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GM stock slump shows challenge for CEO Barra

By Tim Higgins
Bloomberg News

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Less than three months into her tenure as General Motors Co. chief executive officer, Mary Barra has more than recalls to worry about.

GM shares have dropped almost 14 percent since Barra took the helm Jan. 15 while the Standard & Poor’s 500 index has risen.

Within weeks of taking the job, Barra, 52, began recalling 1.6 million small cars with faulty ignition switches tied to 12 deaths. Her challenges also include stemming losses in Europe, navigating currency fluctuations in South America, buffering Volkswagen’s advances in China, and managing a slow start to 2014 sales in the U.S. where a bitterly cold winter hamstrung retail activity.

“The reason GM’s stock is down has more to do with the fundamentals” than the recalls, said Matt Stover, an analyst with Guggenheim Securities LLC. Shares of Ford, facing similar industry headwinds, are down about 6.5 percent.

While GM has been looking to benefit from last year’s introduction of 18 new or refreshed vehicles in the U.S., deliveries of the redesigned Chevrolet Silverado full-size pickup fell 15 percent in the first two months of this year, compared with a year earlier. Cadillac, one of the market’s top performing brands last year with a 22 percent increase, has seen sales slide 7.9 percent through February this year.

In Europe, GM wants to break even by mid-decade after losing more than $18 billion in the region since 1999. The Detroit-based automaker is pulling its Chevrolet brand from the region to better position its Opel line against Volkswagen. GM is also closing its assembly plant in Bochum, Germany, the first auto factory to be shuttered in the country since World War II.

The conditions mark a reversal of fortunes for Barra.

She was ushered into office on a tide of good will as the first female CEO of a global automaker, greeted by throngs of reporters at the Detroit auto show the week she took over and sitting with the first lady for President Barack Obama’s State of the Union speech. Former Secretary of State Hillary Clinton praised her appointment, saying Barra had broken the “steel ceiling” and Fortune magazine ranked her the most powerful woman in global business, quoting Warren Buffett hoping she would turn out to be the 21st century’s Alfred Sloan.

“She was the big star of the auto show [in January in Detroit],” said David Whiston, an analyst with Morningstar Inc. “A month after the auto show, there’s this huge crisis put on her plate.”

On Tuesday, Barra will return to Washington to face questions before a U.S. House committee hearing into why it took the automaker more than a decade to recall the 1.6 million vehicles with faulty ignition switches. GM also faces an investigation by the National Highway Traffic Safety Administration, a slew of lawsuits and is the focus of a Department of Justice probe.

After gaining 42 percent in 2013, GM shares haven’t topped $39.77 since Barra became CEO on Jan. 15, according to data compiled by Bloomberg.

Fourth-quarter investors were buying shares believing that GM’s new pickup would outperform, leading to higher than expected earnings and a share buyback, Stover said.

GM delivered a 2014 forecast on Jan. 15 that predicted only modest growth this year, noting that improved performance in the U.S. and China would offset the costs overseas. GM is restructuring operations in Australia and South Korea while facing currency challenges in Russia and South America.

Barra oversees a company with 219,000 employees worldwide and $155 billion in revenue last year that slipped from its spot as the world’s second-largest automaker by sales to No. 3 behind Volkswagen. Toyota was No. 1. VW’s gains were helped by growth in China where the German company unseated GM as the top-selling foreign automaker for the first time in nine years.

GM, which plans to introduce 19 new or refreshed vehicles in China this year, wants to keep pace or be “slightly better” than industrywide growth in the country, which the company says may increase by as much as 10 percent.

Chuck Stevens, chief financial officer, in February cautioned that GM faces increased risk of volatility in South America because of exchange rates. The automaker last year faced $1.4 billion in additional costs primarily related to South American currencies, he said.

“There are a lot of challenges right now,” said Christian Mayes, an analyst with Edwards Jones & Co. “It’s a lot on the plate for any auto CEO.” He rates GM a hold.

The initial recall covered 778,562 Cobalts and Pontiac G5s. It was widened less than two weeks later by more than 800,000 additional vehicles.

GM’s response to the recalls has been received positively by analysts such as Brian Johnson of Barclays, who said management actions show a “proactive approach.”


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