General Motors Company (GM - Free Report) has announced that it decided to realign its manufacturing capacity and reduce salaried workforce in an effort to improve its business performance. A declining demand for combustion-engine based sedans impelled the company to halt auto production at the assembly plants in North America and reduce workforce.
From 2019, General Motors will stop production at three of its factories in North America that includes Detroit-Hamtramck assembly of Detroit, MI; Lordstown assembly of Warren, OH; and Oshawa assembly of Oshawa, Ontario. Further, some models that are currently being manufactured in these hubs will also be discontinued — including Chevrolet Cruze, the Chevrolet Volt hybrid, the Cadillac CT6 and the Buick LaCrosse. Nevertheless, the company will keep producing these models in Mexico to cater to markets outside North America.
Per Reuters, General Motors has numerous plants to manufacture a single car model, which places it in a difficult position in case a model production halts. Manufacturing several vehicle models at a single hub, like Japanese automakers, enables carmakers to cease a particular model production, without incurring any major change in the production lines.
General Motors Company Price and Consensus
Additionally, the company’s two powertrain component manufacturing hubs situated at Baltimore, MD and Warren, MI, don’t have any production assignments post 2019. Outside of North America, it will close two factories by the end of 2019.
Apart from decreasing the number of production plants, General Motors will also cut its global workforce. It will slash 15% of its salaried contract staff, which consists of 25% of executive ranks.
Per the company’s CEO, the actions will raise long-term profitability along with improved potential of cash generation. These decisions are projected to elevate annual adjusted automotive free cash flow by $6 billion by the end of 2020 and lower capital expenditure by roughly $1.5 billion. Additionally, General Motors will increase its investments for next-generation battery-electric architectures.
However, General Motors projects to record a pre-tax charge of $3-$3.8 billion for these actions in the near term. The impact of these charges will majorly be incurred in the fourth quarter of 2018 and the first quarter of 2019.
Over the past month, General Motors’ stock has gained 13.6%, outperforming 2.6% increase recorded by the industry it belongs to.
Zacks Rank & Other Key Picks
General Motors currently carries a Zacks Rank #2 (Buy). A few other top-ranked stocks in the auto space are Oshkosh Corporation (OSK - Free Report) , O’Reilly Automotive, Inc. (ORLY - Free Report) and Toyota Motor Corporation (TM - Free Report) , each carrying a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Oshkosh has an expected long-term growth rate of 14.6%. Shares of the company have increased 29.8% over the past month.
O’Reilly has an expected long-term growth rate of 15.7%. Shares of the company have rallied 6.6% over the past month.
Toyota has an expected long-term growth rate of 6%. Over the past month, shares of the company have gained 5.1%.
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