Back in 1979, GM was one of the most powerful companies in the world. It literally had half of the US car market, a tremendous amount of cash and access to even more, among other assets. That’s when the company decided to embark on a $40 billion expansion plan. The goal: to eliminate all of the competition and take charge of the global auto industry.
This made perfect sense, but what sounds great on paper doesn’t always work out in real life. Early this year, GM lost its title as America’s top car seller, one that it held since 1931. But over the years, the company suffered even worse disappointments and setbacks. GM’s market share is now 15.2% - certainly significant, but just a fraction of fifty percent it once had.
Here’s how Forbes describes the situation: «GM keeps repeating the same dismal cycle. Sales drop, market share drops and losses mount. Then the company closes factories, lays off workers and takes billion-dollar write-offs... With the exception of the years of the successful GM campaign to ‘keep American rolling’ after the Sept. 11, 2001 attacks, GM has seen an uninterrupted decline in market share.”
The mistakes GM made in 1979 and since will certainly be studied in businesses schools - not because their strategies were so shrewd, but as examples of how not to grow a business. Despite those, GM survived and remains a formidable competitor.
Now, however, the auto industry is experiencing major changes, transitioning itself from one that makes primarily conventional vehicles to mostly EVs. Will GM be able to keep pace? Can it hold its own against very tough competitors? We’ll get the answers in the relatively near future. Meanwhile, Wall Street analysts and investors are watching developments closely - and so are critics.
A Look Ahead
In a recent interview, GM Chair Mary Barra said she was proud of GM’s “solid financial results” in the quarter ending March 31, 2022. At first glance, results looked good, despite serious shortages in the industry.
“Our ability to meet pent up demand improved dramatically thanks to a tremendous effort by our supply chain and manufacturing teams to keep our plants operating at close to normal levels,” said Steve Carlisle, GM Executive VP and President at GM NA.
A closer look, however, gave a very different impression. GM’s US sales fell to 513,000 units, a decline of 20%. Moreover, at the end of that quarter, GM had nearly 274,000 vehicles in inventory, a number that is very high - and that’s been rising steadily. At the end of Q4 2021, there were 200,000 vehicles in inventory, and at the end of Q3 2021 there were 129,000. For a company trying to “meet pent-up demand,” these are surprisingly high.
Moreover, comparisons with Tesla are not favorable. Tesla had a record 2021, growing sales by 60% year over year, and growing quarter over quarter as well. And they had just three days of inventory - possibly their lowest level ever.
Reading Tea Leaves
GM says it understands what consumers want because its network of dealers is in direct touch with the public. And to keep customers satisfied, the company said it would introduce 30 new EVs by 2025 - a very ambitious plan - and this doesn’t take into account the variations each model may have.
Of course, this strategy could work out very well going forward. But for the present, sales of conventional vehicles are not exactly spectacular, and that’s true even more so regarding their sales of EVs; GM sold just 400 in the last quarter.
By comparison, Tesla will make just one new model for each major category. The small number will enable engineers to easily add more features. But GM will need to support 30 different models and develop them within the next three years. Currently more than 99.9% of GM’s sales still come from conventional vehicles.
With prices of EVs dropping and gasoline prices soaring, it’s obvious where the auto industry is heading. Tesla is already profiting from these trends. Will GM also benefit from them? One wonders, because the company anticipates that only half of their fleet will be electric by 2030. Does this sound like they are keeping pace with the market trends?
Barra said GM is very close to getting all the materials they’ll need for their factories. That sounds great, but critics interpret this as meaning they still don’t have sources for all of them - and getting all those materials could be challenging. (Many industries are experiencing the same problems.) They add that GM is making a mistake by launching the Hummer first in their new line of EVs.
Hummers are very huge vehicles and will require huge batteries; getting all the necessary components could be difficult because of shortages. And the sheer number of vehicles they want to introduce will add complexities and may slow development and manufacturing.
Same Industry, New Business
If the auto industry were not already difficult enough, shifting a company’s entire production makes it much more so. GM said its light-duty vehicles in the US will be fully electric by 2035 - but that’s 13 years from now, and applies only to the US and only for light -duty vehicles.
GM is also said to be considering using hydrogen fuel cells for its heavy-duty vehicles. While these may have important benefits, they are also expensive because they are very complex and require expensive materials such as platinum. Also, GM will have to build a new hydrogen charging network to support them. Meanwhile, they will have to plan for the possibility that Tesla’s electric semi-truck may be less expensive to operate and far more convenient to charge when it hits the market in high volume, possibly as soon as next year.
Years ago, GM and other automakers may have been able to get away with new product delays, cost overruns, and recalls. Maybe they still can, to some extent. But with the auto industry moving so fast to EVs and competition growing more intense daily, problems like these could cost lots of dollars. They could be even more expensive in terms of lower market share, public perception of quality, and lost business.
In this new environment, automakers will have to get their products right the first time, because the market is unforgiving and finishing second is not an option. No company can rest on its former glories - not even GM.
Sources: bloomberg.com; news.usc.edu; yahoofinance.com; YouTube: Something Big Is About To Happen To General Motors