GM’s Barra Bullish Amid China Maturing, Brexit Woes

DETROIT – Expressing a bullish financial outlook for 2017, General Motors Chairman and CEO Mary Barra anticipates strong but easing growth in China and confirms full-year break-even in Europe may be in jeopardy.

“We think there will be moderate growth” in China this year, Barra tells WardsAuto during a briefing at GM World Headquarters here.

GM and its decades-long joint ventures in China delivered a record 3.87 million vehicles in China last year, an increase of 7.1% from 2015. Barra projects “mid-digit” growth this year, or about a 5% gain on 2016.

“We continue to expect to have a strong China operation going forward,” she says.

At the same time, Barra and GM President Dan Ammann point out the country has begun transitioning from a double-digit growth market to a more mature one where business challenges such as pricing pressure have emerged.

Last month, the Chinese government fined GM and its local partner SAIC the equivalent of $29 million for allegedly pressuring dealers to put a floor on prices. Other automakers also have been punished for so-called price-fixing and some analysts see it as growing pains in the region, which from a sales perspective is GM’s largest.

Barra says the evolving dynamic in China will see GM pursue additional revenue opportunities beyond car sales to sources such as financing and connected-vehicle services it has yet to fully exploit. The mix of vehicles also is becoming richer, Ammann adds, as more second-time buyers are entering the market for more-expensive vehicles.

GM's Ammann.

“From a consumer-demand point of view, there seems to be a lot of support to keep (growth) going,” Ammann says.

As for Europe, a lodestone yoking GM’s balance sheet for more than a decade, Barra confirms the U.K.’s decision to exit the European Union will darken the automaker’s earlier expectations to finally break even or perhaps even report a profit from its Adam Opel subsidiary.

Opel CEO Karl-Thomas Neumann warned in November that the so-called Brexit, on top of its decision to abandon a weak Russian market, could trim $400 million from its second-half 2016 results.

“We were on track and broke even in the first three quarters, (but) Brexit had a major impact,” Barra says.

GM expects continued strength in North America, where U.S. buyers alone last year snapped up a record 17.46 million light vehicles, according to WardsAuto data. The sales pace should slow a bit this year, experts predict, but GM likes its position in the market with several new and redesigned trucks coming out.

Last year, trucks accounted for 60.6% of LV volume and consumers’ appetite for pickups, SUVs and CUVs does not appear to be waning.

“Pretty robust underpinning for another good year,” Ammann says. “The mix in the market is favorable and, with that, profitability opportunities.”

The executives do not expect to alter the automaker’s production footprint, which Barra says is based on a “build where we sell” basis, after President-elect Donald Trump takes office in 10 days. During his campaign Trump took Ford to task for plans to build a new assembly plant in Mexico and more recently threatened GM with a “border tax” on small-car imports to the U.S. from there.

Barra, who will sit on one of Trump’s economic advisory boards, pledges to have a voice on Trump trade policies that automakers may deem unfavorable. She says she intends to specifically highlight to the Trump team investments by GM, such as its $11 billion manufacturing outlay in recent years.

“We want to make that understood when policy is set,” she says.

Barra also reports expectations for 2017 per-share earnings to increase to between $6 and $6.50 from a calendar-year-2016 outlook of between $5 and $5.50. GM will report its 2016 earnings Feb. 7.

Based on those expectations, she adds, the GM board of directors authorized an additional $5 billion stock buyback, pushing the automaker’s previously announced repurchase program to $14 billion.

Barra says GM’s 2018 cost-efficiency target, a key element of its future profitability, has been raised $1 billion to $6.5 billion. She says $4 billion of the savings from areas such as materials, logistics, manufacturing and administrative costs was achieved in 2016.

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