GM stock drop shows Barra's challenges go far beyond recalls

Mary Barra: "We are all working on this as well our other initiatives to keep moving the company forward, and I'm very confident that we are and will continue to."
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DETROIT (Bloomberg) -- Less than three months into her tenure as General Motors Co. CEO, Mary Barra has more than recalls to worry about.

GM shares are down almost 14 percent since Barra took the helm Jan. 15 through Tuesday, while the Standard & Poor’s 500 Index has risen.

Within weeks of taking the helm, Barra, 52, began recalling 1.6 million small cars with faulty ignition switches tied to 12 deaths. Her challenges also include stemming losses in Europe, navigating currency fluctuations in South America, buffering Volkswagen AG’s advances in China, and managing a slow start to 2014 sales in the U.S. where a bitterly cold winter hamstrung retail activity.

“The reason GM’s stock is down has more to do with the fundamentals” than the recalls, Matt Stover, an analyst with Guggenheim Securities LLC, said in a telephone interview. Ford Motor Co., facing similar industry headwinds, is down 6.5 percent through Tuesday. 

While GM has been looking to benefit from last year’s introduction of 18 new or refreshed vehicles in the U.S., deliveries of the redesigned Chevrolet Silverado full-size pickup fell 15 percent in the first two months of this year, compared with a year earlier. Cadillac, one of the market’s top-performing brands last year with a 22 percent increase, has seen sales slide 7.9 percent through February this year.

Europe losses

In Europe, GM wants to break even by mid-decade after losing more than $18 billion in the region since 1999. The automaker is pulling its Chevrolet brand from the region to better position its Opel line against Volkswagen. The U.S. company is also closing its assembly plant in Bochum, Germany, the first auto factory to be shuttered in the country since World War II.

The barrage of bad news is a reversal for Barra.

She was ushered into office on a tide of good will as the first female CEO of a global automaker, greeted by throngs of reporters at the Detroit auto show the week she took over and sitting with the first lady for President Barack Obama’s State of the Union speech. Former Secretary of State Hillary Clinton praised her appointment, saying Barra had broken the “steel ceiling” and Fortune magazine ranked her the most powerful woman in global business, quoting Warren Buffett as saying that he hoped she turn out to be the 21st century’s Alfred Sloan.

“She was the big star of the auto show,” David Whiston, an analyst with Morningstar Inc., said this week in a telephone interview. “A month after the auto show, there’s this huge crisis put on her plate.”

Back to Washington

Next week, Barra will return to Washington to face questions before a U.S. House hearing into why it took the automaker more than a decade to recall the 1.6 million vehicles with faulty ignition switches. In addition to the hearings GM faces an investigation by the National Highway Traffic Safety Administration, a slew of lawsuits and is the focus of a Department of Justice probe, a person familiar with that matter has said.

The low point for GM’s investors came March 14 when shares dipped to $33.57, the lowest price of the year. From March 11, when it was reported that the Justice Department had opened its probe, through March 14, GM shareholders lost $4.8 billion in equity value, said Stover, the Guggenheim analyst. He rates GM shares neutral.

GM’s slide, however, began before the recalls. After gaining 42 percent in 2013, the shares haven’t topped $39.77 since Barra became CEO on Jan. 15, according to data compiled by Bloomberg.

The share closed today at $34.22, down 29 cents or 0.8 percent.

Fourth-quarter investors were buying shares believing that GM’s new pickup would outperform, leading to higher than expected earnings and a share buyback, Stover said.

Overseas restructuring

GM delivered a 2014 forecast on Jan. 15 that predicted only modest growth this year, noting that improved performance in the U.S. and China would offset the costs overseas. GM is restructuring operations in Australia and South Korea while facing currency challenges in Russia and South America. Shares slipped 1.6 percent that day while Ford gained 1.8 percent.

Barra oversees a company with 219,000 employees worldwide and $155 billion in revenue last year that slipped from its spot as the world’s second-largest automaker by sales to No. 3 behind Volkswagen. Toyota Motor Corp. was No. 1. VW’s gains were helped by growth in China where the Wolfsburg, Germany-based company unseated GM as the top-selling foreign automaker for the first time in nine years.

GM, which plans to introduce 19 new or refreshed vehicles in China this year, wants to keep pace or be “slightly better” than industrywide growth in the country, which the company says may increase by as much as 10 percent.

CFO Chuck Stevens in February cautioned that GM faces increased risk of volatility in South America because of exchange rates. The automaker last year faced $1.4 billion in additional costs primarily related to South American currencies, he said.

“There are a lot of challenges right now,” Christian Mayes, an analyst with Edwards Jones & Co., said in a telephone interview. “It’s a lot on the plate for any auto CEO.” He rates GM a hold.

The announcement that Barra would become CEO came in December, the same week that the U.S. sold its final shares in the company, marking the end of the automaker’s bailout. Barra told reporters at the company’s headquarters last week that she first learned about an analysis of the stalling cars in December and that she was informed of the decision to recall cars on Jan. 31.

Recall response

The initial recall on Feb. 13 covered 778,562 Chevrolet Cobalts and Pontiac G5s. It was widened less than two weeks later by more than 800,000 additional vehicles.

GM’s response to the recalls has been received positively by analysts such as Brian Johnson of Barclays, who said management actions show a “proactive approach.”

“We see an attractive long-term entry point for the name given cheap valuation and excess liquidity,” he wrote in a note to investors this month. “That being said, it is not clear to us what gets the stock moving in the coming months.”

Johnson rates GM stock overweight. Of 23 analysts surveyed by Bloomberg, 78 percent say buy and 22 percent say hold.

Barra said that while she’s devoting time to the recall issue on a daily basis, she continues work on other priorities.

She said: "We are all working on this as well our other initiatives to keep moving the company forward, and I’m very confident that we are and will continue to."

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