General Motors (NYSE:GM) lags behind its crosstown rival Ford (NYSE:F) in one major aspect: profitability. Despite being far ahead in global sales, GM couldn't top Ford's bottom-line income during its first-quarter report. That's mainly because Ford has worked tirelessly on fixing its bottom line by cutting costs in its global operations – and it's worked extremely well. GM is taking notes on Ford's success and has recently unveiled a state of the art $130 million data center that will be an information technology system to base its global decisions on. GM believes it will give the company what it needs to work faster and smarter to improve vehicle quality and profits. Let's look at why investors are excited and how much this could bring to GM's bottom line.
Better decisions equal better profits
Here's what GM Chairman and CEO Dan Akerson had to say in a press release: "Having a single nerve center for our global operations will get newer vehicle designs and technologies into our customers' hands quicker and improve the bottom line ... IT is back home where it should be, and it further drives unnecessary complexity from our businesses while improving our operational efficiency and better supporting our business strategy."
This is the first of two centers GM has planned, with construction on the second center scheduled to start this summer. Previously GM was spread too far and too thin with its outsourced IT centers numbering 23. According to GM officials, by 2015 it will cut the number of centers from 23 to two – bringing 90% of its IT work back home. GM plans to hire about 9,000 IT workers over three to five years as it utilizes its new U.S. centers.
That's good news for American jobs, as well as for cutting costs to improve margins and profits for investors. "When we started this journey, we were the most outsourced," GM Chief Information Officer Randy Mott told Automotive News. "I think we'll end on the side of being the least outsourced ... We're coming down kind of full swing back."
How much does it matter?
According to Automotive News, Akerson said the company was spending between $1 billion-$2.5 billion on IT services to back up and help its suppliers. Compare that to the amount of losses expected in Europe this year – roughly $2 billion. GM will see its profits surge when Europe losses subside, and IT cost-cutting measures take effect by mid-decade. That's a lot of bottom-line profits that will have a huge – and favorable -- impact on GM's stock price.
Motley Fool contributor Daniel Miller owns shares of Ford and General Motors. The Motley Fool recommends Ford and General Motors. The Motley Fool owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.