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Now, GM's profit goal gets tougher

1060 Views 3 Replies 3 Participants Last post by  AMERICA 123
Automotive News
February 9, 2015 - 12:01 am ET

DETROIT -- Even before investors were done cheering General Motors' solid fourth-quarter earnings report last week, a question seemed to hang in the air: Can GM take it to the next level?

The company is in striking distance of one of its top goals: a pretax profit margin of 10 percent in North America by next year. It's a closely watched indicator of whether GM can finally use its scale to match the profitability of its biggest rivals.

GM has widened that margin for six straight quarters vs. the year before, excluding recall expenses. It was one of many gold stars on its quarterly report card.

Pretax operating profit of $2.41 billion was the highest fourth-quarter result since its 2009 bankruptcy. Vehicle transaction prices hit a record high. Even the trouble spots -- Europe, Asia excluding China, Venezuela -- seemed manageable.

Now it gets tough.

The heady price increases GM has been commanding for its redesigned pickups and SUVs have fueled much of the recent profit gains. That tailwind will start to peter out this year, GM concedes. To expand margins further, GM must dig deeper in areas that are not historical strengths -- smaller cars, for example.

In a research note headlined "Accelerating or peaking?" CLSA analyst Emmanuel Rosner says he sees "further evidence of competitive pressure on GM's U.S. pricing, which could place large hurdles to its 10 percent margin goal by 2016."

GM CFO Chuck Stevens said he knows pricing will "moderate." But there's a plan:

Boost incremental profit by $1,000 on the next generations of the Chevrolet Malibu, Cruze, Equinox and other redesigned cars and crossovers.

Introduce new models, such as the Cadillac CT6 large sedan, which goes on sale by year end.

Pursue new sources of revenue and profit, such as branded F&I products and its 4G LTE service.

"Those are the big drivers" to reach the 10 percent goal, Stevens said.

As if she could sense investors' skepticism, GM CEO Mary Barra closed her formal remarks to analysts on a conference call last week by citing the $1 billion that GM saved on material and logistics costs last year.

"We will continue to aggressively pursue core operating efficiency," she said. "We know there is more work to do."

Can see where Automotive News are coming from, new licence to print money F-Series is not up to speed yet.

Bigger cars like the Ford Fusion will replace the current very very dull bland current Mondeo in Europe, which will slaughter the highly profitable BMW 3 Series & Insignia in places like Europe.

LHD RHD Mustang is going global/halo car in every country on the planet as another Blue Oval "one Ford world Car" and that's just Ford.

Great to see GM getting so close to the 10%, but the going is gonna get tougher this year. Big top of the range status cars, pick-up trucks & SUV's is where big money is being made.
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Having a competitive Malibu would go a long way. Need Cruze should be a hit. Cadillac will hopefully get it together.
Having a competitive Malibu would go a long way. Need Cruze should be a hit. Cadillac will hopefully get it together.
Malibu sales are a bit of a let down for GM in the US when most are enjoying sales gain it drops 6%, your right it could do much better against it's competition. If you ask more for the Malibu the sales & market share will decline more.

Your absolutely right the Malibu needs to be more competitive against the rest in its class rather than just be there as a GM option to make up the numbers in its class.

US sales last year:
Toyota Camry 428,606 +4.9%
Honda Accord 388,374 +5.9%
Nissan Altima 335,644 +4.7%
Ford Fusion 306,860 +3.9%
Hyundai Sonata 216,936 +6.5%
Chevrolet Malibu 188,519 -6.0%
Kia Optima 159,020 +2.0%
Chrysler 200 117,363 -4.2%
Mazda 6 53,224 +22%
Subaru Legacy 52,270 +23.6%

Honda Accord is the 9th most profitable car in the world, Camry is the 12th most profitable, so the Malibu is a very important car it in a class of car that generates very high revenue.
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A fair estimate is that they are barely better situated for the next ten years in comparison to where they were around the time of the BK looking ten years ahead. ( back in '09. )

Same with Ford - or more likely maybe even a little worse really.
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