By Paul Lienert
DETROIT, Jan 15 Modest growth in the United
States and China this year would help General Motors Co
fund about $1.1 billion in restructuring costs in other
harder-hit regions, including Europe and Australia, its new
executive team said.
A new management team led by Chief Executive Officer Mary
Barra and President Dan Ammann took the reins on Wednesday,
saying the company expects a slight uptick in pre-tax profits
this year, while margins likely will remain flat until 2015.
Analysts labeled GM's forecast conservative and
disappointing, though they noted it also provides the
automaker's new leadership with flexibility.
"While the guidance was slightly disappointing, we think
this set-up could create a good entry point and better frames GM
heading into the rest of the year," RBC analyst Joseph Spak said
in a research note. "The guidance also gives the new management
team a little more wiggle room to deal with in their first
He also said Tuesday's announcement of a
better-than-expected quarterly dividend, the company's first in
six years, will also support the stock.
Morgan Stanley analyst Adam Jonas called the forecast
"appropriately conservative" and said he expects North American
profit margins in the mid- to high-8 percent range this year,
rather than 9 or 10 percent.
"We believe the company should have positive earnings
revision risk once the dust settles," he said. "The challenge of
owning GM is that the company is still in the early innings of
executing its structural turnaround while the U.S. auto cycle is
approaching the later innings."
China remains GM's strongest market. The automaker plans to
open four new plants there through 2015, increasing annual
production capacity to 5 million vehicles, keeping neck and neck
with chief rival Volkswagen AG. In comparison, GM
built 3.3 million vehicles in North America last year.
"We continue to perform well in the two most important
markets in the world, the U.S. and China," Barra said in a
statement. "We're taking advantage of our strength in these
countries to restructure and make the investments necessary to
grow profitably in other parts of the world."
GM plans to launch 17 new or upgraded models this year with
joint-venture partners in China, including the Cadillac ATS,
Chuck Stevens, who succeeded Ammann as chief financial officer,
said at a Deutsche Bank auto analyst conference.
The automaker sold 3.1 million "very profitable" vehicles
last year in China, Stevens said, and expects volume to grow
again in 2014. Margins likely will remain flat this year, but GM
anticipates improved sales and earnings in 2015, he said.
Growth in China will be driven in part by a push to boost
the Cadillac brand. GM expects Cadillac sales there to double
over the next two years, to 100,000 in 2015.
Europe remains something of a problem child for GM. The
company cut its losses and boosted revenue there in the second
half of 2013. With the withdrawal of the Chevrolet brand in
Europe, GM's Opel subsidiary expects a modest increase in sales
volume and market share this year, Stevens said.
But GM Europe's financial performance could deteriorate
further, in part because of currency volatility in Russia and
restructuring costs associated with the impending closure of
Opel's Bochum plant in Germany.
Ammann described 2014 as a "transition year" in Europe,
where Opel will introduce a redesigned Corsa subcompact late in
the year. A redesigned Astra compact is expected to follow in
early 2015, along with new families of gasoline and diesel
engines, helping to drive GM's European operations back to
break-even, Stevens said.
He later said at an Automotive News industry conference that
GM's Opel unit in Europe was in its best shape in a long time,
but Europe remains a "very, very fragile" economy.
Barra and Ammann are taking over a company that has
undergone dramatic changes in recent months, including the exit
of the U.S. government as a shareholder and the restoration of a
dividend on its common stock.
Ammann said GM expects pre-tax earnings in the first quarter
to be lower than normal because of restructuring expenses and
the launch of new U.S. models, including heavy-duty versions of
the Chevrolet Silverado and GMC Sierra pickups and redesigned
full-size SUVs at Chevy, GMC and Cadillac. He told reporters
that most of the restructuring charges are related to
announcements made last year.
GM expects capital expenditure of $7.5 billion in 2014, and
said it will spend about $3.9 billion to redeem its remaining
Series A shares. In addition, the newly restored common dividend
will return about $1.8 billion to shareholders.
The automaker is "on path" to achieve pre-tax margins of 10
percent or better by 2015, Stevens said, despite ongoing risks
in North America and some international operations.
Slowing sales growth and higher incentives will put more
pressure on U.S. vehicle prices and margins, said Stevens. But
he acknowledged "a lot of uncertainty" in the highly profitable
full-size truck market, where GM's Silverado and Sierra will
square off later this year against the redesigned Ford
GM's South American operations had their second straight
profitable year in 2013, but continued volatility in Venezuela
and Argentina present financial risk, Stevens said.
"Brazil is the market that matters most" in South America,
he said. GM in the past year has launched three new small cars
in Brazil, including the Prisma, the Onix and the Tracker, and
will add a fourth this year -- a small crossover called Spin.
GM expects to maintain its current market share in the
region, while increasing pre-tax profit and margins, Stevens
The company said higher restructuring costs in 2014 will
include the closing of manufacturing operations at its Holden
subsidiary in Australia. Ammann said most of GM's heavy
restructuring costs "are behind us" and that those charges
should drop significantly in 2015.
Also on Wednesday, GM promoted Steve Hill to vice president
of U.S. sales and service, replacing the promoted Alan Batey,
who took over as head of North American operations.
GM shares ended down 64 cents, or 1.6 percent, at $39.38 on
the New York Stock Exchange.