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GM Reiterates Bright Outlook, But Must Address Korea

Analysts blame uncompetitive pricing for the Chevrolet brand in Korea, a result of the unit’s high manufacturing costs and low productivity from underutilized assembly plants.

Reporting another strong financial performance in 2017, a big loss-making accounting quirk notwithstanding, General Motors expects another solid year for the automaker in 2018 although it may be forced to sever or reduce its presence in additional global markets.

“GM begins this year as a stronger, more resilient company because of the decisive actions we have taken in the past few years to reshape our business, focus on higher return opportunities and invest in technologies that enable our vision of a future with zero crashes, zero emissions and zero congestion,” says GM Chairman and CEO Mary Barra.

“We plan to continue our momentum in 2018 and position the company to accelerate further in 2019,” Barra tells Wall Street analysts in a conference call to discuss the Detroit automaker’s $3.9 billion loss last year, which included a one-time accounting adjustment of $7.3 billion due to changes in the U.S. tax code.

Without the charge, GM earned $9.9 billion, or a record $6.62 per share since its 2009 bankruptcy. The automaker set multiple record financial marks in the period, including all-time-high North American margins of 10.7% despite declining volume.

Barra says a relatively strong lineup of fresh-looking CUVs and continued demand for GM’s stable of profitable pickups and SUVs were key drivers behind its 2017 performance. She expects the momentum to continue, with redesigned trucks arriving later this year for additional spark into 2019.

The redesigned ’19 Chevy Silverado and GMC Sierra large pickups will come to market with more variants to cover a wider swath of the market, include a greater number of upscale items for customers to choose and a broader availability of hugely popular crew-cab models. GM unsuccessfully tapped the full potential for crew-cab sales with the previousgeneration of large pickups.

The Silverado and Sierra, as well as SUVs and heavy-duty models from the two brands off the same architecture, will have greater differentiation than before, GM says.

GM sees a $2 billion revenue opportunity from those enhancements on light-duty trucks alone.

However, entirely smooth sailing may not lie ahead. GM last year sold its long-struggling Opel and Vauxhall brands to PSA Peugeot Citroen, a bold action almost entirely removing the automaker from Western Europe after more than a century. GM now must address a similar situation brewing in Asia, where its Korean operations are slumping badly.

“In Korea, we’ve had recent discussions with key stakeholders regarding the need to improve Korea’s financial and operational performance,” says GM Chief Financial Officer Chuck Stevens. “As we strategically access our performance, additional restructuring and rationalization actions may be required. More to come on this topic as we move through the year.”

GM Korea domestic sales fell 26.6% last year compared with 2016 and started the new year off 34% from year-ago. Exports to other countries, which account for the lion’s share of GM Korea’s business, tumbled 6%. Analysts blame uncompetitive pricing for the Chevrolet brand, a result of the unit’s high manufacturing costs and low productivity from underutilized assembly plants.

Those sorts of imbalances recently have prompted GM to pull from unprofitable markets and vehicle segments, actions it historically has been reluctant to take.

“We have a track record of demonstrating that we are going to look at segments, regions and/or countries and our ability to generate the right returns over a long period,” Barra adds.

“Clearly, Korea is a challenge for us. We have a strong presence there. We have grown market share (and) the Chevrolet brand has done well, but the current cost structure has become challenging and we are going to have to take actions going forward to have a viable business.”

Barra says GM also is examining its position within other markets of its international operations, which excludes China, and could take actions in those that could impact its finances.

“But Korea is the one we are most focused on,” Barra says.

GM expects its international operations to post continued improvement this year, due mostly to South America, where macro-economic conditions in key countries such as Brazil are stabilizing.

GM’s China unit saw record sales, a favorable mix and efficient cost performance in 2017, the automaker reports, and expects those factors to continue to offset pricing pressure this year.

GM’s global market share last year fell to 10.2% from 10.8% in 2016, with the automaker’s wholly owned brands and joint-venture models selling 8.92 million units compared with 8.85 million in 2016.

Barra says GM remains on track regarding its autonomous-vehicle development, where it wants to soon reach 1 million miles (1.6 million km) of data collected per month as the automaker progresses toward a near-term goal of deploying a ride-sharing fleet of self-driving cars in 2019.

GM’s long-term vision of zero crashes, zero emissions and zero congestion also includes a heavy dose of electric vehicles. The rollout begins with 20 new EVs across multiple vehicle segments and markets in the next five years.

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