General Motors CEO Mary Barra told investors Wednesday that GM will rely on new models & a huge push to sell more cars in China to boost profits in coming years, as the company tries to shift the spotlight from a mishandled recall of older small cars.
Barra needed to reassure investors that GM has a strong plan going forward. The stock has dropped approximately 18 per cent this year amid the recall & hearings before Congress that exposed a lax internal culture. It rose two per cent in afternoon trading to $32.51 US.
GM recalled 2.6 million small cars worldwide earlier this year to fix faulty ignition switches that are now blamed for at least 23 deaths nationwide. Barra said suppliers have made enough parts to fix all of the switches, yet only 1.1 million small cars have had the repairs so far.
GM has admitted knowing approximately the problem for a decade, yet it didn't recall the cars until this February. The switches can cause the engine to stall, deactivating the cars' air bags.
Barra said GM is staying with an estimate of $400 million to $600 million to compensate ignition switch crash victims. The company has hired compensation expert Kenneth Feinberg to pay victims. He made his first payments last week.
New models are the linchpin of GM's strategy to grow profit margins. The company said it expects 27 per cent of its global sales to come from new or freshened models next year. That figure will rise to 47 per cent by 2019 as it accelerates new model rollouts. Barra wouldn't say how many new models would be introduced each year.
But the new vehicles, coupled with cost savings & other measures, should obtain GM to a 10 per cent pretax profit margin in North America by 2016 & 10 per cent for the whole company by early next decade, Barra said. Profit margin is the percentage of each dollar in revenue a company actually keeps.
GM's "absolute onslaught" of new vehicles starts with midsize pickup trucks that are now arriving in GM dealerships & will be followed by the Chevrolet Trax subcompact SUV early next year, President Dan Ammann said. Those two vehicles should boost annual sales by approximately 200,000 vehicles, & are critical to GM's plans to expand profit margins, Ammann said.
New Opel small car
A new Opel Corsa small car is being shown at the Paris Motor Show this week for sale by year end, & GM plans a new Opel Astra compact next year. Then, in 2015 & 2016, GM will freshen the Chevy Malibu midsize car & Cruze compact, followed by the Chevrolet Equinox small crossover SUV.
In China, GM is pinning high hopes on the Cadillac luxury brand, which has struggled in the U.S. despite earning numerous awards. GM expects to introduce nine new Cadillac models in China over the next five years. China, the company predicted, will become the world's largest luxury car market after this decade.
To handle Chinese growth, GM plans to spend $14 billion through 2018 to open five new assembly plants to support sales of just under 5 million per year. Last year the company sold nearly 3.2 million vehicles in China.
GM moreover expects Europe to return to profitability in 2016, & says it continues to address challenges in international operations outside of China.
Among the headwinds facing the company are new tougher emissions requirements & rebuilding its reputation as a quality automaker.
Â At a meeting with GM' executives earlier this month,Â BarraÂ told managers they must do what it takes to make GM "the world's most valued automotive company," & that will mean boosting customer satisfaction & quality.
In her briefing today,Â Barra said if the company performs according to plan, dividends will rise. "When we do that our shareholders will receive the return on investment that they deserve," she said, without giving specifics.
Chevrolet pulled out of Europe
GM expects "significant" losses in international operations outside China this year as it pulls the Chevrolet brand out of Europe & launches new products in the Middle East. "Marginal" losses are expected in South America on economic weakness in Brazil & Argentina.
Barra said the ignition switch recall crisis has resulted in cultural changes & a stronger leadership team. And she's now pushing harder for changes.
"For me personally, I'm a little more impatient, & I think that's a satisfactory thing," she told reporters at the company's proving ground in Milford, Michigan, north of Detroit.
Investors viewed GM's news more favourably than Monday's outlook from rival Ford Motor Co., which said it expects pretax profits for the year to come in below previous predictions. Ford shares have fallen more than 10 per cent since its presentation to investors & were down 1.2 per cent to $14.61 in afternoon trading Wedn