Barra Says GM Seeking Growth With Overhaul of Product Line

  • Automaker will replace 39% of sales with new product in 2016
  • GM to sell autonomous car in 2016, CEO says on investor call

Big Three Automakers See September Sales Surge

General Motors Co. will push for sales growth with a parade of new models over the next five years, including the new Cadillac CT6 with autonomous driving technology in 2016, Chief Executive Officer Mary Barra told investors.

Barra said GM will replace almost its entire global product line over that period, with 39 percent of the its projected sales volume being new models in 2016. She also made a case that GM is working to be the industry’s technology leader with initiatives like offering a Super Cruise option in the CT6, allowing hands-free driving on the highway that year.

“We are working to redefine personal mobility,” Barra said. “The foundation of this is the strong financial performance we have shown.”

Over the next couple of years, GM will see the benefit of higher investment in new product. Because new cars take three or four years to develop, the company’s meager $4.2 billion capital budget in 2010 left it with a dearth of new models in recent years. The company is on pace to spend $9 billion this year. Along the way, GM plans to take out $5.5 billion in purchasing, manufacturing and administrative expenses from 2015 to 2018, said Mark Reuss, GM’s executive vice president of global product development.

"We have an absolute arsenal of vehicles coming," Reuss said. "These vehicles will have significantly improved profit."

In a slide presentation to investors, GM said its return on invested capital has been 24 percent this year. That statistic has become a key measure for GM and also is the one that Fiat Chrysler Automobiles CEO Sergio Marchionne has used to push for mergers among major automakers. Marchionne, who in April said many carmakers do not make the industry’s 9 percent cost of capital, has pushed GM for a merger that Barra does not want.

Improved Margin

The company showed it has been willing to sacrifice market share to make better profits. In 2013, GM had 11.5 percent of the global car market and returned 20 percent on invested capital and posted margins, measured as earnings before interest and taxes, of 5.5 percent. This year, the company’s estimated market share is 11.3 percent and margins have grown to 6.8 percent.

Barra is trying to make the case that GM is poised for growth by pushing into emerging markets, especially India and China, and in established markets with new products and technology. She wants to show investors that the company can enter a new phase of improved profit after the Detroit-based automaker’s stock has fallen about 25 percent since she became CEO in January 2014.

The automaker has been pushing hard on autonomous, or self-driving, technology. Late next year, GM will have a fleet of 2017 Chevrolet Volts driving autonomously at its Tech Center north of Detroit, Barra said. The cars will ferry employees around the campus and park without driver assistance, the company said.

GM also said it will launch two new car-sharing programs, one that operates in New York City today and another in an unnamed U.S. city. GM also has a car-sharing program in Europe with Opel brand.

Reducing Costs

Finding new areas of growth is vital to GM. The company’s net income in this year’s first half rose to $2 billion from $491 million. That was thanks in large degree to cost cutting. Automotive revenue fell to $71 billion from $74.8 billion.

Barra said that she sees continued growth in China, despite the slowdown this year, and the automaker wants to push ahead in India, which she said can become the world’s third-largest car market within the next decade.

GM said in July that it will invest $5 billion in the Chevrolet brand to grow more in Brazil, China, India and Mexico. The company needs growth in other markets because 75 percent of its net income came from the U.S. and China.

Dan Ammann, the automaker’s president, has said the company can expand in emerging markets and also boost earnings from its GM Financial lending arm. The unit’s operating profit was about $800 million last year, and GM said its goal is to more than double profits by 2018.

Luxury Market

GM will push to make more money in the luxury market in the next five years, Barra said. The automaker is pouring $12 billion into eight new models globally for Cadillac. The brand has grown in China, where GM thinks it can become a bigger player.

If GM can get Cadillac moving in the right direction, the brand has an opportunity to make more money. GM said in the presentation that luxury car sales are 12 percent of the global car market and 38 percent of profits; Cadillac only has 3.4 percent of the global luxury market.

Cadillac commands better average prices than any other brand, according to GM’s data. Thanks to the Escalade SUV, which starts at $73,000, Cadillac’s U.S. vehicles sell for an average price of $50,225, which is second only to Mercedes-Benz.

In addition to the eight new models Cadillac has said are coming by 2020, one of the presentation slides showed it will make a subcompact car in the future. The CT6 with autonomous driving will arrive next year as a 2017 model.

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