Last month General Motors (NYSE:GM) reported earnings of $945 million for the first quarter not meeting the expectations of Wall Street. Its stock dropped 3% after the report and has decreased further. So now look at the underlying factors which might provide you a good insight to go for GM stocks.
Growth opportunity for GM
Six years after coming out of bankruptcy, GM has shown good progress in terms of profitability and has shown strong balance sheet with improved credit ratings. Moreover, in the next five to seven years, the company’s profits are expected to jump significantly.
Even though GM’s (NYSE:GM) performance has improved but it still has to work hard to achieve its full potentials. Last year GM earned $9 billion before taxes and interest, however, in comparison its closest competitors made much more like Volkswagen Group reported operating profit of $14.3 billion while Toyota (NYSE:TM) earned a colossal $22.6 billion in profits. Despite this big gap in profits, Mary Barra CEO of GM is confident of a turnaround using this factor as opportunity.
CEO Barra’s Strategy
GM’s team lead by CEO Barra has chalked out a plan to increase the profitability to challenge VW and Toyota. The plan is to increase pre-tax profit margin of GM (NYSE:GM) between 9-10% from current 5.8% by initial years of next decade. Following are some of the vital elements of her plan.
- GM is investing heavily in new products and trying to achieve technological advancement to boost fuel economy. Similarly company is also focusing on self-driven electric and hybrid cars with the aim to catch up other market players in this area.
- GM understanding the future of luxury cars is working to make its Cadillac a top model at least in prestige if it cannot meet the sales volumes of other luxury brands like BMW. GM has invested $12 billion on new versions and old brands upgrades and is trying double the sales of Cadillac to 500,000 units by 2020.
- After VW, GM already maintains the second heavy presence in China and along with its Chinese counterparts is investing $14 billion on five additional factories and launching 60 models including refurbished ones.
- GM is working to make its GM Financial a main profit center in the world as it is showing rapid growth in North and South America and has also made its entry in China last year.
- Operating efficiencies of the company is being enhanced as the management is improving its marred relations with its vital suppliers. The aim is to decrease engineering costs through a good inventory of shared parts among GM’s vehicles, improve economies of scale and quality of products in coming years.
No doubt GM (NYSE:GM) has made significant progress after coming out of bankruptcy in 2009 and the company is now lead by those key executives which took it out of turmoil. Barra was global product chief of GM in 2011 and had overhauled the company from its inefficient and costly product development system thus saving $1 billion each year. Similarly there is a marked improvement in GM’s financial discipline and controls. GM CFO Chuck Stevens boasts of unprecedented financial controls especially for overseas operations.
As a result, Wall Street players have registered these improvements in GM (NYSE:GM) and hence the investors who would be going for GM’s stocks are likely to appreciate their decision after five to six years.