GM Sees Insurance As Part of Growing Its Business Beyond Cars, Trucks

GM Sees Insurance As Part of Growing Its Business Beyond Cars, Trucks

2021-04-07 14:45:02
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Pam Fletcher wants to change the way General Motors Co. earns money.

The veteran GM engineer's Global Innovation team is looking for new ventures to expand the automaker's revenue streams far beyond auto sales, developing businesses from commercial delivery services to auto insurance to serve future markets estimated at $ 1 , Are worth 3 trillion. That's excluding flying cars, a market sector that could be worth $ 1.3 trillion alone, Fletcher told Reuters.

During a recent video chat, Fletcher silently counted before answering how many companies her team is tending. "Just under 20," she said.

The fact that GM is now hatching its own startups – with its corporate venture arm investing in dozens more – underscores Chief Executive Mary Barra's tremendous effort to recreate the largest US automaker. The goal is to become a diversified mobility service provider – Apple's automotive equivalent, with monthly or quarterly revenue coming in from software and services long after the first product is sold.

For older automakers like GM, Volkswagen, and others trying to overhaul and transform their businesses, that task is daunting, said Evangelos Simoudis, author and business innovation strategy consultant.

BrightDrop is a GM 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.

"The technologies incorporated into the software-defined vehicle require areas of expertise commonly found in technology companies rather than automotive manufacturers," he said.

Barra & # 39; s attempt to transform GM's age-old business model is already making a significant impact – even if the first of a new generation of electric vehicles she has promised is still months after launch.

GM returned $ 24 billion to shareholders in the form of dividends and share buybacks between 2014, when Barra took over, and early 2020. But that buyback was put on hold indefinitely when the pandemic struck last spring.

Expansion of the business line

Now, Barra told Reuters, the company can use its money more productively: investing in electric vehicles and expanding businesses that promise recurring revenue streams.

GM's new ventures could add tens of billions to future revenues, Barra said, and increase operating profit margins beyond the current 8% it achieved in 2020, and the 10% it aims for in the long run.

"We have very significant growth opportunities and several initiatives to invest in," she said in a video interview.

Barra & # 39; s shift from stock buybacks to investing in recurring revenue services, coupled with a drive to make GM a full EV company by 2035, has achieved what is a decade of cost savings and cash in a year. returns for shareholders could not.

GM's stock price over the past six months has broken out of reach since the company's initial public offering after bankruptcy in 2010. GM shares hit a post-2010 high of $ 62.23 on March 18 and are close to 50% this year increased. .

Still, GM's $ 90 billion market cap falls far short of Tesla Inc.'s $ 600 billion valuation. technology or legacy burdens of staff to lug through.

"I understand why people might be skeptical (about GM) because this is a company where we've seen revolutions announcing revolutions for the past half century and for some reason it wasn't authentic," said Jeffrey Sonnenfeld, a dean of leadership program & # 39; s at the Yale School of Management.

Barra, he said, "has the authenticity and legitimacy to get it done in a way that many other people wouldn't."

Barra & # 39; s attempt to reshape GM's business is based on an executive corps that combines old GM executives like herself – Barra has been with the company for 40 years – and recent recruits from outside the auto industry.

"We marry people who really understand the auto industry with people who understand these other companies that we think are growth opportunities," Barra said.

A new venture combining several 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 rival Ford Motor Co. introduces its own electric van and expands its support services to defend its leading share of the US commercial vehicle market of more than 40%.

BrightDrop, one of the first & # 39; graduates & # 39; from Fletcher's innovation incubator, started less than two years ago as an idea initially called Smart Cargo.

Insurance, a new arena for GM, is led by Andrew Rose, who previously worked for auto insurers Progressive and the British Admiral Group.

Fletcher's team began the incubation of Smart Cargo in September 2019, about the same time that another GM group was working on the company's future portfolio of electric vehicles. The & # 39; big idea & # 39; – marrying an electric van with the software and data-driven delivery services – came out in February 2020.

The venture gained traction in late 2020, when GM recruited longtime tech entrepreneur Travis Katz to become BrightDrop's president and CEO.

Ultimately, GM 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. Ultimately, "there will be many lessons from the BrightDrop experience flowing back to GM."

OnStar insurance

Barra is also building GM & # 39; s longstanding OnStar telematics business into a platform for the sale of insurance and other services that can be delivered over the air.

Santiago Chamorro, head of Global Connected Services, has expanded OnStar's safety and security portfolio with new products and services developed in-house, including OnStar Insurance, Guardian mobile safety app and Vehicle Insights, a data analysis platform for commercial fleet operators.

Insurance, a new arena for GM, is led by Andrew Rose, who previously worked for auto insurers Progressive and the British Admiral Group.

Rose says GM dealers can offer policies to owners when they buy or lease a vehicle. OnStar could offer discounts to better drivers, as well as a faster post-accident claim service, and could eventually offer home insurance as part of the package.

GM has never disclosed OnStar's financial results and Barra will not say if or when the company will do so.

“OnStar is already a very important company,” she said. "We think there are opportunities to grow it even beyond our vehicles."

(Reporting by Paul Lienert, Ben Klayman and Joe White in Detroit; edited by Steve Orlofsky)


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