Pam Fletcher wants to change the way General Motors Co makes money. The veteran GM engineer global innovation team is looking for new companies to expand the automaker’s revenue streams far beyond vehicle sales and incubates businesses ranging from commercial delivery services to auto insurance, to address future markets worth an estimated $ 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 chat, Fletcher silently counted before responding to the number of businesses his team runs. “A little under 20,” she says.
The fact that GM is now incubating its own startups – with its venture capital arm investing in dozens more – underlines CEO Mary Barra’s massive effort to remake America’s largest automaker. The goal is to become a diverse provider of mobility services – the automotive equivalent of Apple, with monthly or quarterly revenue from software and services long after the initial product has been sold.
For traditional automakers like GM, Volkswagen and others trying to overhaul and transform their businesses, this task is daunting, according to Evangelos Simoudis, author and corporate innovation strategy advisor.
“The technologies embodied in the software-defined vehicle will require areas of expertise that are routinely found in technology companies rather than automakers,” he said.
Barra’s drive 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 away from launch. GM returned $ 24 billion to shareholders in the form of dividends and share buybacks between 2014, when Barra took over, and early 2020. But those buybacks were suspended indefinitely when the pandemic struck last spring. Now, Barra told Reuters, the company has more productive uses for its money: investing in electric vehicles and developing lines of business that promise recurring revenue streams.
GM’s new companies could add tens of billions of dollars to future revenue, Barra said, and push operating profit margins above the current 8% it reached in 2020 and the 10% it quits. ‘it aims for the 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 share buybacks to investing in recurring revenue services, coupled with a drive to make GM a fully electric company by 2035, has achieved in one year what a decade of reductions in costs and cash returns to shareholders could not.
GM’s stock price over the past six months has moved out of the range it had been stuck in since the company’s IPO following bankruptcy in 2010. GM shares hit a high of 62, $ 23 after 2010 on March 18 and is up almost 50% for the year. . Still, GM’s $ 90 billion market cap is well below Tesla Inc’s $ 600 billion valuation, reflecting doubts among investors that a 113-year-old Detroit maker could keep pace with a 18-year-old Silicon Valley company that has no technology or workforce. the inherited burdens to overcome.
“I understand why people can be skeptical (of GM) because this is a company where we have seen revolutions announced over the last half century and for some reason it was not genuine Says Jeffrey Sonnenfeld, dean of leadership programs at the Yale School of Management.
Barra, he said, “has the authenticity and legitimacy to be successful like a lot of other people wouldn’t.”
Barra’s efforts to rebuild GM’s business hinge on a management body that mixes longtime GM directors like herself – Barra has worked at the company for 40 years – and recent hires outside the auto industry. .
“We marry people who really understand the auto industry with people who understand these other companies that we think are growth opportunities,” said Barra.
A new company that combines several aspects of GM’s approach is BrightDrop, a unit that will supply electric vans and related equipment to commercial delivery companies, starting with FedEx, as well as support services ranging from fleet management predictive analytics.
GM’s rival, Ford Motor Co, is launching its own electric delivery van and expanding support services to defend its leading share of the US commercial vehicle market by more than 40%.
BrightDrop, one of the first “graduates” of Fletcher’s innovation incubator, was launched less than two years ago as Smart Cargo.
The Fletcher team began incubating Smart Cargo in September 2019, around the same time another GM group was working on the company’s future portfolio of electric vehicles. The “big idea” – to marry an electric van with software and data-based delivery services – began in February 2020.
The company gained popularity in late 2020, when GM recruited longtime tech entrepreneur Travis Katz to become president and CEO of BrightDrop.
Ultimately, GM 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. Ultimately, “there will be a lot of lessons from the BrightDrop experience that will come back to GM.”
Barra is also transforming 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, expanded OnStar’s safety and security portfolio with new products and services incubated in-house, including OnStar Insurance, the Guardian mobile security app and Vehicle Insights, a platform data analysis for commercial fleet managers.
Insurance, a new arena for GM, is led by Andrew Rose, who previously worked for insurance powerhouses Progressive and UK group Admiral.
Rose says GM dealerships could offer policies to owners when they buy or lease a vehicle. OnStar could offer discounts to top drivers, as well as faster accident claims service, and could potentially offer home insurance as part of the package.
GM has never released OnStar’s financial results, and Barra will not say if or when the company will.
“OnStar is already a very large company,” she said. “We believe there are opportunities to develop it beyond our vehicles.”
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