After watching General Motors get hammered for its safety lapses last year, investors have gotten some good news from the Detroit automotive giant. GM’s senior management team, led by CEO Mary Barra, predicted earnings should bounce back in 2015.
While they didn’t offer a specific earnings target, Barra and her top lieutenants told those attending an industry conference in Detroit that they are on track to meet their financial targets, in part due to the anticipated turnaround of the company’s long-troubled European operations.
“We had a pivotal year in 2014, outlining a customer-focused strategic plan for the company and delivering on our commitments by achieving strong core operating performance,” Barra said during the Deutsche Bank 2015 Global Auto Industry Conference. “We’ll build on this momentum in 2015 and continue executing our plan to become the most-valued automotive company.”
GM had a mixed year in 2014. The year started out on a good note, with then new CEO Barra watching as General Motors collected trophies for the North American Car and Truck of the Year. But within months, the industry’s first female CEO was facing a Congressional investigation into the long-delayed recall of 2.6 million vehicles equipped with faulty ignition switches.
The maker soon said it would suffer a $400 million earnings hit due to the switch problem. Then in July, GM announced it would take a $900 million charge to cover future recall costs. By the end of 2014, in fact, it had recalled 27 million vehicles, an all-time record for a single manufacturer. There was also the cost of the compensation fund set up to deal with victims of the faulty switch, as well as federal fines and the threat of costly litigation.
The safety scandals all but obscured the strong recognition GM continued to receive for new products last year. And those new models helped the maker both trim incentives and drive up its Average Transaction Price to record levels.
Going into 2015, several factors appear to be playing in GM’s favor. There’s the sudden plunge in U.S. fuel prices that has led to a surge in demand for pickups – like the Chevrolet Silverado – and other high-margin trucks and crossovers.
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In China, the maker ended 2014 with a new sales record – though it failed to overtake archrival Volkswagen in the world’s largest automotive market.
As for Europe, a turnaround has long eluded GM’s grasp, but with the Continental car market showing signs of a weak upturn after a record plunge in demand, the maker is projecting it finally will hit breakeven this year.
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During the Deutsche Bank conference, executives said GM is on track to hit a 2016 financial target of 10% EBIT-adjusted margins in North America. It is also on a path to global margins in the 9% to 10% range by early in the next decade,
There are still plenty of challenges and risks, industry observers caution: the possibility of more quality problems, a slowdown in either China or the U.S., and a return to higher fuel prices among them. GM also has to build traction for its once-dominant Cadillac vision – though that luxury brand outlined an ambitious new product program during this week’s North American International Auto Show.
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“Overall, 2014 was a very solid year in which we met expectations on core operating performance, despite a number of significant headwinds,” asserted GM Chief Financial Officer Chuck Stevens, who shared the stage with Barra. “Importantly, improvements in 2015 will keep us firmly on track to meet our near-term objectives and demonstrate solid progress…by early next decade.”