CEO Mary Barra is committed to GM being able to grow beyond cars and trucks

(Reuters) – Pam Fletcher wants to change the way General Motors Co. makes money.

The global innovation team of veteran engineer GM is looking for new companies to expand automotive revenue sources far beyond vehicle sales and incubates companies from commercial delivery services to vehicle insurance, to addressing future markets valued at $ 1.3 trillion. That doesn’t include flying cars, a market segment that alone could be worth $ 1.3 trillion, Fletcher told Reuters.

In a recent video chat, Fletcher quietly counted before answering how many companies keep his team. “Just under 20 years old,” he said.

The fact that GM is now incubating its own startups, with its corporate investment investing in dozens more, highlights the effort made by CEO Mary Barra to remake the largest vehicle manufacturer in the United States. The goal is to become a diversified provider of mobility services, Apple’s automotive equivalent, with revenue coming monthly or quarterly from software and services long after the initial product sale.

According to Evangelos Simoudis, author and advisor on business innovation strategy, this task is daunting for legacy carmakers like GM, Volkswagen and others trying to overhaul and transform their businesses.

“The technologies built into the vehicle defined by the software will require areas of expertise that are commonly found in technology companies rather than car manufacturers,” he said.

Barra’s drive to transform GM’s centennial business model is already having a significant impact, although the first of a new generation of electric vehicles it has promised is still months after its launch.

GM returned shareholders $ 24 billion in dividends and stock rewards between 2014, when Barra took control and early 2020. But those rewards 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 expanding business lines that promise recurring revenue streams.

GM’s new companies could add tens of billions to future revenue, Barra said, and increase operating profit margins above the current 8% reached in 2020 and 10% that has been targeted in the long run. .

“We have very important growth opportunities and different margin initiatives to invest in,” he said in a video interview.

Barra’s move from share repurchase to investment in recurring revenue services, along with the drive to turn GM into an all-EV vehicle company by 2035, has achieved in a year what it couldn’t do a decade of cost cuts and cash returns to shareholders.

The price of GM shares over the past six months has risen from the range it had been trapped in since the company went public after the bankruptcy in 2010. GM shares reached a post-2010 high of 62, $ 23 on March 18 and increased nearly 50% during the year.

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Still, GM’s $ 90 billion market capitalization lags by a wide margin of Tesla Inc.’s $ 600 billion valuation, reflecting doubts among investors that a 113-year-old Detroit manufacturer may keep up with an 18-year-old Silicon Valley company that has no technology or staff the inherited loads to clear them.

“I understand why people might be skeptical (of GM) because it’s a company where we’ve seen revolutions announced over the last half century and for some reason it wasn’t genuine,” says Jeffrey Sonnenfeld, dean of leadership of the Yale School of Management.

Barra, he said, “has the authenticity and legitimacy to get it in a way that a lot of people wouldn’t.”

Barra’s effort to redo GM’s business is based on an executive body that mixes longtime GM executives like her (Barra has worked at the company for 40 years) and recent recruits from outside the automotive industry.

“We marry people who really understand the car business with people who understand these other businesses that we believe are growth opportunities,” Barra said.

A new company that combines several aspects of GM’s approach is BrightDrop, a unit that will supply electric vans and related hardware to commercial delivery companies, starting with FedEx, along with support services from fleet management to predictive analysis.

GM’s rival, Ford Motor Co., is introducing its own electric supply van and expanding support services to defend its market share of the U.S. commercial vehicle market by more than 40%.

BrightDrop, one of the first “graduates” of Fletcher’s innovation incubator, began life less than two years ago as an idea initially dubbed Smart Cargo.

Fletcher’s team began incubating Smart Cargo in September 2019, almost at the same time as another GM group was working on the company’s future electric vehicle portfolio. The “big idea” (marrying an electric van with the program and data-based delivery services business) was created in February 2020.

The company gained quite a bit more in late 2020, when GM hired longtime tech entrepreneur Travis Katz to become president and CEO of BrightDrop.

Ultimately, GM’s leadership wants BrightDrop to operate independently and cultivate “external ideas and new ways of thinking,” Katz told Reuters.

“We expect BrightDrop to be a very big and very profitable business,” he added. Finally, “there will be a lot of learning from the BrightDrop experience that will return to GM.”

Barra is also building GM’s long-standing OnStar telematics business on a platform to sell insurance and other services that can be delivered by antenna.

Santiago Chamorro, head of global connected services, has expanded OnStar’s security and safety portfolio with new products and services embedded internally, including OnStar Insurance, the Guardian and Vehicle Insights mobile security app, a data analytics platform for commercial fleet managers.

Insurance, a new area for GM, is led by external contractor Andrew Rose, who previously worked for Progressive car insurance powers and the British group Admiral.

Rose says GM dealers could offer policies to owners when they buy or rent a vehicle. OnStar could offer discounts to better drivers as well as a faster claims service after an accident, and finally could offer home insurance as part of the package.

GM has never released the financial results of OnStar and Barra will not say if or when the company will.

“OnStar is already a very important business,” he said. “We believe there are opportunities to cultivate it even beyond our vehicles.”