General Motors is entering a new era under its next CEO, Mary Barra. Photo: General Motors.
General Motors (GM +0.10%) is trying its hardest to put its best foot forward as it transitions into a new era, one that looks to be a night-and-day change from the once troubled automaker's bankrupt past. Headline after headline make it clear to me that while its "Government Motors" stigma may linger, the company is making the right decisions to make sure it won't need another lifeline. Here are two recent examples.
GM pulls Chevrolet out of Europe
In a move that points to General Motors' acknowledgment that its attempt to sell Chevrolet as a value brand in Europe has failed, GM announced will no longer sell the vast majority of its Chevrolet lineup in Europe by the end of 2016. General Motors had thrown massive amounts of resources into marketing the brand and expanding its Chevrolet retail network. However, it ultimately wouldn't matter -- consumers had little desire to purchase Chevrolet vehicles. By pulling the plug and refusing to sink more resources into a brand that is outsold 6-to-1 by its Opel and Vauxhall brands, it's a move that will help General Motors turn around its massive losses in Europe.
The move will also help reduce vehicle overlap between GM brands and focus the company's restructuring efforts to return to profitability in Europe -- a step that will be a huge win for investors. However, the decision will weigh on General Motors' upcoming profitability with net special charges between $700 million to $1.0 billion that will land primarily in the fourth quarter of 2013.
In addition to removing Chevrolet in Europe, General Motors will now be focusing on taking its Cadillac success story into Europe. General Motors' luxury brand currently has almost no presence in Europe and the company will expand its distribution network over the next three years prior to numerous vehicle launches. Cadillac has been a big success story in the U.S. this year, with its sales surging nearly 22% year to date, far more than any other General Motors brand. Removing Chevrolet and introducing Cadillac is a great move for GM's turnaround story in Europe.
GM to end manufacturing in Australia
In another move in its ongoing actions to improve its global performance, General Motors announced it will discontinue vehicle and engine manufacturing and significantly reduce its engineering operations in Australia by the end of 2017. Roughly 2,900 positions will be affected between its Elizabeth vehicle manufacturing plant and its Holden's Victorian workforce.
The decision to significantly reduce its operations in Australia was cited as a "perfect storm of negative influences." That perfect storm includes the sustained strength of the Australian dollar, high cost of production, small domestic market, and one of the world's most competitive and fragmented automotive markets.
Holden, a GM subsidiary for more than eight decades, posted a loss of 153 million Australian dollars last year, and this is another long-term positive development for General Motors and its investors. Unfortunately, as with its Chevrolet pullback in Europe, it will come at a short-term cost. General Motors estimates it will record pre-tax charges between $400 million and $600 million in the fourth quarter of 2013.
Bottom line
These decisions will certainly dampen General Motors' short-term profitability, but are both positive developments for the company's long-term health. Ultimately, the decision to reposition its brands and restructure unprofitable situations seems like a no-brainer, but they may not have been moves made under GM's previous management. That's a very welcome change in management style from the once-troubled automaker.
In fact, when asked about important traits for the CEO position, Dan Akerson had this to say: "Have the humility and audacity to say, 'I made a mistake and back up and go down the other way.'"
Talking the talk and walking the walk are two different things, but GM's decision to pull out of Europe and reduce operations in Australia indicates the latter. Humility is a trait that if used more often could have saved General Motors from Chapter 11 roughly half a decade ago, and it's a trait that could keep it from ever having to do so again.
