GM expects profitability to improve in 2015

Melissa Burden
The Detroit News

General Motors Co. said Wednesday it expects profitability in 2015 will improve over 2014 results that were stronger than initially thought. The company also reiterated plans to hit 10 percent adjusted margins in North America and to be profitable in Europe, both next year.

The Detroit automaker said its forecast stems from "modest industry growth" expected this year, as it sees sales rising in China, Europe and the U.S. But GM President Dan Ammann cautioned the rate of growth is decelerating and its largest sales market, China, is maturing. Shares closed down nearly 3 percent Wednesday at $34.30 per share.

GM Chief Financial Officer Chuck Stevens told reporters that 2014 results, which are to be released Feb. 4, were "much better" than GM had expected for the year.

GM's 2014 sales rose 2.1 percent to a record 9.92 million with strong sales in North America and China, but likely put the automaker in third place for the global auto sales crown. Volkswagen said it sold 10.14 million vehicles last year. Toyota Motor Corp., which has led the way for the past two years, has not yet released 2014 sales.

"Overall, 2014 was a very solid year in which we met expectations on core operating performance, despite a number of significant headwinds," Stevens said in a statement. "Importantly, improvements in 2015 will keep us firmly on track to meet our near-term objectives and demonstrate solid progress toward our targeted margins of 9 to 10 percent by early next decade."

A year ago, GM said it expected pretax earnings to modestly improve from 2013 results.

GM is predicting improved adjusted pretax earnings for its North America, South America, European and International Operations in 2015. Stevens said results in Europe — where it has lost billions over the past decade-plus — beat internal expectations for 2014. But he does not expect GM to be profitable in Europe this year, as "volatile" issues continue in Russia.

Citi Research analyst Itay Michaeli, in a research note Wednesday, said GM's earnings expectations appear on track. He rated the shares a buy.

But some analysts such as Joseph Spak, an analyst with RBC Capital Markets, said details shared by GM management may leave some investors uneasy.

"The 2015 targets are likely a little better than some feared, but there is still likely to be doubt over whether those targets are actually achievable given a number of risks highlighted (Russia, oil, South America, pricing)," he wrote. "There could also be some disappointment on flat free cash flow."

GM said adjusted earnings before interest and taxes and its adjusted margin will rise this year compared to results in 2014, after factoring the impact of recall costs. Through the third quarter of last year, recalls had cost GM $2.7 billion in 2014.

CEO Mary Barra, Ammann and Stevens presented at the Deutsche Bank 2015 Global Auto Industry Conference.

The automaker said it plans to boost capital spending in 2015 to about $9 billion. Stevens said GM over the next few years will boost spending for vehicle launches, including the Chevrolet Malibu and Cruze, next generation compact and midsize crossovers and adding Cadillac vehicles. GM said early in 2014 that it expected capital spending to hit about $7.5 billion for 2014.

The investments will "really start to invest for future growth in our business and opportunities to drive better shareholder returns," Stevens said.

By 2019, GM expects nearly half of global sales will come from new significantly refreshed vehicles, up from 27 percent in 2015.

The automaker also wants to continue to expand its GM Financial captive arm subsidiary, which Barra said provides "a huge opportunity." GM has opted for GM Financial to be the exclusive U.S. lease provider for Buick and GMC, Barra said. Stevens said GM Financial also will provide leases for the Cadillac brand. Barra says GM Financial provides a "huge opportunity" for GM.

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