Tags: GM | Europe | Profit | 2016

GM Sees European Profit in 2016 after Years of Losses

Wednesday, 01 October 2014 05:24 PM

General Motors Co. said on Wednesday it expects in 2016 to ring up its first profit in Europe in more than a decade and that it will also hit targeted North American operating margins that year.

The projections came two days after its smaller rival, Ford Motor Co., disappointed investors with its financial outlook. GM shares gained in the face of Wednesday's stock-market rout, rising 1.7 percent to close at $32.49. The stock is down about 20 percent this year and trades below its autumn 2010 initial public offering price of $33.

GM had previously said it would hit those targets by mid-decade, but it offered the more specific timetable and outlined other forecasts, including its plans for the critical Chinese market, at its investor meeting at the company's test track outside Detroit.

Investors want more proof that GM will meet its promises.

"GM is still very much in a 'show me' status with the investment community," Gabelli & Co. analyst Brian Sponheimer said. "That it has the confidence to target a profitable Europe is promising, but solid execution by this unproven management team will ultimately win over investors."

Investors and analysts also worry that GM is at the peak of its product cycle, having launched new versions of its full-size pickup trucks and SUVs, key profit generators for the company. GM President Dan Ammann said those views are "sadly mistaken," pointing to plans to offer new or refreshed models at a rate of about 30 to 50 percent of the automaker's annual volume through 2019.

"We have an absolute onslaught of product that is coming at us," he said. "This is not the end. It's just the very beginning."

The No. 1 U.S. automaker also said any cash returned to shareholders would be mostly through increased dividends. In March, it paid its first quarterly common-stock dividend in almost six years. Some analysts had speculated GM might offer a broad stock buyback program, tapping its $39 billion in cash and equivalents.

On Monday, Ford slashed its profit outlook for 2014, blaming higher recall costs in North America and steeper losses in Russia and South America. It also offered a disappointing 2015 profit forecast.

GM did not provide an update for its overall 2014 financial results, and analysts said the company faces the same market pressures hurting Ford. GM said in July that it was running on or ahead of pace for its previously disclosed plan to report modestly better 2014 operating earnings. Last year, GM's operating profit was $8.6 billion.

GM's target for North American operating margin in 2016 is 10 percent. Chief Executive Mary Barra said the margin target for Europe factored in steps to minimize the impact of the downturn in the Russian market. GM last reported a profit in Europe in 1999.

Barra, who took over as CEO in January, also said GM would not change its estimate for the expected cost to establish the fund to compensate accident victims for the defective ignition switch linked to at least 23 deaths. GM previously took a $400 million charge for the fund and said the cost could rise another $200 million.

In addition to the outlook for Europe and North America, GM said it is targeting overall operating margins of 9 to 10 percent by early next decade. That would be up from 6.3 percent, excluding recall costs, in the second quarter.

One way it plans to achieve its profit target is by reducing the number of core platforms on which it builds all its vehicles globally, from 14 in 2015 to four in 2025.

GM is also doubling down on the world's largest auto market, outlining plans to invest $14 billion in China through 2018 to open five assembly plants and launch 60 new or refreshed vehicles. GM Financial also expects to enter China later this year, giving the automaker greater flexibility to pursue sales.

Another key ambition is turning its Cadillac luxury brand into a globally recognized name. It expects to introduce four new Cadillac vehicles in North America in 2015, including the CT6 sedan it previously outlined. The brand also will introduce nine new models in the next five years in China.

© 2020 Thomson/Reuters. All rights reserved.

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General Motors Co. said on Wednesday it expects in 2016 to ring up its first profit in Europe in more than a decade and that it will also hit targeted North American operating margins that year.
GM, Europe, Profit, 2016
Wednesday, 01 October 2014 05:24 PM
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