GM shifts from bigger is better to less global, more profitable

Mon Mar 6, 2017 10:45am EST
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By Joseph White

DETROIT (Reuters) - General Motors Co’s (GM.N: Quote) deal on Monday to sell its European operations to France's PSA Group (PEUP.PA: Quote) doubles down on a bet that the company can win by being less global but more profitable in an auto industry increasingly dependent on software and services.

Without the German Opel and British Vauxhall brands, GM last year would have sold about 8.8 million vehicles, far behind Germany's Volkswagen AG (VOWG_p.DE: Quote) and Japan's Toyota Motor Corp (7203.T: Quote) in the race to be the world's largest automaker.

Opel and Vauxhall combined sold nearly 1.2 million vehicles and generated $18.7 billion in revenue in 2016, about 11 percent of GM's total.

However, all of GM's activity in Europe - the investments in new model designs and cleaner engines, the efforts to make factories more efficient and the wages paid to 38,000 employees - has generated nothing but losses since 1999.

GM said on Monday that if it had not had Opel last year and had instead used the $2 billion shedding the unit will free up from its cash reserves to buy back stock, earnings per share would have risen 5 percent, even though revenue would have been 10 percent lower.

Meanwhile, business in North America has boomed. GM's home market operations were reborn as a smaller company due in part to the U.S. government-led bankruptcy in 2009, with fewer brands, fewer dealers, fewer employees and far less money owed to creditors and retirees.

Since 2009, cheap gasoline has powered a boom in sales of high-profit pickup trucks and sport utility vehicles, lifting GM's North American pretax profit margins to just above 10 percent in 2016.

To keep the North American profit machine revved up, GM must invest in new SUVs and trucks, as well as expensive technology to enable them to meet rising federal fuel economy targets.   Continued...

Mary Barra, chairwoman and CEO of General Motors, discusses the future of the auto industry and the state of the U.S. economy in Washington, DC, U.S. February 28, 2017. REUTERS/Yuri Gripas