Howes: GM aims to drive transformation, promising risk, disruption
General Motors Co. is acting like a company in trouble.
But it isn’t — and that’s what makes the automaker's pessimism so optimistic. Nearly 10 years after GM emerged from its historic bankruptcy, its leadership is pushing to manage both a looming shift to self-driving vehicles and an inevitable slowdown in the business cycle.
We don't usually do that in this town, where complacency in good times historically gives way to panic in slower times. But these aren't usual times at a GM led by executives with a very large chip on their collective shoulders. They have something to prove, a mantra boiled down to two words: never again.
The automaker's pushing to cut costs and tighten its business before conditions deteriorate and they can’t do it fast enough. GM's bucking a billion-dollar headwind labeled tariffs, facing obligations to pay a dividend, managing rising interest rates, moderating sales and a historic reputation for poorly managing adversity — first in trouble, last out.
It's recognizing what its pre-bankruptcy brass appreciated too late: There's no substitute for cash to weather a slower market, to maintain investment in revenue-producing cars and trucks, to finance technological plays in the Auto 2.0 space of self-driving vehicles and related services.
GM is transparently recognizing the risk and getting ahead of the kind of curve it spent way too many slowdowns running behind. It's offering voluntary buyouts to 18,000 salaried employees and promising layoffs by year-end if there aren't enough takers. It's also planning to spend big on new hires to support efforts in mobility, autonomy and electrification to ensure it has the right people and right technologies to continue a transformation.
To get there, GM's executing a rolling restructuring. It produced the Bolt electric vehicle, expected to be the platform for its autonomous vehicle. It took a stake in Lyft Inc., the ride-sharing firm. It acquired Cruise Automation to speed its autonomous-vehicle development, an effort augmented by an EV partnership with Honda Motor Co. and an AV investment by SoftBank Investment Advisers of Japan.
And all that follows earlier moves in the base business, especially in regions outside the United States untouched by its humbling Chapter 11 in the early Obama years. GM exited Europe after 90 years, selling its Opel and Vauxhall brands to the French. It bolted Russia; forced the workout of its South Korean operations; moved its Cadillac brand back to suburban Detroit from New York's Soho.
“Our structural costs are not aligned with the market realities nor the transformational priorities ahead,” CEO Mary Barra wrote employees in a memo on Halloween, the same day GM posted stronger-than-expected third-quarter earnings. “Profitability is only part of what’s required for our transformation. To achieve what this company is truly capable of — and to win — we need to be even more agile and faster to market.
"And we need to do all of that against a backdrop where those outside our company are skeptical of our ability to manage through an eventual downturn in the economy — skepticism we see in our stock price, which has recently been trading below our initial public offering price.”
Exactly right. Nine years ago this month, shares in the new, post-bankruptcy GM debuted at $33. On Thursday, they closed at $35.54, fairly persuasive evidence investors aren't buying the "we're-a-tech-company-now" pitch or any notion that GM is somehow less susceptible to the business cycle.
That's why the "transformation" of Barra's description is so critical to the future of the company — and to the legitimacy of Detroit's continued claim as the automotive capital. Winners will optimize the present to finance the future; also-rans will continue subsidizing the money-losing regions and products of the past and struggle to compete for the future, mostly because they're stretched too thin.
GM is angling to be a winner. A ranking executive says the company is "absolutely not" doubling down on the old automotive model, that is, seeking traditional mergers to theoretically manage costs lower by generating larger economies of scale. That era may not be dead, but it's gasping for breath, replaced more often than not by the search for partnerships with tech players.
The GM of former CEOs Jack Smith and Rick Wagoner tried to capitalize on growth in the traditional auto industry — the once-emerging markets of China, Eastern Europe and India — to drive the top line and deliver scale. Not Barra's GM: It's pushing to optimize today's car and truck business to fund next-generation technology and evolution.
GM's journey of transformation will be disruptive to a company, and an industry town, accustomed to their ways of life. Few will be immune, assembly line folks included. If there's an overarching message in Barra's memo, that's it.
Daniel Howes’ column runs Tuesdays, Thursdays and Fridays. Follow him on Twitter @DanielHowes_TDN, listen to his Saturday podcasts, or catch him 3 and 10 p.m. Thursdays on Michigan Radio’s “Stateside,” 91.7 FM.