General Motors seems being in a cutting mood as it drives to improve its profit margins and stock price. Last week saw the sale of Opel and Vauxhall to PSA Group and it's only the beginning said GM CEO Mary Barra.
Automotive News reports that GM is considering reducing investments in North American cars and "select" international markets according to a chart that was shared during a conference call with analysts last week. The chart says these two earned a spot on the chopping block due to low profit potential and weak strength in franchises.
"There's a little bit more work that we're doing in the international markets. Our overall philosophy is that every country, every market segment has to earn its cost of capital," Barra said on the conference call.
Barra and GM President Dan Ammann declined to go into details about these plans.
GM has already made significant changes in terms of their international operations by ending or reducing operations Australia, Indonesia, Russia, and Thailand. The automaker has also scaled back plans in India. The comments made during the call suggest more cuts could take place here and possibly elsewhere.
As for 'reducing investments in North American cars', this likely means GM is taking a hard look at various segments in passenger car segment. With consumers trending towards utility vehicles and trucks, sales of passenger cars have been falling precipitously. As of March 1st, dealers had four month's worth of inventory of cars, compared to an 81-day supply for light trucks and less than 60-days for full-size SUVs. GM could walk away from certain segments such as compacts or full-size sedans, or delay investments in certain models.
These moves will allow GM to funnel money into models that make more money, and returning capital to shareholders.
"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," GM CFO Chuck Stevens said.
Analysts are mixed on GM's plans.
"It takes a lot of discipline to shift away from a volume-is-king kind of mentality," she said. "In the end, that's going to make a better GM -- a longer-standing company that's not only more profitable but more relevant," said Rebecca Lindland, a senior analyst with Kelley Blue Book to Automotive News.
John Murphy, an analyst with Bank of America Merrill Lynch isn't so sure about this plan.
"It appears that GM's recent decision-making has become much more short-term-focused and, in our opinion, could create challenges for the company in the coming years," Murphy wrote in a report.
Source: Automotive News (Subscription Required)