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; 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 V8 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 travelled 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 V8 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 V8 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 F-150 pickup, has already made the transition to V6 turbo engines - which now sell in larger volumes than its V8 trucks - along with aluminium body panels that reduce weight and boost fuel economy.DUAL AUDIENCES, MESSAGES
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 pre-tax profit margins to 9 to 10 percent by early in the next decade, and buy back $9 billion worth shares for the period 2015-2017.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 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. UNCERTAIN FUTURE
The Bolt is now a centrepiece 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 four-door Silverado pickups as family transportation. 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.” (Reporting By Joe White and Paul Lienert)
This story has not been edited by Firstpost staff and is generated by auto-feed.
Updated Date: Jan 10, 2017 03:45 AM