General Motors (GM) Stock Rises On New Strategic Plan

The share price of General Motors Co. (GM - Analyst Report) rallied 2.1% to $33.18 after the automaker announced a strategic plan intended to enhance customer benefits and boost growth. The company expects this strategy to position it better and enhance shareholders’ value. General Motors expects the plan enforcement to prove accretive to margins by 9–10% on an EBIT-adjusted basis by early next decade.

General Motors plans to launch new products and technology. The automaker also expects 27% of its global sales volume to come from new or remodeled products in 2015. The company further expects new vehicles to generate 38% of its global sales volume in 2016 and 47% in 2019.

In addition, General Motors will provide 4G LTE high-speed mobile broadband and vehicle-to-vehicle connectivity in the 2017 Cadillac CTS. It will also launch a highly automated driving technology known as Super Cruise, which permits extended periods of hands-free driving on highways.

General Motors also intends to establish its Cadillac brand as a separate business unit and revealed plans to extend the new Cadillac organization to New York with its new global headquarter in 2015. Setting up Cadillac as an individual unit will help General Motors capitalize on opportunities in the luxury automotive market and expand the brand’s presence outside North America. The initiative to launch a range of new Cadillac products is also likely to help the company achieve global growth.

It is expected that the Cadillac brand will introduce four vehicles in North America in 2015, including CT6. Cadillac also intends to launch nine models in China over the next five years.

General Motors is focused on the Chinese market, which is expected to become the world’s largest luxury vehicle market later this decade. The company’s joint ventures in China will be investing $14 billion in the 2014–2018 period to open five new vehicle-manufacturing plants and thus support sales of 5 million vehicles annually. In addition, the automaker will be introducing 60 new or remodeled vehicles, including nine new sport utility vehicles in the nation over the same time frame.

General Motors’ Financial segment is expanding continuously. The company is investing in this segment to support sales of new vehicles, trucks and crossovers around the world. The segment serves a wide customer base in the U.S, Canada, South America and Europe. The automaker also expects the segment to support sales in China later this year.

General Motors emphasizes on improving relationships with suppliers to deliver more volume while also saving on vehicle architecture and enterprise costs. This strategy is expected to generate better variable margins from the upcoming high-volume product launches. Meanwhile, the company intends to launch Opel/Vauxhall Corsa and Astra in Europe, and the Chevrolet Cruze and Malibu line in North America.

General Motors reaffirmed its financial targets and expects to achieve 10% adjusted EBIT margin in 2016 from North America. The company also expects to record profitability in Europe by 2016. Meanwhile, in China, net income margins are likely to be between 9% and 10%.

On the other hand, recent product launches and material and logistics optimization will boost results in South America. The company will also return excess cash to stockholders through dividend increases. However, General Motors faces considerable challenges in its operations outside China.

General Motors currently carries a Zacks Rank #3 (Hold). Better-ranked automobile stocks worth considering include SORL Auto Parts, Inc. (SORL -Snapshot Report), China Automotive Systems Inc. (CAAS - Snapshot Report) and Magna International Inc. (MGA - Analyst Report). While SORL Auto Parts and China Automotive Systems sport a Zacks Rank #1 (Strong Buy), Magna carries a Zacks Rank #2 (Buy).

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