss their earnings and their push on EVs.

0:44Remember those? For more on the company's earnings and what she had to say. Let's bring in our Steve Mann. He covers autos for us here at Bloomberg Intelligence. He's the Bloomberg Intelligence Global Autos and Industrials Analyst. Steve, when Mary was talking about their portfolio of internal combustion engines and their portfolio of EV vehicles, what does that portfolio actually look like? I mean, is it 70-30 ICE engines to EVs, 80-20? Oh, it's actually ICE engines much greater. I know they have a full portfolio of EVs, but you're talking about like 85-90 % ICE versus 10-15 % EVs. So, you know, they do have a big portfolio, but it was just at the beginning of rolling them out.

1:27You know, they do have still they do still have one more major rollout coming out, which is the Chevy Bolt, a smaller vehicle, which the industry and GM thinks that that's where the market is going. A cheaper, more convenient EV. GM stock up nine percent today to a 52 week and an all time high. So the street likes what they're hearing. Steve, it's almost to the point where the street rewards these companies if they not fully back away, but at least slow down the evolution to EVs and just focus on what's making money today. Is that kind of where the industry is today? Yeah, exactly. Trump actually did the auto industry a major favor by relaxing the miles per gallon mandate.

2:15So basically every vehicle in the big three's portfolio are currently meeting those mandates. And what it means is less penalties, right? And no need to buy EV credits going forward. Huge savings. And what that means is it could translate into a slower increase in car prices for consumers, especially for big trucks. Makes the big trucks a lot more attractive to sell for the big three. So they're going to sell as many as possible, given this opportunity. I know we talked about hybrid for GM. It's going to be a huge sinkhole for them if they invest in that technology today. So let's not do that.

3:00Maintain whatever they can do with EVs and really push the ICE vehicles. Maintain what they can with EVs so that, you know, small 10 to 15 percent of their overall portfolio. forget about hybrids, and just focus on the mammoth gas-guzzling vehicles that Matt Miller likes driving. I know he talked about how he drove electric versions of that, but let's face it. What happens then if gas prices do turn up higher unexpectedly? And I know that the administration is doing all it can to prevent that from happening, but I'm looking at AAA gas prices, and they bottomed at around$279 and have now made their way back up towards$290.

3:38Yeah. I mean, historically, when gas prices go up, it does impact sales. And, you know, it may push some buyers into EVs, you know, depending on where the expansion of the EV charging network is at. But I think at the end of the day, if gas prices do go up, it actually benefits the Japanese companies like Toyota and Honda, where they have a full suite of hybrid vehicles that actually consumer love. Yeah, I just leased the Honda CRV hybrid. My son who drives in California all the time where the gas is really expensive. Yes, that's right. He probably wanted it. And how often does he have to fill up?

4:16Not that often. I mean, just not that often. It's great. It's a great technology. Steve, while we got you here, what's the call these days on Tesla as we talk about this EV business? But really, for Tesla, we're talking about so, so much more. Yeah. Yeah, looking at GM as a backdrop, you know, GM's earnings for 2026 is probably a little bit light. There's probably some more upside on the shift mix for more ice. So what it means for Tesla, it's an uphill battle for them. I know the stock is trading, you know, at a astronomical valuation at the moment. investors are very focused on their RoboTaxi autonomous vehicle build out.

5:05People feel that they can actually out-compete the likes of Uber and Lyft. So sales will be weak in the fourth quarter for Tesla. But I believe the investors are actually looking over past that into what is the catalyst or what is Elon Musk going to talk about in their next earning cost on the robo-taxi. Yeah, it's always about the Elon Musk narrative, his vision going forward of what this company is going to be. I wonder, you know, Mary Barra talked about the charging infrastructure and the network and how we're not there in the United States. Tesla is offering the supercharger, and that's part of its business model, to be able to make that charger available to other automakers.

5:52How big a contributor is that to its revenue, to its profitability? when it's profitable? Yeah, it's still a small amount. What they do is they want to expand that business. So they are talking to gas stations like Wawa out in Pennsylvania are actually buying superchargers, installing it next to the gas pumps and next to the stations. So they are trying to expand it. In terms of charging, selling these supercharging business and the revenues from the charging, it's still really, really small. I would say around 10%, maybe less. Hey, what do we know about how important are incentives here? I look at other countries around the world and they have got these huge EV percentages of sales.

6:44China, the Nordic countries. How important are government incentives to get there? It is very important. I think the Germans are actually putting back the incentives and it has lifted EV sales in Europe and Germany. But at the end of the day, you really want to build a sustainable growth environment for these cars. And Mary Bar is right. You know, we actually published a very extensive report on EV charging, comparing charging network in the U.S. versus China night and day. Right. So, you know, it's about convenience. It's about cost for the U.S. consumer. It's great to have it's great for consumer to have some subsidy, you know, help pay for for the for the cars that they're buying.

7:33But I think long term, you know, it really needs the consumer to really buy into the product. Stay with us. More from Bloomberg Intelligence coming up after this.

7:50You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. Boy, a lot of news flow in the airline space, the aerospace area. So let's get right to it with somebody who knows this stuff. Philip, deputy team leader for Global Aviation, Bloomberg News. who's I think he's in my hometown, Dublin, Ireland, back when my peeps were from way back in the day. So good for him. Hey, Sid, let's talk to us about the airlines. American Airlines, they said they're poised for a pretty strong year.

8:29Yet JetBlue had a wider than expected loss here. What's going on with these two airlines here? So the airline industry is actually in a sort of bit of a flux at the moment. I mean, you've obviously had the impact of all the storms. You've had the impact of the government shutdown. And you've got the uncertainty about the year ahead. And so American Airlines is taking a more bullish view of the year ahead. They're sort of following their peers, United and Delta, in targeting the most premium end of the spectrum. And they're sort of hoping that by aiming their product at the premium end of the market, they can sort of offset the sort of downturn that's happened at the bottom end of the market.

9:09But JetBlue also talking about how at the moment things look a bit shaky, but they're talking about how they see a road to profitability and a free cash flow by the end of 2027. So slightly more long term view of when the recovery might happen. And that sort of explains the dichotomy in the earnings forecast for both those companies. And of course, JetBlue is also doing what it can to premiumize, if that's a verb, its experience for customers too. Absolutely. Opening of that new lounge in JFK. So that is the story with airlines. And it's been fairly consistent, too, with what we heard from Delta and United.

9:47Where does that leave the smaller carriers that need to either team up or fade into oblivion? I'm thinking Spirit. I'm thinking Frontier. Is there still a market for these discount carriers? The market at the moment is very tough for the discount carriers. So essentially what's happening is that the top end of the market is going to Delta and United for their premium products like first class and business class. And on the other end of the market, you have sort of everyone else competing to get the lowest cost tickets into the hands of the passengers. And that's sort of eroding margins, especially as costs for both pilots and cabin crew are hurting the ultra low cost carriers and the low cost carriers.

10:26And sort of that's sort of been explained by this K-shaped recovery that airline executives are talking about. And so JetBlue and the others are sort of trying to get the premium end of it. I mean, we've seen even Spirit Airlines talking about how they're adding a so-called business class product. They've added Wi-Fi. They've added all sorts of things to keep people coming back to them. And so they're hoping that by slightly differentiating themselves from just very commoditized, ultra low-cost carriers, they can be able to get in those customers. Well, then it kind of goes back to the point, is there a need for a real true low cost carrier out there?

11:02Some of these supposed ones are going kind of mid market, higher market. Is there a market demand for that? Or is everybody just willing to pay up for travel? At the moment, it looks the people who are willing to pay up for travel are the people willing to pay up for travel. And so at the bottom end of the market, I mean, everyone talks about how there will be a recovery of the ultra low cost carriers and that once people are more certain about the economy, And once people at the bottom end of that K start to see some stability in the economy, people will travel. Because, I mean, remember during the pandemic, there was after the as we exited the pandemic, there was this boom in travel for across the board.

11:38And that sort of has further split up. And so we will see that demand coming back. We just don't know when and what sort of shape that will be. So, Sid, you also cover Boeing and it came out with its results. And in terms of the numbers for the fourth quarter, free cash flow topping estimates, it generated cash for a second straight quarter. That sounds like it's good news. How far along this recovery, this long awaited recovery is Boeing actually? So Boeing is on the road to recovery. They're still not there yet, but they are recovering. I mean, their fourth quarter results and their full year results were boosted by the sale of their Jefferson digital aviation subsidiary.

12:18And that sort of gave them a$9.6 billion boost. And at the same time, Boeing is sort of ramping up production. They are ramping up sales. I mean, they've seen a surge in sales. I mean, ever since the Trump administration came in, we've seen a surge in Boeing sales. And so Kelly Ortberg, the new CEO, is sort of pushing Boeing to improve production, ramp up production at a steady pace. I mean, they've gone to about 42 737 max jets a month, and they are sort of further boosting those production numbers. And that will get them on at the sort of where they want to be. And Kelly Outbergs talked about how$10 billion in free cash flow is his target and the company's on its way there.

13:01Sid, I'm glad you mentioned deliveries because I guess I learned long ago about this aircraft manufacturing business. It's not the sales you announce. It's the orders that you actually deliver. You mentioned kind of on a 737, which is the key aircraft for Boeing, that around 42 a month here. Where does a company want to get to and by what time frame? So Boeing's still way below. It used to be above 50 pre-pandemic when they sort of shut down production of the MAX because of the grounding that happened after those two fatal crashes. And so they need to get to beyond that. And remember, Airbus is talked about 75 a month by 2027 on their rival A320 model.

13:43And so Boeing would have to sort of ramp up production to some of those levels to target that backlog. I mean, they've got a massive, they've got a record-breaking$682 billion backlog of customer orders. And so that's actually when airlines get, so the airframers like Boeing and Airbus only get paid when they actually deliver those planes. So when they book those orders, they don't really get the money from the airlines. The airlines pay them when they get those planes. And so for Boeing to actually start generating that free cash, they need to actually get those planes out the door. And that they need to do by ramping up production.

14:19Sid, very quickly, you mentioned that backlog, record$682 billion. How much of that is customers trying to curry favor with the Trump administration by buying U.S. aircraft or at least announcing plans to do so? some of it some of it may be some the customers trying to curry favor the administration i mean we saw that massive qatar order at the same time uh we there is only the only two plane makers in town and airbus is sold out until the end of the decade and sort of into the next decade and so the only way for an airline to actually get planes is to either buy planes from either boeing or airbus and boeing is similarly sold out and so airlines are placing their bets with either manufacturer and hoping that they will get those planes whenever they actually get those planes in terms of the delivery forecast.

15:05Yeah. Stay with us. More from Bloomberg Intelligence coming up after this.

15:13You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. Still on the earnings front, UPS, big brown, sees better than expected sales amid a network overhaul. Thomas Black joins us, Bloomberg Opinion columnist. Thomas, what did you see? What did you learn from the UPS earnings here? UPS continues to shrink to become more profitable. That's the big takeaway there. They're reducing their Amazon business, and they're trying to retrench with more profitable packages.

15:55And that's probably a move away from some of the e-commerce deliveries where the competition is fierce and there's lots of little companies that are out there competing. So how far along this journey of shrinking to become more profitable are they? Are we in the third inning? Are we in the seventh inning? This will be the last year of this. So I would say we're in the sixth inning heading toward the ninth. So after this year, Carol Tomei, the CEO at UPS, said we're going to be a leaner company and ready to grow. So it's going to be a little bit painful this year. She walked analysts through it.

16:34The first half is going to be more painful as they glide down from Amazon and they take some write downs and so forth. As you know, they retired their fleet of MD-11s, which is this old plane that just recently had a crash. So they're going through all this in the first half, and then the second half, things should start to turn around. They're not only shrinking their Amazon business, they're shrinking their footprint, their facilities, and the older ones are being retired, and they're replacing those with new automated facilities, and that's going to allow them to lay off more union workers.

17:09So that big union contract where the Teamsters push through a big labor increase is turning around to bite them a little bit because UPS is dealing with that by shrinking its workforce. How does this UPS strategy differ from that of FedEx?

17:31They're similar in the sense that they're both cutting costs aggressively. FedEx is a little bit different because it doesn't have the labor costs from the union workforce. So it's a little bit more flexible. And FedEx is undergoing a major overhaul that's probably in its last innings as well. And the last part of that is the most difficult part where they're going to combine their two separate networks, the ground network and the express network. They're in the middle of that. But so they're going to be coming out of that as well. So we're going to have two parcel companies that are restructured and ready to grow at the end of this year.

18:08Every time there is some kind of headline regarding UPS laying off workers or cutting positions, it's in it's these massive numbers, right? This time around, it's up to 30 ,000 positions this year. And as you mentioned, Thomas, this is all due to trimming down and small downsizing the scope of the company. At what point are we looking at job cuts tied to AI or have we not even gotten there yet? Well, I would, instead of saying AI, I would say automation. And those are these new facilities that handle packages automatically. You even have the induction of packages where you have robots putting the packages on the conveyor belts and taking them off.

18:50So those are the steps toward more automation. This is that physical AI that people talk about, right? And an interesting stat that Carol Tomei gave on the call is that those automated buildings are 28 % more efficient than the older buildings. So more automation is what they're leaning into. So it's part of it shrinking some of the low profit volume plus more automation to replace the human workers, basically. E-commerce continues to grow, I guess, double digits. It's who's handling all these packages of UPS is maybe backing away a little bit. Well, Amazon has its own delivery network. It tends to want to deliver into those big urban areas where it just takes things from a warehouse to a residential home.

19:41So they do that very well. Where they want help is on the rural areas. That's where they turn to folks like UPS and the Postal Service. So obviously, Amazon is a big player there. We also have lots of smaller companies. These are gig-type companies that have apps and workers show up and they have an app on their phone and it gives them a delivery route and they throw packages in their car or their truck and they go deliver. So there's a lot of those companies that tend to operate in urban areas. So there's actually a lot of capacity out there for retailers or people who are really smart on their inventory management to tap into.

20:20Stay with us. More from Bloomberg Intelligence coming up after this.

20:26You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube. Whenever we talk about universities and their investments, their endowments, the one name always comes up, and that is Yale. Yale created this endowment model that was predicated on lots of private assets, long-term investments that paid off handsomely years down the road. Except there are now question marks over whether this Yale endowment model is still relevant, whether it's debt or not.

21:05Janet Lauren is Bloomberg News' higher education finance reporter, and today's big take really focuses on that idea. Janet, there's question marks about the Yale endowment model because the better performing endowments of late are those that invest in just plain old stocks and bonds. Yes. And, you know, occasionally from time to time, we've seen that in certain years where simple just outperformed private equity and other NVC. And in 2021, remember the outstanding returns that these schools had. But now higher interest rates, fewer exits, you've got a huge amount of money locked up in private equity, in some cases 40%.

21:44And, you know, look, these schools would like a little cash. They're looking, you know, perhaps they want to change managers. They need the cash to do other things as well and refresh their portfolios. But when you have, you know, in the 40 % locked up, you know, time to think about other things. And that's perhaps why you saw Yale doing its first ever sale last year, which was a big deal. So, again, this sale, Yale unloaded about$2.5 billion in LBO funds at a discount. That is brutal. Well. Is that unprecedented? Well, Yale has done it for the first time. You know, others have been doing this before.

22:22Harvard has unloaded a lot in previous years. But it's sort of a new normal in some ways looking at secondaries. the secondary market is very popular right now. And, you know, in the hunt for potential cash and liquidity, you know, you look at the UC endowment where we talked about this 80-20, they call it the Blue and Gold Fund, very proud of it. And in the height of the pandemic, when they wanted some liquidity, they gave almost$2 billion in cash to the campuses for liquidity. Compare that to 2008 when schools were forced to sell on the secondary or borrow. That's kind of a stark example right there when you need money.

23:05When you need money. And I think that's a key phrase here, especially in 2026, because this White House has been targeting higher ed. And even though Yale has not been targeted to the extent that Harvard has, for instance, or Columbia, these schools need money in a way that they didn't before, if for nothing else, to pay taxes on their endowment. Yes. And that's a huge game changer. You know, a year ago, we may not be having this conversation. Yale and Harvard each had pegged their bill for the endowment tax, which is now 8 percent of net investment returns, to be about 300 million dollars a year.

23:41Wow. And is that is that in force? Is that happening right now? Absolutely. That happened July 1st when the when the big, beautiful act happened. How about the actual, I guess, halting payments to some of these universities that President Trump and the administration have talked about for some of their funding? Has that happened? So many schools have had settlements. Harvard famously has not yet. There was a lawsuit in last September. The district court ruled in favor of Harvard. Late December, the government appealed. So that's still in flux. But there's a huge concern of Harvard. in all universities.

24:20Are we still going to get this federal research funding going forward? And Harvard may have temporarily solved their problem, still very unclear. But what is the money going forward? Are universities, these large research universities, still going to be able to count on hundreds of millions of dollars? You know, Northwestern, which settled around Thanksgiving, had been self-funding their research to the tune of something like 30 or 40 million dollars a month. So we're talking, you know, lots and lots of money. Yeah, they need the money in a way that they didn't before. And going back to the Yale endowment strategy and how well it worked, at least initially, when David Swenson launched it back, I think, in the 80s and 90s.

25:04Those were the heydays of the Yale endowment model. Maybe it made sense when private equity, private investing was not a big thing yet, was not yet mainstream. Or maybe it makes more sense in a low rate environment. But times have changed. And that's a big part of it, right? Absolutely. First mover advantage. You know, there weren't as many institutional investors doing what he was doing. He was he saw inefficiencies in the market and he said, look, this is what we can do. We have the ability to lock up money for a while. We're very long term investors. We invest in for centuries. We can do this.