CEO Mary Barra bets that GM can grow beyond cars and trucks

(Reuters) – Pam Fletcher wants to change the way General Motors Co makes money.

Veteran GM’s global innovation team is looking for new businesses to expand the carmaker’s sources of revenue beyond vehicle sales and incubates businesses from commercial delivery services to vehicle insurance to address future markets worth about $ 1.3 trillion. That doesn’t include flying cars, a market sector that alone could be worth $ 1.3 trillion, Fletcher told Reuters.

In a recent video conversation, Fletcher counted in silence before answering how many initiatives her team is shepherding. “Just under 20,” she said.

The fact that GM is now incubating its own startups – with its corporate investment arm investing in dozens more – underscores CEO Mary Barra’s complete effort to rebuild the largest US automaker. The goal is to become a diversified provider of mobility services – Apple’s automotive equivalent, with monthly or quarterly revenue from software and services long after the sale of the original product.

For older carmakers such as GM, Volkswagen and others trying to overhaul and transform their businesses, this task is daunting, according to Evangelos Simoudis, author and advisor on corporate innovation strategy.

“The technologies embedded in the software-defined vehicle will require areas of expertise that we typically find in technology companies, rather than in automakers,” he said.

Barra’s effort to transform GM’s century-old business model is already making a significant impact – even if the first of a new generation of electric vehicles it has promised is still a few months away from launch.

GM returned $ 24 billion to shareholders in dividends and share buybacks between 2014, when Barra took over in early 2020. But those buybacks were suspended indefinitely when the pandemic hit last spring.

Now, Barra Reuters said, the company has more productive uses for its money: investing in electric vehicles and expanding business lines that promise recurring revenue streams.

GM’s new projects could add tens of billions to future revenues, Barra said, and push operating profit margins above the current 8% it achieved in 2020 and its 10% long-term target.

“We have very significant growth opportunities and various margin initiatives to invest,” she said in a video interview.

Barra’s move from share buybacks to investments in recurring revenue services, along with efforts to make GM an electric vehicle company by 2035, has achieved in a year what a decade of cost reductions and cash returns for shareholders could not.

GM’s share price over the past six months has been out of range since the company’s post-bankruptcy IPO in 2010. GM shares reached a post-2010 high of $ 62.23 on March 18 and increased by almost 50% for the year.

For the chart, click tmsnrt.rs/3cTW7cJ

However, GM’s $ 90 billion market cap remains by a wide margin of Tesla Inc.’s $ 600 billion valuation, reflecting doubts among investors that a 113-year-old Detroit-based manufacturer may keep up with an 18-year-old Silicon Valley company that has no technology or manpower. the burdens inherited to get over.

“I understand why people may be skeptical (of GM), because this is a company where we’ve seen revolutions announced in the last half century, and for some reason it hasn’t been genuine,” says Jeffrey Sonnenfeld, dean of leadership of the Yale School of Management.

The bar, he said, “has the authenticity and legitimacy to take it out in a way that many other people would not.”

Barra’s effort to rebuild the GM business is based on an executive body that mixes long-time GM managers like her – Barra has worked for the company for 40 years – and recent recruits from outside the auto industry.

“We are marrying people who really understand the car business with people who understand these other businesses that we believe are opportunities for growth,” Barra said.

A new business that combines several aspects of GM’s approach is BrightDrop, a unit that will supply electric vans and hardware to commercial delivery companies, starting with FedEx, along with fleet management support services and predictive analytics.

GM rival Ford Motor Co is introducing its own electric delivery van and expanding support services to defend its leading share of over 40% of the US commercial vehicle market.

BrightDrop, one of the first “graduates” of the Fletcher innovation incubator, began life less than two years ago as an idea originally called Smart Cargo.

The Fletcher team began incubating Smart Cargo in September 2019, at about the same time as another GM group was working on the company’s future electric vehicle portfolio. The “big idea” – the marriage of an electric van with the business of software and data delivery services – was created in February 2020.

The company gained additional traction in late 2020, when GM recruited longtime technical contractor Travis Katz to become president and CEO of BrightDrop.

Ultimately, GM’s management wants BrightDrop to operate independently and cultivate “outside ideas and new ways of thinking,” Katz told Reuters.

“We expect BrightDrop to be a very large and very profitable business,” he added. Finally, “there will be a lot of learning from the BrightDrop experience that will return to GM.”

Barra is also building GM’s long-running OnStar telematics business into a platform that sells insurance and other services that can be delivered over the air.

Santiago Chamorro, head of global connected services, has expanded OnStar’s security and safety portfolio with new products and services embedded internally, including OnStar Insurance, the Guardian mobile security application and Vehicle Insights, a data analysis platform for merchant fleet managers.

Insurance, a new arena for GM, is led by external employee Andrew Rose, who previously worked for Progressive car insurance powers and the UK Admiral Group.

Rose says GM dealers could offer policies to owners when buying or renting a vehicle. OnStar could offer discounts to better drivers, as well as faster compensation services after an accident, and finally, it could offer home insurance as part of the package.

GM has never disclosed the financial results of OnStar and Barra will not say if or when the company will do so.

“OnStar is already a very significant business,” she said. “We believe there are opportunities to develop it even beyond our vehicles.”