A TRANSFORMATION
Columnist Chris Tomlinson writes about GM chief Mary Barra’s big challenge.
General Motors CEO Mary Barra is taking on the biggest challenge any CEO can face: a wholesale transformation of a legacy company’s business plan.
Barra’s decision to lay off 14,000 workers, close five plants and phase out a product line has captured headlines and sparked the ire of President Donald Trump. But the more significant decision, the one that will define her tenure at GM, is to embrace a radically different view of the transportation industry.
Barra is betting GM’s future on ACES, an acronym for autonomous,
The Chevrolet Bolt is part of Mary Barra’s plan to transform GM.
connected, electric and shared vehicles. Most analysts believe that people will neither own nor drive cars in the future.
Every major automaker in the world shares this vision, but every CEO knows Wall Street judges him or her on quarterly earnings statements. The challenge is how to prepare for the future while maintaining shareholder value.
Among the biggest automakers, GM is leading the pack in embracing the future of mobility. Frequent readers know that I own a Chevrolet Bolt, a $30,000 electric car with a 230-mile range that beat Tesla’s Model 3 to market by more than a year.
GM also bought Cruise Automation, a leading developer of autonomous vehicle technology. The company is placing Cruise software and sensors in electric Bolts, with plans to launch an autonomous taxi service next year.
Developing that kind of technology is expensive, though, and the payoff comes only after commencing mass production, perhaps five or more years from now.
The first step must be getting rid of business segments that cut into profits. For GM, that was the small-to-midsize car market. Americans don’t want sedans anymore, so getting rid of Buick’s LaCrosse, Chevy’s Volt, Cruze and Impala, and Cadillac’s CT6 make sense.
Dumping those sedans from the product line also eliminates the need for their transmissions. Trump can complain all day about Barra shuttering the factories that make these products, but if Americans won’t buy them, GM is left with few options. Unlike China, the U.S. doesn’t keep outmoded factories open just to
maintain employment numbers.
The other key to transformation is maximizing profits from popular product lines. Americans love sport utility vehicles and crossovers. With low fuel prices, consumers are happy to buy these living rooms on wheels. They also boost GM profits.
Most important is resiliency. Chief executives must prepare for hard economic times, which means trimming costs and boosting revenues when times are good. The automobile business is highly cyclical, and Barra knows it is turning down.
The big question is whether Barra is acting too soon. Business schools are full of case studies where visionary CEOs are ahead of their time and end up failing.
David Crane, the CEO of NRG from 2003 to 2015, recognized that utilities needed to move away from fossil fuels and generate more electricity from renewable sources, especially wind and solar. He invested considerable sums in distributed solar generation and building a carbon capture facility at the coal-fired WA Parish power plant southwest of Houston.
At the time, I joined other pundits in calling Crane a visionary who was showing the world how an old-fashioned utility could adapt to fight climate change.
He was implementing the business plan of the future, but he was a couple of years too early.
Wall Street saw lost profits and a complicated business plan that muddied the company’s stock profile. NRG’s stock price dropped, and investors grew restless.
The NRG board ousted Crane and brought in a new CEO who sold off the renewable energy business, and took the company in a different direction.
“The thing I struggle with most in having gotten fired is that I thought my special contribution to the cause was showing how a fossil fuel company can become a green company, but by getting fired and not getting there, I’ve sent the opposite message: If you think you can transform your company and get rewarded for it — you can’t,” Crane told Greentech Media in 2016.
Could Barra lose her job before she transforms GM? That’s a real possibility. Being the first mover into a new business plan can give a company a huge advantage over the competition. But if GM stumbles, other automakers will learn from Barra’s mistakes and possibly surpass her.
The funny thing about transformation, though, is that companies don’t really have a choice. Every business must evolve or die.
Chris Tomlinson writes commentary about business, economics and policy. chris.tomlinson@ chron.com twitter.com/cltomlinson