(Reuters) – Pam Fletcher wants to change the way General Motors Co makes money.
GM’s veteran engineer Global Innovation team is seeking startups to expand the automaker’s revenue streams well beyond vehicle sales and is incubating businesses from commercial delivery services to vehicle insurance to address future markets. for an estimated value of $ 1.3 billion. That doesn’t include flying cars, a sector of the market that alone could be worth $ 1.3 trillion, Fletcher told Reuters.
In a recent video chat, Fletcher quietly counted before answering how many companies his team is running. “Just under 20,” he said.
The fact that GM is now incubating its own startups, with its corporate venture arm investing in dozens more, underscores CEO Mary Barra’s effort to remake the largest US automaker. a diversified provider of mobility services, the automotive equivalent of Apple, with monthly or quarterly revenue from software and services long after the initial product is sold.
For legacy automakers like GM, Volkswagen and others trying to reform and transform their businesses, that task is daunting, according to Evangelos Simoudis, author and advisor on corporate innovation strategy.
“Technologies embedded in the software-defined vehicle will require areas of expertise typically 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 it has promised is still months away from launch.
GM returned $ 24 billion to shareholders in 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 expanding lines of business that promise recurring revenue streams.
GM’s startups could add tens of billions to future revenue, Barra said, and lift operating profit margins above the current 8% it achieved in 2020, and the 10% it has targeted in the long term.
“We have very significant growth opportunities and different margin opportunity initiatives to invest in,” he said in a video interview.
Barra’s shift from stock buybacks to investing in recurring income services, coupled with a push to turn GM into a fully electric vehicle company by 2035, has accomplished in one year what a decade of cost cuts and cash returns for shareholders failed to achieve.
GM’s stock price over the past six months has drifted out of the range in which it was stagnant since the IPO following the company’s bankruptcy in 2010. GM shares reached a post-2010 high of $ 62.23 on March 18 and are up almost 50% for the year. .
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Still, GM’s market capitalization of $ 90 billion lags Tesla Inc’s valuation of $ 600 billion 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 legacy workforce burdens to overcome.
“I understand why people might be skeptical (of GM) because this is a company where we’ve seen revolutions announced over the last half century and for some reasons it wasn’t authentic,” says Jeffrey Sonnenfeld, dean of programs. leadership at the Yale School of Management.
Barra, he said, “has the authenticity and legitimacy to pull it off in a way that a lot of other people wouldn’t.”
Barra’s effort to rebuild GM’s business relies on an executive body that mixes longtime GM managers like herself (Barra has worked at the company for 40 years) and recent recruits from outside the auto industry.
“We are uniting people who really understand the automotive business with people who understand these other businesses that we believe are growth opportunities,” Barra said.
A new company that combines various aspects of GM’s approach is BrightDrop, a unit that will provide electric vans and related hardware to commercial delivery companies, starting with FedEx, along with support services from fleet management to predictive analytics.
GM’s rival Ford Motor Co is introducing its own electric delivery van and expanding support services to defend its leading US commercial vehicle market share of 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, around the same time that another GM group was working on the company’s future portfolio of electric vehicles. The “big idea,” marrying an electric truck to the software and data-driven delivery services business, was born in February 2020.
The company gained additional momentum in late 2020 when GM enlisted tech entrepreneur Travis Katz to become BrightDrop’s president and CEO.
Ultimately, GM’s leadership 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. Eventually, “there will be a lot of learnings from the BrightDrop experience that will flow back to GM.”
Barra is also building GM’s former OnStar telematics business into a platform to sell insurance and other services that can be delivered over the air.
Santiago Chamorro, Head of Global Connected Services, has expanded OnStar’s security and protection portfolio with new products and services incubated internally, including OnStar Insurance, the Guardian mobile security app, and Vehicle Insights, a data analytics platform for vehicle managers. commercial fleets.
Insurance, a new arena for GM, is run by Andrew Rose, who previously worked for the UK’s auto insurance powerhouses Progressive and the Admiral Group.
Rose says GM dealerships could offer policies to owners when they buy or rent a vehicle. OnStar could offer discounts to better drivers, as well as faster claims service after an accident, and could eventually offer home insurance as part of the package.
GM has never disclosed OnStar’s financial results, and Barra won’t say if or when the company will do so.
“OnStar is already a very important business,” he said. “We believe there are opportunities to grow beyond our vehicles.”
Reporting by Paul Lienert, Ben Klayman and Joe White in Detroit; Edited by Steve Orlofsky