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GM Expects Better 2015 after Costly Recalls

Jan. 14, 2015
After dropping $2 billion for 30 million recalled vehicles in 2014, GM CEO Mary Barra sees a much brighter future ahead.

General Motors (IW 500/5) said Wednesday that it expects improved earnings and margins in 2015 after paying out nearly $2 billion for recalls and victims compensation last year.

GM said it foresees "modest" growth in the overall auto industry worldwide this year, but that it is counting on continued improvement of its own operations in North America, China and Europe to offset downturns in Latin America and Russia.

"We had a pivotal year in 2014," said Mary Barra, marking the end of her first year as chief executive.

"We'll build on this momentum in 2015 and continue executing our plan to become the most-valued automotive company."

The largest U.S. automaker sold 2.94 million cars and trucks in the United States last year, a 5.3% gain. In its now-largest market, China, it sold 3.5 million vehicles last year, up 12% from 2013.

The company has not announced its global total, but analysts are waiting to see if that hits 10 million cars and trucks sold, which would make GM a challenger along with Volkswagen to Toyota's crown as the world's largest automaker. Toyota also has yet to announce 2014 global figures, which were just above 10 million in 2013.

For GM nevertheless, 2014 was scarred, reputation- and cost-wise, by the need to recall some 30 million vehicles to fix problems and compensate victims of accidents tied to faulty ignitions.

The company said it spent $1.8-$1.9 billion in 2014 on recalls and victim compensation, less than the $3 billion it set aside. Another $1.2 billion in similar costs are expected this year.

Despite those hefty costs, the company's profitability rose last year.

"We are demonstrating a true resiliency," said Barra in a conference with analysts.

GM did not give any financial figures on its full-year 2014 performance, which will only be released next month.

But chief financial officer Chuck Stevens said the year was strong despite headwinds from disastrous winter storms in the United States which stalled sales, slower global economic growth, Russian turbulence and the costs of recalls.

He said 2015 should see improvements in sales, core profits, and margins in all four of the company's global regions. 

"Year-over-year our profitability will be up, and we will have a reduction in recall-related expenses," Stevens said. "We are addressing issues faster, more aggressively."

But he warned that there "is a significant amount of uncertainty" regarding possible litigation related to the recalls. The company still faces federal investigation into why it took more than 10 years to address the faulty ignition problem, which had a role in scores of accidents that left at least 45 people dead. It is also facing class action suits over the issue.

$9 Billion Capital Investment

The company plans capital investment of $9 billion in 2015, around two-thirds of which will likely be in North America.

That leaves the company on a "glide path" to achieving its target of profit margins of 9-10% by 2020, he said.

The company said it wants to return excess cash to shareholders, but Stevens said there was no official plan to increase a dividend he said was already "strong... by any measure."

Barra said GM is counting heavily in 2015 on its "three-truck strategy" to capture a greater share of the lucrative US truck and SUV market, and on the rollout of the new hyper-powered Cadillac CTS-V to lead gains in the luxury market.

"With Cadillac, our focus will also be in China," she said, highlighting the importance of what is now the world's largest car market to GM's strategy.

GM is also pushing its electric car program. On Monday it revealed a new version of its small Chevrolet Volt hybrid, and also the Bolt concept car, a full electric with a 200 mile (320 km) range that could be priced in the $30,000 range when launched in 2017.

"It's a concept vehicle that is very important," Barra said. "This truly can be a vehicle for the masses."

Copyright Agence France-Presse, 2015

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