GM Expects Bigger Profits, More Transformation in 2019

Company wants to make workforce changes during strong labor market.

by on Jan.11, 2019

GM CEO Mary Barra is leading the transformation of the company's manufacturing footprint.

General Motors Co. expects earnings to grow in 2019 as it restructures, picks up the pace of moving towards what Chairman Mary Barra described as an “all-electric” future, and maintains its market share in China.

“We will continue to strengthen our core business and invest in the technologies that will transform the future of mobility. Managing both well is critical to position General Motors for success for generations to come,” Barra said, adding that it was better to tackle this restructuring during a strong labor market.

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“We are committed to driving significant shareholder value over the long term as we drive the transformation,” she added.

Of the 2,800 employees in the U.S. impacted by plans to shutter plants in Michigan, Ohio and Maryland, roughly 2,700 will be offered other jobs within the company if they agree to move, Barra noted.

(GM product czar Mark Reuss named President of General Motors. Click Here for the story.)

In response to a question, Barra said GM received inquiries from Tesla about taking over one of the company’s under-utilized factories. The discussions broke down when Tesla declined to use a workforce represented by the UAW.

Mark Reuss, who was named GM President earlier this month, told investors during a briefing in New York, “The ratio of investment will be flipped in favor of EVs and away from internal combustion engines.”

“Cadillac is poised to become the luxury (brand) it was almost meant to be,” he said, noting during 2018, Cadillac posted its best sales in its 116-year history. In addition, the luxury brand will become the “tip of spear” as GM expands its portfolio of electric vehicles, bringing to market vehicles with the most advanced technology, he said.

GM also in the midst of launching a new series of B-Class vehicles that will replace five different architectures now used in a variety of markets around the world, primarily in China, that will be profitable. “These vehicles will really transform our business,” Reuss said.

Matt Tsien, GM executive vice president and head GM’s operations in China, said the automaker, thanks to its strong partnership with SAIC, is holding its own in the world’s largest car market despite some headwinds created by trade tensions with the U.S. and a slowdown in the Chinese economy. “We have a very strong foundation,” Tsien said.

“We have five well-established brands and a highly competitive cost structure. We benefit from world-class engineering and product development capability. Cadillac is coming off its third year of double-digit growth and will launch one new model every six months through 2020,” Tsien added.

Tsien said the Chinese vehicle market has softened, primarily in provincial tier three to five cities where its Wuling and Baojun joint ventures operate. GM is shoring up the joint ventures by leveraging global sourcing and adopting automation and optimizing our mix “with a focus on luxury and larger vehicles for families.”

Overall, GM is well positioned to mitigate the impact the industry downturn in China, officials noted.

(Click Here for more about GM revamping responsibilities for Ammann, Reuss.)

Vehicle sales in China dropped by almost 1 million units to roughly 27 million units from their peak of 28 million in 2017. Total sales in China should reach 27 million units again 2019, Tsien said.

Tsien added trade friction between the U.S. and China has not had much of an impact on GM’s operations because they are heavily localized. However, the weakening of the Chinese currency versus the dollar has cut profits. GM market share in China is roughly 14%.

“We still anticipate sales of 30 million units in China given the relatively low vehicle penetration,” he said.

Dan Ammann, who moved over to serve as CEO of Cruise Automation, the core technology is the key commodity for the automaker. “… we’re putting our resources to the most difficult part of the problem, which is making the self-driving technology work,” he said. “It’s a very difficult challenge.”

For 2019, GM expects earnings per share of between $6.50 and $7, and adjusted auto free cash flow of between $4.5 billion and $6 billion. The company’s strong outlook benefits from a continued robust product line-up, growth of adjacent businesses and business transformation initiatives.

The company will also continue focusing on efficiently deploying capital to higher-return products and segments, creating an efficient cost structure and improving cash flow.

(To see more about Mary Barra’s radical reshaping of General Motors, Click Here.)

“We are focused on strengthening our cash generation and creating efficiencies that will position us to take advantage of opportunities through the cycle,” said Dhivya Suryadevara, GM’s chief financial officer. “We expect 2019 margins to be very strong.”

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