The headquarters of General Motors towers over the other skyscrapers in Detroit’s city center, a reminder that the carmaker still rules the American market. GM’s domestic might increasingly contrasts with its position elsewhere in the world, however. Although most other carmakers see becoming ever bigger everywhere as the answer to the industry’s multiple challenges, GM is in retreat.
For many years it vied with the world’s largest carmakers for the global crown. Along with Volkswagen, Toyota and Renault-Nissan, it made around 10 million cars last year. Investors have been unimpressed. Although GM had record profits in 2015 and 2016, and has performed solidly this year, its share price has barely budged since its IPO of 2010, after the financial crisis had forced it into bankruptcy.
Such is the frustration that Greenlight Capital, a hedge fund with a 3.6% stake in GM, proposed splitting its shares into two classes—one keeping the current dividend and the other benefiting from stock buybacks and dividend increases. The plan was roundly defeated at the firm’s annual shareholders meeting on June 6, in a victory for Mary Barra, CEO since 2014.
GM reckons that handing back its membership in the “10 Million Club” is a better solution. The downsizing began in 2015 when it left two emerging markets, Indonesia and Russia, and shrank operations in Thailand. The boldest step came in March, with the news that it would pull out of Europe by selling Opel to France’s PSA Group. In May GM said that it would stop selling vehicles in India and would leave South Africa.
Scaling GM back to making 8.5 million cars a year signals that profits are its priority. Jefferies, an investment bank, reckons that the company’s 2017 revenues will fall by a tenth—but that its profits before interest and taxes will rise by between 2% and 3%.
Dan Ammann, G.M.’s president, has said that his company no longer can strive to be “all things to all people in all places.” It should concentrate, he said, on areas where it is strong, where it could become strong or where there are generous profits to be made. Both North America and China fulfil his requirements. GM may be losing money in Latin America at the moment, but it has a big market share there on which to build.
Picking markets more carefully should give GM a better chance of nurturing existing businesses while preparing for a future of autonomous vehicles and ride-sharing. This upheaval is still in its very early stages: Of the 3 trillion vehicle-miles driven in America last year, only 5 billion, or 0.15% of the total, were undertaken via ride-hailing services such as Uber and Lyft. Investors are thinking far ahead, though, to a time when technology giants such as Apple and Google will change the nature of personal transport. They fear that GM will get left behind.
The company’s difficulty lies in convincing them that it is spending enough to stay in this race, but not too much on businesses that, at present, bring no returns. A similar conundrum led to the ousting of Ford CEO Mark Fields last month.
© 2017 Economist Newspaper Ltd., London (June 24). All rights reserved. Reprinted with permission.
Image credits: Stan Honda/Agence France-Presse/Getty Images, Doug Mills/The New York Times, Stan Honda/Agence France-Press e/Getty Images
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