General Motors expects its North American business to produce a 10% profit margin by 2016, which will be about the same time it will begin turning a profit in Europe, GM executives told analysts today.
CEO Mary Barra and other senior executives outlined the company’s plans for the short and medium turn during the meeting at the company’s proving grounds in Milford, Michigan.
Unlike Ford Motor Co. earlier in the week, GM executives were careful to avoid major surprises during the session as Chuck Stevens, GM’s chief financial officer, carefully outlined how GM expected to reach its objectives.
As a result of their handiwork, shares of GM stock rose 1.7% on the New York Stock Exchange to close $32.49, although it’s down 21% for the year, according to Bloomberg. Ford is still suffering from the response to its meeting as its share price fell for a third straight day, dropping by 20 cents per share, or 1.3%, closing at $14.59.
However, not all of the news executives shared today was good. GM expects to lose money in South America this year and GM’s 2016 European profit is expected to be quite small, Stevens said, but otherwise GM expects to hit its targets.
“We said we expected to see our margins begin to improve and I see nothing that will change our expectations,” he said.
The company’s North American Operations, however, will produce that 10% margin thanks to a combination of new vehicles and cost cutting, Stevens said.
GM’s fortress-like balance sheet remains intact, but unlike other cash-laden American companies, it does not expect to launch any kind of share repurchase program in the next 12 months due to the high cost of recalls, estimated at roughly $2.5 billion, Stevens said. GM has recalled 30 million vehicles this year, including more than 2.6 million small cars blamed for accidents that have led to 23 deaths.
Mary Barra made it plain that the company is eager to move beyond the recalls and said GM’s overall strategic plans call for the company to produce a 9% to 10% margin from its worldwide operations.
She expects to do this, in part, by ensuring the company puts the customer first in everything it does. GM also will focus on strengthening its brands and leading the industry in technology such as autonomous driving and connectivity. GM President Dan Ammann said while industry is going through a period of very profound change; GM expects to take advantage of opportunities to grow.
“There are not a lot of growth opportunities in developed or mature markets but there are opportunities out there,” he said.
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The luxury market is one place GM intends to expand, Ammann stressed in his presentation to investors.
“Cadillac is already a very profitable business for us today and GM expects to see substantial growth for its luxury brand over the next few years, particularly in China where young consumers are open to new brands,” he said.
GM also will continue to grow in China faster than the market. GM’s total vehicle sales in China are expected to reach more than 5 million units annually by the end of the decade. GM and its joint-venture partners are building seven new plants, he said.
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Overall sales in China are expected to exceed 24 million units this year and the total market may get into the “mid 30s,” in the next few years, Ammann noted. At the same time the profile of the Chinese market changing. First-time buyers may no longer dominate as more experienced buyers account for a growing share of the transactions.
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GM also will focus on growing its presence in emerging markets outside of China, Ammann said.
“It’s very challenging and requires a new product approach so we can be in the right place at the right time,” he said.