Fri, Oct 03, 2014 - Page 15 News List

GM forecasts first profit since 1999

Reuters, MILFORD, Michigan

General Motors Co (GM) said on Wednesday that it expects in 2016 to ring up its first profit in Europe in more than a decade and that it will also hit targeted North American operating margins that year.

The projections came two days after its smaller rival, Ford Motor Co, disappointed investors with its financial outlook.

GM had previously said it would hit those targets by mid-decade, but it offered the more specific timetable and outlined other forecasts, including its plans for the critical Chinese market, at its investor meeting at the company’s test track outside Detroit.

GM shares were up 1.8 percent at US$32.50 in the afternoon on Wednesday. The stock is down about 20 percent this year and trades below its autumn 2010 initial public offering price of US$33.

Investors and analysts also worry that GM is at the peak of its product cycle, having launched new versions of its full-size pickup trucks and SUVs, but GM president Dan Ammann said those views are “sadly mistaken,” pointing to plans to offer new or refreshed models at a rate of about 30 to 50 percent of the automaker’s annual volume through 2019.

“This is not the end. It’s just the very beginning,” he said.

On Monday, Ford slashed its profit outlook for this year, blaming higher recall costs in North America and steeper losses in Russia and South America. It also offered a disappointing profit forecast for next year.

GM did not provide an update for its overall financial results for this year, and analysts said the company faces the same market pressures hurting Ford.

GM’s target for North American operating margin in 2016 is 10 percent. GM chief executive officer Mary Barra said the margin target for Europe factored in steps to minimize the impact of the downturn in the Russian market. GM last reported a profit in Europe in 1999.

Barra, who took over as CEO in January, also said GM would not change its estimate for the expected cost to establish the fund to compensate accident victims for the defective ignition switch linked to at least 23 deaths. GM previously took a US$400 million charge for the fund and said the cost could rise another US$200 million.

In addition to the outlook for Europe and North America, GM said it is targeting overall operating margins of 9 to 10 percent by early next decade. That would be up from 6.3 percent, excluding recall costs, in the second quarter.

One way it plans to achieve its profit target is by reducing the number of core platforms on which it builds all its vehicles globally, from 14 next year to four in 2025.

GM is also doubling down on the world’s largest auto market, outlining plans to invest US$14 billion in China through 2018 to open five assembly plants and launch 60 new or refreshed vehicles. GM Financial also expects to enter China later this year, giving the automaker greater flexibility to pursue sales.

Another key ambition is turning its Cadillac luxury brand into a globally recognized name. It expects to introduce four new Cadillac vehicles in North America next year, including the CT6 sedan it previously outlined. The brand also will introduce nine new models in the next five years in China.

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