GM Expects Improved Profit This Year, Less Costly Recalls

DETROIT (Detroit Free Press/TNS) -

General Motors expects better profitability this year after a 2014 in which the cost of repairing tens of millions of recalled vehicles and a weak European economy dampened strong earnings in North America and China.

The automaker, which plans to report fourth-quarter earnings on Feb. 4, expects better results in all regions this year. CEO Mary Barra, President Dan Ammann and Chief Financial Officer Chuck Stevens told analysts Wednesday that GM remains on track to be profitable in Europe by 2016 for the first time since 1999.

“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.

Initial reaction was positive. Citi Investment Research analyst Itay Michaeli said in a note to clients that GM’s guidance “implies a 2014 starting point in the high-$8 billion range” for earnings before taxes and interest expenses. The comparable figure for 2013 was $8.6 billion.

But in trading Wednesday, GM shares slipped 95 cents, or 2.7 percent, to $34.30 on the New York Stock Exchange.

The company reported about $2.7 billion in expenses for the cost of the recalls through the end of September, and paid out about $2 billion in cash, Stevens said.

Separately, GM estimates that a compensation fund established for those injured or killed in accidents caused by defective ignition switches will cost between $400 million and $600 million. The actual cost of those settlements won’t be known until later this year.

Stevens said the changes in the way GM identifies and responds to defects and safety issues likely will result in more recalls over the next several years, but the cost per recall should fall, partly because the company can respond faster.

But there are numerous lawsuits pending and ongoing investigations related to the ignition-switch recall that could result in future payouts, Stevens told analysts near the end of his presentation.

GM expects to incur about $700 million in restructuring expenses this year. It also will spend about $9 billion on upgrading tooling, equipment and other technology, an increase from about $7.5 billion last year.

About two thirds of that spending will be targeted for North America, which will remain the most profitable region for GM. The increased profits there will be driven by an expected increase in large and midsize pickup trucks and fullsize SUVs, including the Chevrolet Tahoe, GMC Yukon and Cadillac Escalade.

Growth in China will be slower than in recent years, but it will remain the region in which GM and its partners sell more vehicles — 3.5 million last year — than in any other region. Globally, GM expects total industry sales to rise about 3 percent to 89 million vehicles, but its share of the market should neither rise nor fall.

Despite difficult economies in Europe and South America, GM expects to bring its global profit margin to between 9 percent and 10 percent by early next decade.