GM to Increase Capital Expenditures to $9 Billion This Year--Update

By Jeff Bennett 

General Motors Co. intends to boost its capital expenditures by 20% this year as it looks to grow its luxury brand, improve its overall vehicle portfolio and respond to regulatory demands.

The auto maker on Wednesday outlined a plan at an automotive conference to spend as much as $9 billion over the next 12 months--the highest amount the company has spent since emerging from bankruptcy in 2009. GM Chief Financial Officer Chuck Stevens said the company intends to plow the money into the development of more Cadillac models while improving the current offerings such as the Chevrolet Malibu.

The 2015 investment strategy underscores a stark turning point for the auto maker as it now looks to go on the offensive and grow, bolstered by a surety the North America profit margins will continue to rise and its European operations will return to profitability next year. Declining recall costs will also help its financial picture. The company spent $3 billion on recall costs through the third quarter. It hasn't yet provided a full-year figure.

"I think we are demonstrating a new resiliency within the company across the board," GM Chief Executive Mary Barra said Wednesday during an automotive analyst conference in Detroit. "We have to invest in the brands but remain disciplined."

For example, the company intends to plow $12 billion over the next five years into the Cadillac brand alone to add eight models to the portfolio while accelerating its sales in China. The company still anticipate global Cadillac sales to exceed 500,000 vehicles annually by 2020. Meanwhile, GM is also working on bringing an all-electric powered vehicle to the U.S. market in 2017. The car would travel 200 miles on one charge.

Overall, GM expects its total operating profits and operating profit margins to increase this year compared with 2014 after adjustments for recall costs. The company also anticipates improved automotive results in all regions. Mr. Stevens declined to provide details on the auto maker's 2014 results ahead of the release of its fourth-quarter earnings in February. However, Mr. Stevens said the results were "much better" than what had been expected at the start of the year. GM earned an operating profit of $8.6 billion in 2013.

The auto maker's 2016 targets remain on track with a return to profitability in Europe and operating profits in North America of 10%. Global automotive sales to increase 3% to 89 million vehicles this year while its market share remains flat.

While growth is slowing, this year begins the acceleration of what GM sees as an increasing share of growth coming in both emerging markets and mature markets, but slowing growth in China. Between 2000 and 2014, China was responsible for 72% of the industry's growth and 42% came in emerging markets. Mature markets were a negative 14% during the period. Between 2015 and 2030, emerging markets will deliver 55% of the growth, China 33% and mature markets will return to a positive contributor, delivering 12% of the market's growth.

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