Working to remove USD2 billion of materials costs, as part of a target of reducing purchasing, manufacturing and administration expenses

General Motors (GM) held a business update meeting for investors at its Milford Proving Grounds in Michigan, United States, yesterday (1 October) and made several announcements on plans for "capitalising on the future of personal mobility". Central to the plan is GM's expectation that it can "own" the customer relationship beyond the vehicle. The company also said that it is planning global growth initiatives and an aggressive product-launch strategy designed to strengthen its core business, while also continuing to work to drive cost efficiencies. GM also predicted its earnings per share will continue to grow.

GM president Dan Ammann said the company has "traded volume for sustainability", growing adjusted earnings before interest and taxes (EBIT) from 5.5% in 2013 to an expected 6.8% in 2015, on roughly the same USD155 billion in revenue, while also improving its return on invested capital from 20% to 24%. However, the increased profitability figures came with a decline in global market share from 11.5% to an expected 11.3% in 2015 (GM's estimates).

In a company statement, CEO Mary Barra said, "The convergence of rapidly improving technology and changing consumer preferences is creating an inflection point for the transportation industry not seen in decades. Some might find this massive change to be daunting, but we look at it and see the opportunity to be a disruptor. We believe our decades of leadership in vehicle connectivity are fundamental to our quest to redefine the future of personal mobility." The theme of GM as a disruptor of the auto industry has been a consistent one in Barra's remarks recently, as the company moves out of crisis-reaction mode from the ignition-switch recall situation into a more future-focused position, ready to discuss some of its more significant background projects.

GM believes it has several key enablers that will enable the car to be a customer platform for a deeper, digital customer relationship, with vehicle data, dealer partnerships, embedded connectivity, a 360-degree view of the customer, and GM Financial. Leveraging those enablers, Ammann noted, GM sees opportunities to offer services including vehicle sharing.

GM also noted several upcoming milestones for development of autonomous vehicles. Among them, the company will have a fleet of 2017 model-year Volt hybrid electric vehicles designed to drive autonomously in the renovated Warren Tech Center campus. The technology will enable GM employees to reserve a Volt using a car-sharing application and select a destination. The technology will bring the vehicle to its destination and park it. GM will use the programme as a "rapid-development laboratory", accelerating data collection and lessons learned. GM also confirmed it has been testing Super Cruise autonomous driving technology since 2012, and that it will be available first on the 2017 Cadillac CT6.

New car- and ride-sharing projects are also part of GM's plans, building on several other test programmes the automaker has been running. In New York City, a scheme called "Let's Drive NYC" was launched in June 2015. Only residents of a certain luxury apartment building are eligible for the scheme, which offers a fleet including the Chevrolet Trax and Equinox, although more vehicles will be added later. Under the scheme, related to their apartment leasing fees, residents have access to the vehicles for a certain amount of time, with the option of buying more time as necessary. An additional scheme is to be launched in another US city in the first quarter of 2016. GM will use the limited schemes to expand its participation in alternative ownership models, and enable further tests of hardware and software systems and added insight into user experiences.

In a presentation to investors, Mark Reuss, head of global product development, purchasing, and supply chain, noted that GM is working to remove USD2 billion of materials costs, as part of a target of reducing purchasing, manufacturing, and administration expenses by USD5.5 billion. Reuss also said the company achieved an increase in variable profit of about USD3,500 per unit for the all-new Chevrolet Volt, USD1,500 per unit for the Malibu and Cruze, and about USD1,000 per unit for the Camaro. Development successes in using mixed materials for effective lightweighting were set out for the Malibu and Cadillac CT6 as well. Reuss also led the presentation on autonomous technology. In terms of existing technology to enable increasing levels of autonomy, Reuss noted that GM has the necessary ultrasonic sensors, odometry sensors, high-precision GPS, data connectivity, and front cameras. However, technology that still needs to be developed includes lidar sensors (two per side for the Volt), radar sensors, and central electronic control units (ECUs), including software.

In terms of safety features for autonomous vehicles, Reuss noted that in 2015, the company added surround vision and lane-keep assist, and in 2016, it will add a rear-camera mirror, night vision, low-speed front automatic braking, front pedestrian braking, and a curb-view camera; some of this technology will appear on the all-new Cadillac CT6. Features now in development for post-2016 include vehicle-to-vehicle communication, Super Cruise, traffic-jam assist, vision-based adaptive cruise control, smart hitch, rear pedestrian detection, and a 360-degree digital camera.

The roadmap to autonomous vehicles for GM will include shifting from the phase with the driver mostly in charge, but supported by active safety features for emergency intervention in limited situations. Super Cruise and the Volt fleet at the Warren Tech Center are being developed to be capable of handling complex urban or highway situations, with on-demand automation limited to highway situations. However, GM is working towards a future project, which will put the car mostly in charge (level 4), with complex on-demand automation. Ultimately, GM is working towards level 5 and 100% autonomous driving. Reuss compared GM's journey with those of "non-traditional auto OEMs" that are largely going straight to cars being mostly in charge.

In terms of electrification, Reuss says that for GM, battery and fuel-cell technology will both have roles. Fuel-cell vehicles will offer more favourable zero emissions vehicle (ZEV) regulatory treatment, a more conventional fuelling experience for consumers, longer range, and larger vehicles. GM is working with Honda on this technology, and the executives confirmed that the company will introduce a fuel-cell electric vehicle (FCEV) from that project by around 2020. For battery electric vehicles, issues include seeking declining costs and increasing volumes for the cells and packs; increasing range to decrease customers' range and infrastructure anxiety; and the attractiveness of offering the lowest fuel cost per mile, compared with gasoline (petrol) or hydrogen solutions. GM's key partner in battery development remains LG. Relative to the cost of batteries, GM is projecting a decline in cost per kilowatt hour (kWh) from USD145 in 2016 to USD100 in 2022, with a sharp decline forecast in 2020 to USD120.

In terms of overall global product portfolio, Reuss indicated that in 2016, 39% of GM's global sales will be from new or refreshed models. For the rest of the decade, the figure will remain at about 40%, excluding 2018, when it will temporarily drop to 31%.

Reuss's presentation also indicated that GM will begin aluminium-to-steel welding in the first half of 2016, have autonomous Chevrolet Volts at the Warren Tech Center by the end of 2016, and add the Bolt in 2017, with a USD145 battery-cell cost at launch, along with an e-bike concept early in 2016.

Outlook and implications

GM's CEO says the company is on track to meet its 2015 and 2016 targets, and with the ignition-switch recall situation resolved from several perspectives, a refocus on GM's future is the next stage. In revealing more about its current and planned projects, GM is also putting the industry on notice that it is aggressively exploring new mobility solutions and possible future changes in vehicle ownership models. This report also follows on from some initial comments Barra made earlier in the week.

In their presentations to investors, GM executives were largely positive and optimistic about the future, while explaining several of the building blocks the company has put in place to move forward. GM's long-ago decision to invest in OnStar and the continued development of that asset, particularly in earlier times when its potential for profitability seemed elusive, has delivered a competitive advantage in today's environment, which would be expensive and difficult for traditional automakers to replicate. Others offer similar features, although not to the embedded extent, and without the benefit of all the data GM has already gathered.

IHS Automotive forecasts GM's total global sales of its key brands (Buick, Cadillac, Chevrolet, GMC, and Opel) will grow from 7.36 million units in 2015 to 8.07 million units in 2021. Chevrolet will remain the group's highest-volume-selling brand, with Cadillac and, to a somewhat lesser extent, GMC enabling GM to access the profit margins that luxury brands are bringing to the industry. As Ammann noted, while luxury vehicles and full-size trucks account for only 14% of industry volume, they deliver 60% of the profit. GM is also looking to increase its focus on aftermarket opportunities, as the car parc grows in volume, as well as leveraging GM Financial for its potential to both enable customers to access credit and support the group through the division's typical profitability.

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