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GM shifts focus to making better vehicles
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With General Motors Co in recent days setting in motion big changes around the globe, the focus for new Chief Executive Mary Barra and her team will be making cars and trucks that prove popular enough to help end losses in Europe, analysts said.
Over the past week, GM has announced it would pull the Chevrolet brand out of Europe by the end of 2015 to concentrate on Opel and stop making cars in Australia by 2017. Both moves are to put the brakes on losses in those regions. It also celebrated the long-awaited exit of the US Treasury as a shareholder.
The moves, welcomed by Wall Street, clear the decks for Barra and her management team that takes over next month.
GM on Tuesday named 51-year-old Barra as its next CEO, making her the first woman to lead a global automaker.
Barra will also be the first engineer to lead GM since Robert Stempel in the early 1990s. Analysts who follow the No. 1 US automaker said that was a good sign as developing and building hot-selling vehicles is crucial to ending financial losses in Europe while also defending profit in the key US and China markets.
“It would appear that her ascension shows the emphasis will be on product as opposed to strategies like squeezing suppliers and that’s the right path,” Gabelli & Co analyst Brian Sponheimer said.
“Quality and consistency of product will always be GM’s No. 1 challenge,” he added. “Mary Barra needs to continue to change the perception of GM in the eyes of potential customers. That starts with the quality of the car.”
Outgoing CEO Dan Akerson is not leaving the product cupboard bare, as vehicles like the Chevy Impala and Cadillac CTS sedans and redesigned Chevy Silverado and GMC Sierra pickup trucks are garnering awards and pulling in profits.
But a company is only as good as its next vehicle debut, so Barra must complete her current task as global product development chief — consolidating the number of platforms on which GM builds vehicles around the world as a way to cut costs, analysts said.
“GM has more complexity than a lot of other global automakers and they really need to harness their scale to get the full benefits,” said UBS analyst Colin Langan, who has a “buy” rating on GM’s stock.
Europe, Asia concerns
Fixing Europe, where GM has lost US$18 billion over the last 12 years, is at the top of Barra’s to-do list, analysts said. New Opel products and the decision to stop selling most Chevy vehicles there will help.
GM’s European Opel brand has in the past suffered from having to adapt European cars from platforms more suited to the North American market, after former Vice Chairman Bob Lutz insisted on Chevy and Opel sharing more parts, said an Opel employee who declined to be named.
Analysts also said GM’s efforts in Europe are more likely to bear fruit in 2015 after the automaker has ceased production in Bochum, Germany.
Another money-losing region that needs help is Asia, excluding China, analysts said. While GM is a leader in China, it is struggling elsewhere in Asia with lack of market share or, rising labor costs, as is the case in South Korea.
GM earlier this year cut the third shift at its Korean plants, and industry research firm IHS said the automaker is likely to cut output in that country by nearly 20 percent in 2015 compared with this year. GM officials have been mum lately on plans for Korea, but executives have not hidden their desire to minimize reliance on the country in the future.
The decision to cease production in Australia as well as the move to drop the Chevy brand in Europe will cost the company as much as US$1.6 billion. But it will help lower costs long-term and possibly relieve pressure on GM in Korea as Australian demand is met by the Korean plants, analysts said.
Working as a team
“It’s important for Ms Barra to start out with a relatively clean slate and announcing these changes in the last couple of weeks gives her an opportunity for her first six months to talk about what’s positive at GM as opposed to coming in and announcing cuts,” Gabelli’s Sponheimer said.
Other challenges facing GM and all automakers include tackling the different regions’ regulatory agendas, as well as continuing efforts to help GM’s global operations work together more seamlessly, IHS managing director Michael Robinet said.
To do all that, David Cole, former chairman of the Center for Automotive Research, said Barra and her top executives will need to “break down the fiefdoms” throughout the company globally. “The whole concept of team play is critical at GM,” he said.
Morgan Stanley analyst Adam Jonas said in a research note that concerns about GM slipping back to the “old ways” that led to its 2009 bankruptcy should be alleviated by the presence of so many “outsiders” on the management team and board.
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