New GM team says U.S., China growth to offset costs in tougher regions

Wed Jan 15, 2014 4:31pm EST
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By Paul Lienert

DETROIT (Reuters) - Modest growth in the United States and China this year would help General Motors Co (GM.N: Quote) fund about $1.1 billion in restructuring costs in other harder-hit regions, including Europe and Australia, its new executive team said.

A new management team led by Chief Executive Officer Mary Barra and President Dan Ammann took the reins on Wednesday, saying the company expects a slight uptick in pre-tax profits this year, while margins likely will remain flat until 2015.

Analysts labeled GM's forecast conservative and disappointing, though they noted it also provides the automaker's new leadership with flexibility.

"While the guidance was slightly disappointing, we think this set-up could create a good entry point and better frames GM heading into the rest of the year," RBC analyst Joseph Spak said in a research note. "The guidance also gives the new management team a little more wiggle room to deal with in their first year."

He also said Tuesday's announcement of a better-than-expected quarterly dividend, the company's first in six years, will also support the stock.

Morgan Stanley analyst Adam Jonas called the forecast "appropriately conservative" and said he expects North American profit margins in the mid- to high-8 percent range this year, rather than 9 or 10 percent.

"We believe the company should have positive earnings revision risk once the dust settles," he said. "The challenge of owning GM is that the company is still in the early innings of executing its structural turnaround while the U.S. auto cycle is approaching the later innings."

China remains GM's strongest market. The automaker plans to open four new plants there through 2015, increasing annual production capacity to 5 million vehicles, keeping neck and neck with chief rival Volkswagen AG (VOWG_p.DE: Quote). In comparison, GM built 3.3 million vehicles in North America last year.   Continued...

A General Motors logo is seen on a vehicle for sale at the GM dealership in Carlsbad, California January 4, 2012. REUTERS/Mike Blake