GM targets 10 pct. pretax profit margin by mid-decade, tells analysts of cost-cutting progress

DETROIT – Cost-cutting efforts and fresh new vehicles should help General Motors Co. boost its North American pretax profit margin to 10 per cent by the middle of this decade, company officials said Wednesday.

The North American profit margin — the amount of each dollar in revenue GM actually keeps — was 6.2 per cent in the first quarter. Crosstown rival Ford Motor Co.’s margin was 11 per cent for the same period.

CEO Dan Akerson told a group of analysts that efforts to cut administrative, manufacturing and product development costs, coupled with better prices from new products, should help the margins improve.

“This company is on the move again,” Akerson said during a daylong presentation about the company’s business plans at its proving ground in Milford, Mich., near Detroit.

Akerson also repeated that the company wants to break even in Europe by the middle of the decade, with profit margins in the single digits in South American and International Operations excluding China. For China, he said the company simply wants to grow profitably and take market share.

GM also is targeting a return to investment grade credit status in the near-term, Chief Financial Officer Dan Ammann said. Slides prepared for his presentation said investment grade could come “within the year.” The company has been working with credit rating agencies to raise its status from junk, where it’s been since 2005. Companies with investment grade ratings can borrow money at lower interest rates than those with junk status

Part of the margin improvement will come from savings by using the same parts on many vehicles, Senior Vice-President of Product Development Mary Barra told the analysts. The company also has moved parts suppliers closer to factories to cut shipping costs, and it’s building more models on the same underpinnings, she said.

Barra highlighted a few examples that showed GM’s progress — and how inefficient some old methods had become.

GM used to have 11 different air bag systems to protect drivers’ knees. But it’s moving to a single design that should cut costs 21 per cent by 2017, Barra said.

As an example of manufacturing cost cuts, Barra said GM parts suppliers had been shipping Chevrolet Malibu interior trim pieces more than 700 miles to GM’s main assembly plant for the car in Kansas City, Kansas. For the new generation Malibu, which came out last year, the company worked with three suppliers to move their operations close to the plant. As a result, Barra says GM will save $31 per car, or $66 million over the life of the new Malibu.

“We’re often finding as we work with suppliers we can pull these savings into products in a nearer term,” instead of waiting for the next generation of the car or truck, Barra said.

Also just three years ago, GM had 30 different sets of vehicle frames, which are called platforms in the auto business. That number will drop to 17 by 2018. Automakers can save billions by building more cars off the same platforms across the globe.

GM also can save money by trimming the number of parts supply companies it deals with around the globe, Barra said.

“We have an opportunity that we haven’t completely tapped,” she told the analysts. “It’s one of the quickest ways that we can improve our margins and add more value for the customer.”

GM spends about $6 billion a year on administrative expenses but can cut that by as much as 30 per cent, or roughly $1.8 billion, by making them more efficient, Ammann said.

Akerson said the savings will come from streamlining GM’s finance, human resources, facilities, real estate and purchasing operations.