Mary Barra, CEO of General Motors, speaks at the Clinton Global Initiative in a session titled,"Valuing What Matters," Sept. 23 in New York.Mark Lennihan/The Associated Press
General Motors Co. Chief Executive Officer Mary Barra outlined revised financial goals as she works to shift the focus at the largest U.S. automaker from fixing recalled cars to making more money selling new models.
The operating margin at its North American unit will reach 10 per cent and its European business will return to profit in Europe in 2016, GM said before a presentation to investors in Milford, Mich.. The automaker also plans global earnings margins of 9 per cent to 10 per cent by early next decade and will maintain similar margins at its Chinese unit as it works to improve operations in other markets outside the U.S.
"It's about execution, and that's what we're focused on," Ms. Barra told reporters before the presentation today.
Ms. Barra has been hobbled by scrutiny from lawmakers, regulators and the public for most of her nine-month tenure as CEO because of a vehicle defect, linked to 23 deaths so far, that wasn't fixed for a decade. She fired 15 people after an internal investigation of the 2.59 million-vehicle recall and has said Detroit-based GM may need as much as $600-million to compensate victims killed or injured because of the flaw.
The investor meeting Wednesday at GM's automotive test facilities shows the company's plans to shake off the recall, which Barra has blamed on a culture she said she's working to change, and move forward, the CEO told reporters before the presentation.
The goal is "to make sure we become the most valued automotive company," Ms. Barra said. "As you look at this year, this is really our first opportunity as a leadership team to really talk about the future of the company."
Earlier Goals
GM previously set less specific goals of a 10-per-cent margin for adjusted earnings before interest and taxes in North America and returning to profit in Europe, both by mid-decade, without giving a year. GM reported about a 9-per-cent profit margin in North America in the second quarter, excluding recall costs.
"While we don't expect GM to reach 10-per-cent margins, we believe the investor day could demonstrate that margins can in fact improve, even in the face of plateaued growth in the U.S. industry, driven by better cost and product improvements," Brian Johnson, a Barclays auto analyst, wrote in a Sept. 24 report previewing today's meeting.
GM's second-quarter adjusted earnings before interest and taxes in North America fell to $1.39-billion from $1.98-billion, missing analysts' estimates. Excluding recall costs, profit in the region rose to $2.4-billion, GM said.
Europe Outlook
The automaker, which has lost money in Europe since 1999, upgraded the outlook for the region in June to a return to profit by mid-decade from only breaking even, without specifying any dollar amount. GM's second-quarter losses in Europe widened from a year earlier to $305-million from $144-million, with much of the increased costs associated with closing an assembly plant in the region.
In 2015, about 27 per cent of global sales will come from new or refreshed products, rising to 38 per cent in 2016 and 2017 and reaching 47 per cent in 2019, GM said today in a press release. GM will also roll out a new system combining new welding technology and a mixture of steel and aluminum that will allow lighter vehicles with 20 per cent fewer parts.
The automaker also said it plans to invest $14-billion in China from this year through 2018 to open five new vehicle assembly plants and support annual sales of 5 million cars and trucks. GM plans to introduce 60 new or refreshed models in China in that period, including nine new sport utility vehicles.
New Cadillacs
GM said the plan to move Cadillac to New York as a separate business unit comes as the brand will have four new vehicles in 2015 and introduce nine new models in China in the next five years.
Standard & Poor's Ratings Services raised its ratings on debt in both GM and General Motors Financial Co. to investment grade on Sept. 25, citing progress in Europe, healthy cash flow and limited damage to the company's reputation and market share as a result of its record recalls. S&P cut GM to junk in 2005.
GM entered this year on a roll, with shares rising 42 per cent in 2013 as the U.S. government gave up the last vestige of control it gained over the company in a 2009 bankruptcy. In January, GM said it would pay a dividend of 30 cents a share, the first quarterly payment since July 2008. The company said today that it will increase dividends to shareholders in the future beyond the $2-billion average from 2011 through 2014.
The automaker has since recalled almost 26-million cars and trucks in the U.S. for a variety of defects, the most by any automaker in a single year. GM shares fell 22 per cent this year through yesterday.