March 13, 2017 @ 12:01 am
International markets and North American cars could be targets
After pulling the trigger on a sale of its European operations, General Motors signaled that it's willing to cut off more vestigial corners of its business in a decidedly unsentimental drive to improve its profit margins and stock price.
CEO Mary Barra made clear last week that the Opel deal is not the end of the automaker's effort to pare its portfolio, though other moves under consideration are unlikely to have the sweeping impact of effectively abandoning one of the world's largest and most mature markets.
"There's a little bit more work that we're doing in the international markets," Barra told reporters on a conference call from Paris, after announcing Opel's sale to PSA Group of France in a deal that shrinks GM's global volume by 12 percent. "Our overall philosophy is that every country, every market segment has to earn its cost of capital."
In addition to funneling resources into higher-margin plays, GM is heavily focused on returning capital to shareholders. The Opel sale, by reducing the company's target cash balance to $18 billion from $20 billion, frees up $2 billion that executives plan to use to accelerate share buybacks.
"That's an immediate opportunity for us to reward shareholders without changing the risk profile of the company or our ability to manage through a downturn," CFO Chuck Stevens said.
While I don't really take issue w/ pruning the weaker parts of GM's business in order to have greater capital to re-invest in the areas where GM sees the potential for growth and/or stronger margins, I do have concerns about paring too much in order to appease activist shareholders.
A few years before the financial meltdown of 2007-8, large shareholders pushed GM into a share buy-back which depleted GM's cash reserves and hastened GM's demise into bankruptcy (and w/ the credit markets having been frozen, into the arms of the lender of last resort - the Federal govt.).