GM outlines strategy for new products, growth in China

Wed, 01 Oct 2014

"Our strategic plan is a pathway to earn customers for life and create significant shareholder value in the process." – Mary Barra

General Motors laid out ambitious plans on Wednesday to become the world's "most valued automotive company," a goal it says it can reach by strengthening its business in China, rebuilding the Cadillac luxury brand and fixing the foundering GM Europe operations.

The plan also calls for fewer product underpinnings, which will be shared globally in a bid to reduce costs and complexities, an injection of new products in the United States and an increased focus on emerging technologies like autonomous driving. In 2019, GM said almost half of its products will be new or significantly refreshed in the last 18 months, up from 27 percent next year.

The plan has been under development since CEO Mary Barra took over from Dan Akerson in January and is a blueprint for keeping the new, leaner GM profitable and in a position to react quickly to customers' needs.

"Our strategic plan is a pathway to earn customers for life and create significant shareholder value in the process," Barra said in a statement. "Every chance to connect with a customer is an opportunity to build a stronger relationship."

China Is Focal Point

A major part of GM's strategy hinges on China, and Cadillac will be the company's pivotal brand. Cadillac will launch nine new models in China – expected to become the largest luxury market in the world – in the next five years, and GM says its Cadillac factory there will be capable of making 200,000 units annually to support local sales.

GM also plans to invest $14 billion in China from 2014 through 2018 to open five new factories, and the company projects sales close to 5 million units per year there, up from 3.16 million in 2013. For reference, GM sold 2.79 million vehicles in the United States in 2013.

Sales in China will be fortified by 60 new or refreshed vehicles for the market, including nine sport utility vehicles. The automaker also expects to launch GM Financial in China this year to help support new car sales there.

New Technology, Strategy For Products

GM reiterated that it will strengthen its product lineup with new technologies, like the Super Cruise semi-autonomous driving feature and vehicle-to-vehicle connectivity to be introduced on 2017 Cadillacs, including the new CT6 flagship. GM also plans to further expand 4G LTE mobile broadband capability in its vehicles.

A new mixed-material body structure that employs aluminum and steel stampings, uses 20 percent fewer parts, has improved noise, vibration and harshness and torsional stiffness, will also become widely used.

The company will also reduce its product portfolio to four "vehicle set strategies" in 2025, comprised of sets for rear-wheel drive, front-wheel drive, SUVs and trucks. The sets will have fixed hardpoints, but will be modified to the vehicle and the market. The set strategies is a change from GM's use of architectures, of which it expects to have 14 core ones in 2015.

Fortress Finances

GM plans to strengthen its finances around a "fortress balance sheet," which calls for liquidity of $30 to $35 billion for the auto business and having $20 to $25 billion in cash. GM wants its adjusted profit margin to be 10 percent in North America, and it expects to return its European operations to profitability by 2016.

GM Outlines Strategic Plan

MILFORD, Mich. – General Motors Co. (NYSE: GM) CEO Mary Barra and her executive leadership team outlined the company's customer-focused strategic plan to become the most valued automotive company at a conference for investors and financial analysts today at the company's Milford Proving Ground.

"In the nine months that this leadership team has been together, we have spent a significant amount of time setting our goals for the future of GM and developing a specific action plan," Barra said. "Our strategic plan is a pathway to earn customers for life and create significant shareholder value in the process. Every chance to connect with a customer is an opportunity to build a stronger relationship."

GM's strategic plan includes several major initiatives that the company anticipates will help it achieve 9- to 10-percent margins on an EBIT-adjusted basis by early next decade.

– Lead in Product and Technology: In 2015, about 27 percent of GM's global sales volume is expected to come from products new or refreshed within 18 months. That figure is expected to rise to 38 percent in 2016 and 2017, and reach 47 percent in 2019.

During the same time frame, GM plans to execute the world's largest automotive deployment of 4G LTE high-speed mobile broadband, introduce vehicle-to-vehicle connectivity in the 2017 Cadillac CTS and launch a highly automated driving technology currently called Super Cruise, which allows for extended periods of hands-free driving on highways.

GM has also developed an innovative Mixed Material Body Structure that uses GM-patented welding technology and a combination of steel and aluminum stampings, castings and extrusions to deliver designs that are lightweight, use 20 percent fewer parts, have class-leading torsional stiffness and exhibit superior noise and vibration characteristics.

– Grow Cadillac: GM is establishing its flagship brand as a separate business unit headquartered in New York City to pursue growth opportunities in the luxury market with more focus and clarity. Cadillac expects to introduce four new vehicles in North America in 2015, including the recently announced CT6. In addition, Cadillac plans to introduce nine new models in the next five years in China, which is expected to become the world's largest luxury car market later this decade.

– Continue Growing in China: GM's joint ventures in China are planning to invest $14 billion from 2014 through 2018 to open five new vehicle- manufacturing plants and support sales of just under 5 million vehicles annually. In the same time frame, GM expects to launch 60 new or refreshed vehicles, including nine new sport utility vehicles.

– Continue Growing GM Financial: GM Financial, which has seen its earning assets grow from $8.7 billion in 2010 to $37 billion today, continues to invest to support the sale of new GM cars, trucks and crossovers around the world. GM Financial has sharply increased the number of GM customers it serves in the United States, Canada, South America and Europe. Later this year, GM Financial expects to enter the growing Chinese market.

– Deliver Core Operating Efficiencies: GM's strategy to improve relationships with suppliers, derive more global volume from fewer vehicle architectures and lower enterprise costs for material and logistics is expected to deliver significantly better variable margins on upcoming high-volume product launches, including the Opel/Vauxhall Corsa and Astra in Europe, and the Chevrolet Cruze and Malibu in North America. By 2020, the company expects that about 99 percent of global production will be on core architectures.

Mid-decade Financial Targets

During the meeting, GM also reaffirmed the company's previously announced near-term financial targets:

– In North America, the company expects to achieve EBIT-adjusted margins of 10 percent in 2016.
– In Europe, the company expects to return to profitability in 2016.
– In China, the company expects that its joint ventures will maintain net income margins in the 9- to 10-percent range.
– In South America, the company's core operations continue to improve as a result of recent product launches and material and logistics optimization.
– GM continues to address challenges in its international operations outside of China, including brand strategy, cost structure and sourcing to return to consistent profitability.

GM intends to return excess cash flow to stockholders primarily through strong and growing dividends based on sustained improvements in the company's underlying financial performance.

General Motors Co. (NYSE:GM, TSX: GMM) and its partners produce vehicles in 30 countries, and the company has leadership positions in the world's largest and fastest-growing automotive markets. GM, its subsidiaries and joint venture entities sell vehicles under the Chevrolet, Cadillac, Baojun, Buick, GMC, Holden, Jiefang, Opel, Vauxhall and Wuling brands. More information on the company and its subsidiaries, including OnStar, a global leader in vehicle safety, security and information services, can be found at http://www.gm.com.

By Greg Migliore