G.M. Details Plan to Increase Profits

Posted by Unknown on Wednesday, October 1, 2014

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Business Day |G.M. Outlines Plan to Increase Profit Margins

http://nyti.ms/YTN4ij

MILFORD, Mich. â€” General Motors pledged on Wednesday to increase its profit margins, cut costs and expand operations in China as part of a broader strategy that emphasizes growth and better financial results.

The new strategic plan was unveiled to investors and stock analysts at a daylong presentation by G.M. executives at the companyâ€™s vehicle-testing facility outside Detroit.

Mary T. Barra, G.M.â€™s chief executive, touted the plan as a fresh start for the nationâ€™s largest automaker, which has been struggling to stabilize operations in the wake of its recall this year of millions of defective small cars tied to at least 23 deaths.

The recall, which began in February, has already cost G.M. about $4 billion, and cast doubt on the quality and safety of its products.

The crisis has also spurred dozens of subsequent recalls of other models and forced Ms. Barra and her management team to confront deep, systemic problems within the company.

An internal investigation revealed that some G.M. employees had known of problems for a decade with the ignition switches of compact cars that could cause the vehicles to lose power suddenly and deactivate air bags.

The revelations spurred congressional hearings and a $35 million fine by federal regulators for G.M.â€™s failure to report the safety defect in a timely manner. The company is still under investigation for possible criminal and civil charges by the Justice Department, the Securities and Exchange Commission and 45 state attorneys general.

It also faces a rising tide of private litigation, even as it starts paying out compensation to victims of the faulty switch through a fund run by the lawyer Kenneth R. Feinberg.

Ms. Barra did not mention the recalls and the mounting death toll tied to the defect in her prepared remarks to investors and analysts.

But she said the new plan is designed to strengthen consumer relationships as well as enhance the value of G.M.â€™s sagging stock price, which has declined more than 20 percent this year.

â€œOur strategic plan is a pathway to earn customers for life and create significant shareholder value in the process,â€ Ms. Barra said. â€œEvery chance to connect with customers is an opportunity to build a stronger relationship.â€

In response to questions from reporters, Ms. Barra called the ignition-switch recall a â€œtragic eventâ€ that has prompted a major restructuring of G.M.â€™s engineering operations and safety protocols. â€œIt caused us to take a huge step forward in the product development process,â€ she said.

The company is now trying to move beyond the crisis and refocus its efforts on improving financial results and bolstering its vehicle lineup and regional business units.

G.M. said it expected to earn pre-tax profit margins of 9 percent to 10 percent by early next decade, and accelerate introductions of new models both in North American and international markets.

For example, the company said that next year about 27 percent of its global sales will come from new or recently refreshed products. That number is expected to increase to 38 percent by 2016, and 47 percent by 2019.

The automaker also plans to streamline its roster of product platforms that provide the basic underpinnings for multiple models. In 2015, it said, 14 core platforms will account for 75 percent of global sales. By 2020, it said, 99 percent of its sale volume will come from 11 platforms.

Car companies can save billions of dollars in costs by building more models off fewer platforms. G.M. has long trailed rivals like Toyota and Volkswagen in maximizing the use of core platforms.

G.M. is also expecting to save about $1 billion annually beginning in 2015 on material and logistics costs. Mark Reuss, the companyâ€™s product development chief, said further savings could be achieved by working with suppliers to set more realistic production and sales targets for new models.

In Europe, the company said it expects to halt years of losses and return to profitability by 2016. Chuck Stevens, G.M.â€™s chief financial officer, said the goal would be achieved partly by restructuring moves that will lower expenses in the region by $700 million.

G.M. is banking heavily on gains in China to fuel its overall growth. The company will invest $14 billion there over the next five years, primarily to build five new plants and introduce 60 new or revamped vehicles.

This year G.M. expects to sell about 3.5 million vehicles in China. That number should grow to 4.9 million by 2018, the company said.

The automaker also promised to share more of its excess cash flow with shareholders through higher dividends. That could help its stock price, which has been stuck in the low $30 range despite gains in the overall market.