GM Expects 2016 Profit in Europe, Growth in China

MILFORD, Mich. (Detroit Free Press/MCT) -

General Motors said that it will turn a profit in Europe within two years, and plans to increase production in China and slash operating costs to increase profit margins in its strongest region, North America.

GM delivered those projections Wednesday to investors at the automaker’s Milford Proving Ground, a testing facility in Milford, Mich.

The company said it expects its first profit in Europe in more than 15 years, but not until 2016. Earlier this week, Ford told investors it would not be profitable in Europe next year as previously forecast, largely due to the rapidly weakening Russian economy.

GM CEO Mary Barra told reporters that the “tremendous performance” of new Opel vehicles in Europe and cost reductions have reduced its European losses. GM also has withdrawn Chevrolet from Europe.

“We have the resources, we have the technical talent, we have the global footprint,” she said. “It’s about execution, and that’s what we’re focused on.”

GM said it will increase its operating margin in North America to 10 percent in 2016 — up from 8.4 percent over the last four years — in another promising sign. To get there, the company will slash $2.5 billion in non-raw material and logistics costs through 2016.

The outlook comes amid diverging analyst viewpoints on the company. For example, Morgan Stanley says GM’s stock should be valued at about $28, while Citi says it should be $48. The stock hit a 52-week low on Tuesday, closing at $31.94.

The company expects to increase the pace of new-product introduction. In 2019, nearly half of the company’s vehicles will have been redesigned or refreshed within the last 18 months — compared to just over a quarter today.

In China, the world’s largest auto market, GM and its joint-venture partners want to expand their market share from 14.6 percent in 2014 to 16 percent in 2018. That assumes a 39 percent increase in GM China sales to 4.9 million vehicles in 2018, while GM expects the overall market to rise 26 percent to 30.7 million units. The company plans to introduce 60 new or refreshed vehicles in China during that time period, including nine new sport-utility vehicles and nine new Cadillacs.

The company said it will invest $14 billion to build five new assembly plants and two powertrain factories in China from 2014 to 2018, including a Cadillac plant in 2016 with capacity to make 200,000 cars annually.

For the first time, GM said it expects to achieve global profit margins of 9-10 percent by early next decade.

Ford released a disappointing outlook Monday, citing the devastating impact of economic sanctions on Russia’s economy. Barra acknowledged a level of uncertainty.

“No one knows what the outcome will be there,” she said, adding that GM is taking “prudent” steps in Russia, including cutting production.

On Wednesday, GM shares rose 55 cents to $32.49.

 

GM also said it:

— Finished production of replacement ignition switches for up to 2.6 million recalled small cars.

— Expects no changes to the cost of ignition-switch-victim-fund chief Ken Feinberg’s settlements, which were previously estimated at $400 million to $600 million.

— Plans to produce 99 percent of its vehicles on “core architectures” by 2020, up from 75 percent in 2015.

— Believes redesigned versions of the Chevrolet Malibu and Cruze sedans will sell better than the current models.

— Is developing a “global solution” to allow the company to react quickly to regulatory changes related to emissions and fuel efficiency.