GM can grow beyond cars and trucks, CEO claims

General Motors EV

Pam Fletcher wants to change the way General Motors Co makes money.

The veteran GM engineer’s Global Innovation team is looking for new enterprises to expand the automaker’s sources of revenue well beyond vehicle sales.

Fletcher is also incubating ventures from commercial delivery services to vehicle 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 says.

On a recent video chat, Fletcher counted silently before answering how many ventures her team is shepherding. “Just under 20,” she said.

The fact that GM is now incubating its own startups — with its corporate venture arm investing in dozens more — underscores Chief Executive Mary Barra’s sweeping effort to remake the largest U.S. carmaker.

The goal is to become a diversified purveyor of mobility services – the automotive equivalent of Apple, with revenue that rolls in monthly or quarterly from software and services long after the initial product is sold.

For legacy automakers such as GM, Volkswagen and others attempting to overhaul and transform their businesses, that task is daunting, according to Evangelos Simoudis, author and adviser on corporate innovation strategy.

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, 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.

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.

Still, GM’s $90 billion market cap lags Tesla 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.

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, along with support services from fleet management to predictive analytics.

GM rival Ford Motor 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%.