Two faces of GM: Elec­tric for the city, trucks for the heart­land

The Daily Star (Lebanon) - - FEATURES & ANALYSIS - By Paul Lienert and Joseph White

DETROIT: Gen­eral Mo­tors Co. Chief Ex­ec­u­tive Mary Barra says of­ten that the auto in­dus­try will change more dur­ing the next decade than it has in the past half-cen­tury, as she high­lights how GM will keep up.

In 2016, it has in­vested nearly $1 bil­lion to buy a self-driv­ing car tech­nol­ogy startup, Cruise Au­to­ma­tion; in­vested $500 mil­lion into ride ser­vices com­pany Lyft; and launched a new car-shar­ing brand, Maven, and a new elec­tric car, the Chevro­let Bolt. The au­tomaker is also ex­pand­ing the ar­ray of ser­vices avail­able via the high-speed mo­bile in­ter­net con­nec­tions em­bed­ded in mil­lions of GM ve­hi­cles.

None of those high-pro­file moves, how­ever, are likely to have much near-term im­pact on the No. 1 U.S. au­tomaker’s bot­tom line.

For now and for years to come, GM will make money the way it did 60 years ago: By sell­ing large ve­hi­cles built on steel frames, with V-8 en­gines driv­ing the rear wheels.

In 1957, that tech­nol­ogy was sold as a Chevy Bel Air. To­day, it is pack­aged as a Chevro­let Sil­ver­ado pickup truck or a Cadil­lac Es­calade SUV.

The com­pany makes more than 90 per­cent of its prof­its, be­fore in­ter­est and taxes, in its North Amer­i­can auto op­er­a­tions.

The bulk of those prof­its come from sales of trucks and SUVs, an­a­lysts and com­pany ex­ec­u­tives said.

“That busi­ness model has worked and con­tin­ues to work,” GM Pres­i­dent Dan Am­mann told Reuters. “We be­lieve that model will keep go­ing, par­tic­u­larly in places where we are strong­est, for a long time.”

GM is pur­su­ing a two-pronged strat­egy, aimed at the in­creas­ingly di­ver­gent seg­ments of its home mar­ket. In big cities along the coasts, GM is widen­ing its ef­forts to cap­ture ur­ban con­sumers who are shift­ing away from tra­di­tional ve­hi­cle own­er­ship and some day may get around by sum­mon­ing self-driv­ing cars with a smart­phone.

“We’re at the very in­fancy of that,” Am­mann said.

Ride-shar­ing to­day ac­counts for less than 1 per­cent of all miles trav­eled in the United States. But if buy­ing rides by the mile takes off, it could be a “sig­nif­i­cant” op­por­tu­nity, he said.

Ear­lier this week, GM’s Cadil­lac lux­ury di­vi­sion launched in New York what it said was the in­dus­try’s first ser­vice al­low­ing cus­tomers to pay a monthly fee to drive any of the brand’s models.

GM has a dif­fer­ent plan for the heart­land – the red states that backed Don­ald Trump for pres­i­dent, where trucks and SUVs sell by the hun­dreds of thou­sands and elec­tric cars sell by the hun­dreds – or less.

GM is in­vest­ing bil­lions in U.S. fac­to­ries to ex­pand pro­duc­tion of large trucks and SUVs.

De­fend­ing the V-8 truck fran­chise is crit­i­cal to GM.

More than 90 per­cent of GM’s pickup trucks are sold with V8 en­gines, said Dan Ni­chol­son, head of the com­pany’s propul­sion sys­tems en­gi­neer­ing op­er­a­tions.

As of now, he said, GM does not have a V-8 that can com­ply with the 2025 emis­sions stan­dards – put in place by the out­go­ing Obama ad­min­is­tra­tion – with­out turn­ing off cus­tomers who like the trucks as the are.

The Al­liance for Au­to­mo­bile Man­u­fac­tur­ers, which in­cludes GM, is lob­by­ing the in­com­ing Trump ad­min­is­tra­tion to re­vise those stan­dards.

GM is mean­while work­ing on im­prov­ing the fuel ef­fi­ciency of its V8 en­gines, Ni­chol­son said, but cur­rent fuel econ­omy rules could force the com­pany to limit availability and raise the price of trucks equipped with the larger en­gines.

Ri­val Ford Mo­tor Co., with its F150 pickup, has al­ready made the tran­si­tion to V-6 turbo en­gines, which now sell in larger vol­umes than its V-8 trucks, along with alu­minum body pan­els that re­duce weight and boost fuel econ­omy.

GM’s dual mar­ket­ing strate­gies – one for the heart­land, the other for the coasts – will be on dis­play at the Detroit Auto Show this week.

The au­tomaker will fea­ture new SUV models in­clud­ing a large Chevro­let Tra­verse and a re­vamped GMC Ter­rain com­pact SUV.

On Chevro­let’s show stand, the elec­tric Bolt hatch­back will be pre­sented as one of the brand’s fam­ily of SUVs, along with the hulk­ing Chevro­let Sub­ur­ban.

At a sched­uled Jan. 10 pre­sen­ta­tion, GM also will have a dual mes­sage for in­vestors: Trucks make the money, and the in­vest­ments in al­ter­na­tives to that busi­ness are still mod­est and pose no threat to GM’s prom­ises of prof­itabil­ity. The au­tomaker has as­sured in­vestors it will boost pre­tax profit mar­gins to 9 to 10 per­cent by early in the next decade, and buy back $9 bil­lion worth shares for the pe­riod 2015-17.

The com­pany’s cur­rent re­sults need no ex­pla­na­tion, Amman told Reuters. “It’s a very strong per­for­mance,” he said.

For ur­ban cus­tomers, and an in­creas­ing num­ber of younger cus­tomers who are less in­ter­ested in car own­er­ship, GM is pre­par­ing al­ter­na­tives at a mea­sured pace.

The elec­tric Bolt il­lus­trates GM’s ap­proach. Tesla Mo­tors Inc. Chief Ex­ec­u­tive Elon Musk has said he in­tends to build 500,000 of his planned Model 3 elec­tric sedans an­nu­ally by 2020.

That would be about six times the num­ber of bat­tery elec­tric cars sold in the U.S. last year, based on data from the Elec­tric Drive Trans­porta­tion As­so­ci­a­tion, a trade group.

Sup­pli­ers have said that GM, by con­trast, plans to build about 20,000 to 30,000 of its Chevro­let Bolt elec­tric ve­hi­cles an­nu­ally.

Many are ex­pected to serve in Lyft ride-hail­ing fleets.

GM of­fi­cials have not said how many Bolts the com­pany will build.

But Mike Abelson, GM’s vice pres­i­dent for strat­egy and global port­fo­lio plan­ning, told Reuters that it will err on the side of build­ing too few rather than too many to suit con­sumer de­mand.

“We’d rather have the prob­lem of work­ing fast to in­crease vol­ume” than build­ing too many cars that lan­guish on dealer lots, he said.

The Bolt is now a cen­ter­piece of GM’s ef­forts to ap­peal to ur­ban au­di­ences, which in­cludes in­vestors on Wall Street and reg­u­la­tors in Cal­i­for­nia. The bulk of U.S. elec­tric car sales are in Cal­i­for­nia be­cause the state re­quires au­tomak­ers to de­liver an es­ca­lat­ing num­ber of “zero-emis­sion ve­hi­cles” each year.

Coastal dwellers buy a rel­a­tively small share of the gaso­line-pow­ered ve­hi­cles GM sells in the U.S.

The au­tomaker’s mar­ket share in Cal­i­for­nia is just 9.9 per­cent, com­pared to about 17 per­cent in the na­tion as a whole, ac­cord­ing to IHS Markit data.

“We’re 10 per­cent in San Fran­cisco. In New York, we’re be­low 7 per­cent,” said Ju­lia Steyn, head of GM’s new Maven ride ser­vices unit.

Maven is of­fer­ing short-term loans of GM ve­hi­cles in a grow­ing num­ber of cities where GM’s mar­ket share is be­low the na­tion­wide av­er­age. “We’re get­ting new cus­tomers,” Steyn said.

Com­pare GM’s Cal­i­for­nia mar­ket share to the 27.4 share, ac­cord­ing to IHS Markit, that GM en­joys in In­di­ana, where peo­ple buy four­door Sil­ver­ado pick­ups as fam­ily trans­porta­tion ve­hi­cles.

Maven has about 8,000 ve­hi­cles in its fleet.

GM sells more than eight times that many ve­hi­cles in a month.

Asked when Maven will be a sig­nif­i­cant con­trib­u­tor to GM’s rev­enues – cur­rently more than $150 bil­lion a year – Steyn laughed.

“Let me live un­til 2021,” she said. “I’ll tell you then.”

GM makes more than 90 per­cent of its prof­its, be­fore in­ter­est and taxes, in its North Amer­i­can auto op­er­a­tions.

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