How GM’s Restructuring In India And South Africa Can Raise Profitability GM has gone to great lengths to let
investors
know
that
its
restructuring is putting it on the road to greater profitability and sustainability.
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Many stock trading and investing decisions are driven by investor sentiment, and this sentiment is built on the opinion companies’ wish to project of themselves. Sometimes it’s not the sentiment that the companies wish to be associated with. In such scenarios, the company must go to great lengths to project itself in a positive manner. General Motors ($GM) wants to present itself to investors as a great investment opportunity. Here are the points that General Motors wants investors to know:
What GM Wants to Shout from the Rooftop The company management is looking to generate a ROIC (return on invested capital) that exceeds 20%. It wants to ensure an $18 billion average cash balance to continue investing in new technologies and products during the course of a recession when there could be a shrinking of profits. It wants to maintain investment–grade credit rating which it acquired following its bankruptcy in 2009. This will give it access to capital as opportunities arise. GM also wants to give investors the assurance that excess cash will be returned to shareholders.
Rising ROIC Focusing on ROIC is indeed a change of perspective for GM. The earlier focus was on sales, but that was before the company’s restructuring. Back then the company concentrated not on profitability, but sales and
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Market share. A great example of this restructuring is the sale of German brand Opel that was generating years of loss. Tough decisions such as these have paid off. The company’s ROIC in 2012 was 16%, but in 2016 and in 2017 it grew to around 30% which, GM claims, is a position at the top of the industry. This is the result of higher profit margins due to greater operating performance plus cutting investments in businesses that aren’t earning sufficient returns. Apart from the sale of Opel, this also involves plans to cut short its operations in India and South Africa – intensely competitive markets in which the company has been performing very poorly. In both the countries combined, the company only managed to sell 49,000 vehicles in 2016.
No More Chevrolet Marketing in India In India, GM had planned to invest $1 billion to launch a range of low-cost models based on the company’s Global Emerging Market (GEM) program, but continuing poor sales led to the plans being halted. GM isn’t closing its factory at Talegaon in India but will use it to manufacture vehicles for export. The plant in Halol is to be sold to China’s SAIC Motor Corp. GM plans to benefit from the low manufacturing costs of India to build vehicles for export.
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No More Chevrolet Manufacture in South Africa In South Africa, GM’s plans include stopping all manufacture of Chevrolet vehicles and the sale of its factory, and its 30% stake in a truck business, to Isuzu. The latter also agreed to buy out the 57.7% stake GM had in a Kenyan joint venture.
Focusing on China, North America, and South America GM also cut staff at its Singapore International Operations headquarters. The company has been looking to focus on China, where it’s doing really well, South America and the SUV and light truck market in North America that has proved to be really profitable. It also wants to concentrate on transportation services where autonomous vehicles could come into play. Vehicle financing is another area of focus. Understanding such announcements and information given out by companies regarding their outlook and profitability is an important part of trading education. The advanced trading software can also help you make the right decisions.
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