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After the profit rises, the layoffs are 18,000. What is the logic of General Motors?

November 08, 2018 19:15
source: Gasgoo
edit:Eastern Fortune Network

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[After a big profit, layoffs 18,000. What is the logic of General Motors? The news released by GM appears to be at two extremes. At the end of October, the automaker reported a profit of $2.5 billion in the third quarter and a 25% increase in profit before tax. Then, the company revealed that it would impose buyout layoffs on 18,000 employees and warned against high costs.


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Is this the best period or the worst period?

The news released by GM appears to be at two extremes. At the end of October, the automaker reported a profit of $2.5 billion in the third quarter and a 25% increase in profit before tax. Then, the company revealed that it would impose buyout layoffs on 18,000 employees and warned against high costs.

Despite a 15% drop in global sales, GM, which strictly controls costs, still achieved a return on its performance in the third quarter: net income of $2.5 billion, nearly $3 billion in losses from sales to Europe, and $3.2 billion in pretax profit, up 25% year-on-year. Revenue reached $35.8 billion, up 6.4% year-on-year; global profit margin was 8.8%, while North America reached 10.2%.

GM, which has experienced the pain of bankruptcy, is cautious and wants to continue investing in electrification and autonomous driving technology, but this strategic plan is costly. Therefore, it is determined to ensure that there is sufficient funds to sustain these investment plans during the final economic downturn.

  General MotorsIn an email to the employee, CEO Mary Barra wrote: “In order to achieve the company's goals and win, we need to be more flexible and faster to market. We should come in adversity. Be prepared before, rather than letting the unfavorable situation happen to us."

Bola and Wall StreetAnalystPoint out that the difficulties have already appeared. GM's global sales are weakening, especially in the two traditional markets of China and the United States.

Bola details the internal and external conditions that companies must be prepared to deal with, such as trade policies and global economic conditions, which are beyond the company's control.

She said the company needs to cut structural costs and unnecessary investments to increase free cash flow, such as the planned renovation of the office building has been suspended because the project is expected to cost hundreds of millions of dollars.

  Different company

For this 110-year-old car manufacturer, the action and tone have once maintained a doctrine of financial chaos. However, this time, its initiatives are considered to be a positive response to the economic downturn and do not harm the future.

Bola and her executive team clearly understand how financial stress can threaten forward thinking. One of GM's technological breakthroughs, the Chevrolet Volt plug-in hybrid, was produced in the context of the internal financial crisis and the global credit crisis. The feasibility of this project was questioned before General Bankruptcy in 2009. She compared the current GM with the past.

And GM's rival Ford announced a $11 billion global restructuring plan in October, including a possible layoff plan, which it had previously promised to invest $740 million in Detroit's office park.

  Bank of AmericaMerrill Lynch research analyst John Murphy is in a copyresearch reportIt is written that Ford is "working hard to perform in a more challenging business environment."

As for GM, he said in a report that he has taken substantive action to get out of the bottom and is ready to stand out in this industry storm, and for other manufacturers, industry changes are causing serious damage to them. .

  Cost reduction is not over yet

The third quarter results of the two companies supported Murphy's assessment. Because of poor performance in China and other markets,FordRevenue fell 37%, GM's performance was significantly better than Wall Street's expectations, and China and North America were lucrative, despite a decline in sales.

Ford has postponed its global profit margin of 8% to 2020 (currently 4.4%), and GM's third-quarter profit margin reached 8.8%.

The cost reduction of GM is not over yet. General CFO Dhivya Suryadevara said after the release of the results, "We will pay close attention to cost, we will find more opportunities to eliminate system costs and maintain a balance of low revenue."

She said that GM will achieve the previously announced goal of achieving $6.5 billion in cost-effectiveness between 2015 and 2018. As the company announces its 2019 guidance plan, other goals or cost-cutting measures may follow. If the worker does not accept the buyout, there may be layoffs.

As planned, approximately 18,000 employees in North America and most global executives with 12 years of experience or more can take a buyout. They will not make a decision until November 19.

The cost reduction of GM's headquarters is also in the cost control plan, and this move may also be a more convincing reason for capacity reduction when negotiating a new contract with the US Auto Union next year.

GM's capacity utilization in the US is the lowest of all car manufacturers. Of the 12 assembly plants in the United States, 5 have three shifts, three have two shifts, and four have only one shift.

(Article source: Geshi Auto Network)

                (Editor: DF134)

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