January 14, 2015 / 6:23 PM / in 3 years

GM offers aggressive outlook in CEO Barra's 'do-over' year

General Motors CEO Mary Barra speaks next to the 2016 Chevrolet Volt hybrid during the first press preview day of the North American International Auto Show in Detroit, Michigan January 12, 2015. REUTERS/Rebecca Cook

DETROIT (Reuters) - General Motors Co (GM.N) Chief Executive Officer Mary Barra said on Wednesday the largest U.S. automaker would increase its profit this year, as she counted on investors to give her a second chance after her first year behind the wheel was marred by a costly recall scandal.

While GM gave no specific figures, it said it expects pretax earnings and profit margins to increase this year over 2014, after adjusting for the recall costs, citing growth in its two largest markets - China and the United States. The automaker also stood by 2016 targets for 10 percent profit margins in North America and a return to profitability in Europe.

Some analysts found the projections overly positive, however, given weakness in several overseas markets.

“It’s a very aggressive outlook,” said Mirko Mikelic, senior portfolio manager with Clear Arc Capital, which does not own GM stock but follows it closely. “It’s really going to depend on a lot of these global economies turning around quickly and we don’t see that happening.”

GM shares were down 4.1 percent at $33.81 on Wednesday afternoon, amid a broad selloff by investors worried about weak global growth. GM shares are trading just above the 2010 initial public stock offering price of $33. The automaker was hit hard by the 2008 financial crisis and emerged from a U.S. government-directed bankruptcy in 2009.

Barra’s first year as CEO, 2014, was dominated by the recalls of 2.6 million cars due to a defective ignition switch that has been linked to at least 45 deaths. That issue led to Congressional hearings, federal probes and numerous lawsuits, as well as increased recalls of GM vehicles for other problems.

“We would have never been able to predict what we faced,” Barra told investors at a Deutsche Bank conference held in conjunction with the Detroit auto show.

All told, GM took charges totaling more than $3 billion for the issues.

Analysts and investors see 2015 as a second chance for Barra to define herself and her strategy.

“It is a do-over, but the question is, what does she do with the opportunity?” said Morgan Stanley analyst Adam Jonas. “Decisions made over the next year or two are going to significantly affect the direction of the company over the next 10 years.”

Analysts wonder how Barra will steer GM, especially given the troubles in many overseas markets and slower growth in China, GM’s largest market by sales volume.

GM President Dan Ammann acknowledged the challenges on Wednesday, saying the global industry growth was decelerating and competition was intensifying. “The industry is in somewhat of an arms race,” he said.

The auto industry will be in a heavy investment cycle over the next few years as manufacturers redesign vehicles to comply with ever-tougher greenhouse gas emissions limits, and consumer demands for enhanced connectivity to entertainment and data.

GM plans to pump up capital spending by 20 percent to $9 billion this year to pay for vehicle launches and investments in new technology. Historically, GM has spent about two-thirds of its capital outlay in North America and Chief Financial Officer Chuck Stevens said that would remain true going forward.

Buckingham Research analyst Joseph Amaturo said GM’s business remains strong, but said expectations for 2015 automotive free cash flow to be largely unchanged from last year were worrisome.

Barra used this week’s Detroit auto show to highlight one of her main themes - that GM is a technology leader, not the old company that tended to trail more innovative rivals. To underscore that point, Barra unveiled a prototype of the Chevrolet Bolt, an electric car that could launch within two years offering 200 miles of driving between charges and will have a starting price of just $30,000.

But analysts said they still worry about the “re-calcification” of GM’s bureaucracy.

“The broader challenge is just continuing to make a more nimble, responsive, less costly organization,” Barclays analyst Brian Johnson said.

Editing by Joe White and Matthew Lewis

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