© Reuters. FILE PHOTO: A mobile phone shows the OnStar app inside a Chevrolet Volt automobile on this photograph illustration taken in Encinitas
By Paul Lienert, Ben Klayman and Joseph White
(Reuters) – Pam Fletcher needs to vary the best way General Motors Co (NYSE:) makes cash.
The veteran GM engineer’s Global Innovation crew is searching for new enterprises to broaden the automaker’s sources of income nicely beyond automobile gross sales and is incubating ventures from industrial supply providers to automobile insurance coverage, to deal with future markets value an estimated $1.3 trillion. That would not embrace flying cars, a market sector that alone might be value $1.3 trillion, Fletcher informed Reuters.
On a latest video chat, Fletcher counted silently earlier than answering what number of ventures her crew is shepherding. “Just under 20,” she stated.
The incontrovertible fact that GM is now incubating its personal startups — with its company enterprise arm investing in dozens extra — underscores Chief Executive Mary Barra’s sweeping effort to remake the biggest U.S. carmaker. The purpose is to grow to be a diversified purveyor of mobility providers – the automotive equal of Apple (NASDAQ:), with income that rolls in month-to-month or quarterly from software program and providers lengthy after the preliminary product is offered.
For legacy automakers reminiscent of GM, Volkswagen (DE:) and others making an attempt to overtake and remodel their companies, that process is daunting, in accordance with Evangelos Simoudis, creator and adviser on company innovation technique.
“The applied sciences included within the software-defined automobile will require areas of experience that one routinely finds in expertise firms quite than in automakers,” he said.
Barra’s push to transform GM’s century-old business model is already having a significant impact – even though the first of a new generation of electric vehicles she has promised is still months from launch.
GM returned $24 billion to shareholders in dividends and stock buybacks between 2014, when Barra took over, and early 2020. But those buybacks were suspended indefinitely when the pandemic hit last spring.
Now, Barra told Reuters, the company has more productive uses for its money: Investing in electric vehicles and expansion of business lines that promise recurring revenue streams.
GM’s new ventures could add tens of billions to the future revenue, Barra said, and push operating profit margins above the current 8% it achieved in 2020, and the 10% it has targeted long term.
“We have very significant growth opportunities and different margin opportunity initiatives to invest in,” she said in a video interview.
Barra’s shift from stock buybacks to investing in recurring revenue services, coupled with a drive to make GM an all-EV company by 2035, has achieved in one year what a decade of cost cuts and cash returns to shareholders could not.
GM’s share price over the past six months has broken out of the range it was stuck in since the company’s post-bankruptcy IPO in 2010. GM shares hit a post-2010 high of $62.23 on March 18 and are up nearly 50% for the year.
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Still, GM’s $90 billion market cap lags Tesla (NASDAQ:) Inc’s $600 billion valuation by a wide margin, reflecting doubts among investors that a 113-year-old Detroit manufacturer can keep up with an 18-year-old Silicon Valley company that has no technology or workforce legacy burdens to slog through.
“I understand why people may be skeptical (of GM) because this is a company where we have seen revolutions being announced over the last half century and for some reasons it wasn’t authentic,” says Jeffrey Sonnenfeld, a dean of leadership programs at the Yale School of Management.
Barra, he said, “has the authenticity and legitimacy to drag it off in a method that loads of different individuals would not.”
Barra’s effort to remake GM’s business relies on an executive corps that mixes long-time GM managers like herself – Barra has worked at the company for 40 years – and recent recruits from outside the auto industry.
“We’re marrying people who really understand the auto business with people who understand these other businesses that we think are growth opportunities,” Barra said.
A new venture that combines several aspects of GM’s approach is BrightDrop, a unit that will provide electric vans and related hardware to commercial delivery firms, starting with FedEx (NYSE:), along with support services from fleet management to predictive analytics.
GM rival Ford Motor (NYSE:) Co is introducing its own electric delivery van and expanding support services to defend its leading share of the U.S. commercial vehicle market of more than 40%.
BrightDrop, one of the first “graduates” of Fletcher’s innovation incubator, started life less than two years ago as an idea initially dubbed Smart Cargo.
Fletcher’s team started incubating Smart Cargo in September 2019, about the same time another GM group was working on the company’s future electric vehicle portfolio. The “huge thought” – marrying an electric van with the software- and data-driven delivery services business – was hatched in February 2020.
The enterprise gained additional traction in late 2020, when GM recruited longtime tech entrepreneur Travis Katz to become BrightDrop’s president and CEO.
Ultimately, GM’s leadership wants BrightDrop to operate independently and cultivate “outdoors concepts and new methods of pondering,” Katz told Reuters.
“We anticipate BrightDrop to be a really huge and very worthwhile enterprise,” he added. Eventually, “there shall be loads of learnings from the BrightDrop expertise that may circulate again into GM.”
Barra also is building GM’s long-standing OnStar telematics business into a platform for selling insurance and other services that can be delivered over the air.
Santiago Chamorro, head of global connected services, has expanded OnStar’s safety and security portfolio with new products and services incubated in-house, including OnStar Insurance, mobile safety app Guardian and Vehicle Insights, a data analytics platform for commercial fleet managers.
Insurance, a new arena for GM, is led by outside hire Andrew Rose, who previously worked for auto insurance powers Progressive (NYSE:) and Britain’s Admiral Group (LON:).
Rose says GM sellers might provide insurance policies to homeowners after they purchase or lease a automobile. OnStar might provide reductions to raised drivers, in addition to faster claims service after an accident, and finally might provide residence insurance coverage as a part of the bundle.
GM has by no means damaged out OnStar’s monetary outcomes, and Barra will not say if or when the corporate will accomplish that.
“OnStar is already a very significant business,” she stated. “We think there are opportunities to grow it even out beyond our vehicles.”