General Motors' (GM, Financial) weak performance in Asia and South America for the fourth quarter resulted in its stock's decline of almost 12%, and overall the performance has been disappointing this year. But, the company’s plan of investing $1.1 billion to shore up operations in Europe and South America, as quoted by CEO Mary Barra who expects an improvement in GM’s performance in the next quarter with this investment. But, there is a big question mark of whether GM can stage a comeback in the wake of stiff competition from Ford (F, Financial).
Earnings Performance
General Motors’ fourth quarter net profit rose 2% from last year. There was a 3% increase in the revenue from the previous year in North America, while it rose 11.4% in China due to record sales of more than 3 million vehicles. A year-over-year improvement was seen in Europe in the second half. A slight increase in the GM’s quarterly revenue from $39.3 billion to $40.5 billion resulted in an increase in its earnings which amounted to $0.57 per share.
Improvement Areas
There are several areas for improvement in GM where it has to focus on improving its performance in the future, although it performed well in certain regions. GM is still facing pressure from markets such as the Middle East, India and South East Asia. After shutting down the Chevrolet brand in the European market, it is now planning to close down the brand in Australia as well as a part of its restructuring strategy to improve its performance in the future.
GM is targeting to improve its profitability worldwide by focusing on various segments. It is launching 15 new models in the U.S., which should help GM in improving its position in the market. Out of these GM is focused on launching 15 new models in the U.S. that includes four high volume trucks and SUVs, which should help GM tap the pick-up truck market in the U.S. Moreover, the company’s pick up trucks are quite famous among the population in the U.S. with Chevrolet Silverado awarded the Best Pickup Truck of 2014 by Cars.com.
But, this strategy is not enough owing to stiff competition from peers. Its competitors Ford and Dodge have introduced higher incentives for a customer that is hurting GM truck sales. Hence, the company ought to face some difficulty in growing sales in such a competitive environment.
Competition
The toughest competitor of GM is Ford’s F-Series trucks that have been best-sellers in the U.S. for 37 years. GM’s Silverado and Sierra sales declined 16% and 4.6%, respectively in December. However, Ford’s F-Series sales went up 8.4%. Similarly, the January sales of the F-Series were almost flat while the Silverado and Sierra sales went down 18.4% and 13.5%, respectively. But in order to counter Ford’s competition (which revealed an almost aluminum-made F-150 in January) and improving fuel efficiency, GM is looking at innovative moves such as building an aluminum-bodied pick-up truck by 2018.
Negative Points
There are certain negative feelings in the mind of customers regarding quality troubles in GM’s cars or trucks. One of them is the problem of faulty ignition switches in GM cars. The scary news of six people having been killed in GM cars with faulty ignition switches might drive away a few customers.
The company's response of calling back 780,000 older models of its compact cars might not prove to be enough as this would definitely give an advantage to its competitors such as Ford and Chrysler to capture the loosened consumer confidence in GM’s vehicles.
GM is focused on improving its operations through a restructuring strategy by investing $1.1 billion in Europe and South America. GM, with its Cadillac and Chevrolet brands, is also focusing on China being one of the largest automotive markets in the world.
Conclusion
Despite GM’s declining performance, many analysts are positive on the company’s future prospects. The PEG ratio indicates GM is a good investment as of now, but the trailing P/E shows GM to be more expensive than Ford. Ford’s aggressive marketing strategies ought to hurt GM’s future prospects.
GM is a disappointing stock for investors to invest in as of now owing to the negative vibes in the market for the GM brand although analysts expect it to be a profitable investment venture in the future, but Ford is obviously a better investment option. Hence, investors must put the stock on hold and watch it for quite a while unless there are concrete signs that the company is gaining share and its operations are improving.
