General Motors Co (GM.N) Chief Executive Officer Mary Barra's deal on Monday to return up to $10 billion to investors is a career-defining bet that she can reverse the automaker's history of doubling down on money-losing products and failed expansion strategies.
The linchpin of the strategy GM outlined to buy back $5 billion worth of shares and distribute another $5 billion in dividends to shareholders by the end of 2016 is a vow that the company will generate 20 percent or better returns on cash invested in new vehicles, advanced technology and other capital projects.
The automaker also said it will be more open than ever about how it keeps score on investments. GM disclosed on Monday that it had $44.9 billion in invested capital, or net assets, at the end of 2014, and generated $9.3 billion in adjusted earnings before interest and taxes for a ROIC of 20.8 percent. GM executive pay will be tied closely to the return target.
To hit the 20 percent mark, GM must make good calls on new models or new markets more consistently than in the past. It also must pull the plug more rapidly on strategies that fall short.
During the years leading up to its bankruptcy in 2009, GM tolerated chronic red ink in North America and Europe, nursed along flops such as the Pontiac Aztek and pumped up U.S. market share through unprofitable sales to rental fleets.
Monday's agreement commits GM to disclosing to investors on a quarterly basis how its return on capital stacks up to the 20 percent target, a mechanism that should give investors clear warning of a return to old ways.
Already, Barra and her senior executives are showing less patience with losers.
An overhaul of internal financial controls led by President Dan Ammann has given GM executives more detailed data than ever about the profitability of specific models or marketing strategies.
"Better tools give you better transparency that gives you better decisions," Ammann told Reuters on Monday.
Among the results: GM's decision last month to stop building cars in Indonesia after more than 70 years of trying, and largely failing, to make money in that developing market of 240 million people. That move followed the 2013 decision to shutter manufacturing operations in Australia, and a separate call to pull the Chevrolet brand out of Western Europe.
The return on capital target will also influence product decisions, both pro and con. GM's decision to re-enter the market for smaller pickup trucks in the United States so far seems like "a very good investment," Ammann said.
Investors in the auto industry understand that "good bets and bad bets take some time to manifest," he said.
More tough calls lie ahead. Ammann said GM faces a "very challenging" situation in Russia, where it is reviewing possible steps in response to troubles in that once-promising market.
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