By Jeff Bennett
General Motors Co. on Wednesday gave investors a glimpse of just
how expensive it will be to invest in the future while still trying
to wipe away the sins of the past.
The Detroit auto giant, presenting at an automotive conference,
laid out plans to boost capital expenditures by 20% to $9 billion
in 2015 even as it expects to pay out $1.2 billion in vehicle
recall costs. GM expects to boost profits this year, but
investments needed to create new products and pay for quality
problems will cap free cash flow, with GM projecting it will be
"relatively flat" with 2014.
The outlook is a setback for investors looking to benefit from
GM's recent fortunes via fatter dividends or stock buybacks. Strong
U.S. demand for trucks and SUVs lined the auto maker's pockets in
2014, with North American operating margins at 9.5% in the most
recent quarter, and GM Chief Financial Officer Chuck Stevens said
last year's results--to be reported in February--were "much better"
than what had been expected at the start of the year.
Operating profit should outpace the $8.6 billion earned in 2013,
helping pad GM's available liquidity of $36.6 billion.
Chief Executive Mary Barra, however, has a laundry list of
costly initiatives on her agenda. She told investors Wednesday the
company is "demonstrating a new resiliency within the company
across the board," but also reminded Wall Street "we have to invest
in the brands."
At the Detroit auto show this week, the executive showed off the
Chevrolet Bolt electric car, slated for 2017 with a $30,000 price
tag. To date, electric-car ventures have been unprofitable. GM will
also plow $12 billion over the next five years into the sagging
Cadillac division, which has fallen behind German competitors and
needs eight new models to better play in the U.S. and China.
The investment strategy underscores Ms. Barra's desire to go on
the offensive and grow geographically as well as in market share.
Her challenge reflects the hurdle faced by crosstown rival Ford
Motor Co. Though profitable, Ford also faces considerable costs
related to quality and pursuing growth.
GM fortunes reflect a global auto industry at a crossroads. Dan
Ammann, GM's president, noted during the conference that "almost
every auto maker around the world is making money...we don't see
that very often."
GM expects global auto-industry sales to increase 3% to 89
million vehicles in 2015.
Even with growth, these auto companies face rising costs related
to regulation. In the U.S., for instance, lawmakers are pushing car
makers to make light vehicles more fuel efficient, which can add
thousands of dollars in costs for each automobile coming off the
assembly line. Customers are also demanding fresher product lineups
and new features, including self-driving functions, further driving
up costs.
GM shares slipped 2.8% late in Wednesday's trading session,
rebounding from deeper declines earlier in the day. Buckingham
Research analyst Joe Amaturo said he believes, even with higher
expenditures and recall costs, that GM "has the financial
wherewithal (given sizable net-cash balance sheet) to increase the
dividend as well as institute a share repurchase program later this
year."
Mr. Stevens, however, said the company had no plans for such a
move at this time.
Write to Jeff Bennett at jeff.bennett@wsj.com
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