General Motors Corp (GM)

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GM Expects Modest Earnings Improvement in 2014 -- Update


By Jeff Bennett

General Motors Co. said its earnings would "modestly" improve this year, as the auto maker uses an anticipated stronger financial performance in the U.S. and China to offset restructuring costs.

"We're taking advantage of strength to really take aggressive and assertive steps to fix other parts of the business," GM President Dan Ammann said Wednesday during a presentation to auto industry analysts in Detroit. "We're committing a large amount of cash and resources to restructure Europe and we are spending money, real money to restructure some of the international operations that will pay off substantially for us in the future."

GM said it would spend about $1.1 billion on cost-cutting measures such as closing a plant in Germany, winding down operations in Australia and pulling the Chevrolet brand from the European market.

The tepid outlook could dampen investors' enthusiasm stirred Tuesday night, when the company reinstated a quarterly dividend after a six-year absence.

GM will begin paying 30 cents a share quarterly dividend on its common shares in March after posting a 4% increase in world-wide sale volume and as big investors pushed for a resumption of cash payouts. The proposed payout will cost GM nearly $1.67 billion a year.

Shares of GM dropped 60 cents, or 1.4%, to $39.45 in recent trading.

The forecast follows rival Ford Motor Co.'s similarly lackluster forecast for 2014.

GM's outlook combined with Ford's forecast underscores the internal pressures the two companies are still wrestling with despite booming sales in the U.S. and an expected 2% increase in the number of cars and trucks sold globally. More than 85 million vehicles are expected to be purchased this year.

Mr. Ammann was quick to point out that GM's core operations remain intact and that the money being spent this year was to position the company for a healthy 2015.

"We have a big opportunity to really be smarter and more thoughtful and more strategic about our resource allocations," Mr. Ammann said.

In a breakdown of the regions, the North America unit is expected to see retail share growth, a modest market share increase and higher prices for the vehicles sold.

"Overall, 2014 will be another important step on our path to 10% pre-tax profit margins," GM's newly named Chief Financial Officer Chuck Stevens said.

In Europe, GM is "starting to get some traction" for the first time in 14 years, as it moves its marketing muscle behind its German Opel brand and pulls Chevrolet from the region. But vehicle pricing will remain an issue as auto makers offer incentives to drive sales, Mr. Stevens said.

"We're expecting moderate industry recovery, very moderate industry recovery," Mr. Stevens said. "But at least we're sensing that we've bottomed out and we're starting to go on an upward trajectory."

The company's international operations will be the biggest challenge as the company begins to exit Australia and deal with an overall underperformance.

"There's a number of repair jobs that we need to start working on," Mr. Stevens said. "We need to regain momentum in 2014 and execute the restructuring actions so that we get the full benefit of that in 2015 and 2016."

South America is expected to report relatively flat performance during the year, as strength in Brazil is offset by currency fluctuations in Venezuela and Argentina.

"The risk profile in South America has increased significantly in the past several months," Mr. Stevens said. "We think that's going to continue in 2014. A lot of volatility risk in Venezuela and Argentina. It's very, very difficult to do business in Venezuela right now. And we're going to have to manage through that as we go through the year."

Write to Jeff Bennett at [e-mail]

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