mobile-menu-icon
GM Authority

General Motors To Decrease Capital Spending After 2019

General Motors is in midst of transitioning into a leaner company with lower capital spending expenditures. One of the key initiatives to achieving that objective is decreasing organizational complexity by consolidating the amount of vehicle platforms and extending their lifecyles. The long-term initiative to decrease capital outlays will, however, require the firm to increase spending in the short term.

According to GM President Dan Ammann, the automaker is planning to increase capital spending to roughly $9 billion per year through the 2019 calendar year, an increase from $7 billion laid out in 2014, which translates to 4.4 percent of revenue. Between 2016 and 2019, capital spending will rise to between 5 percent and 5.5 percent of revenue, as the automaker makes investments in dies, welding machines, and other kinds of tooling for manufacturing.

GM Capital Spending Summarized
Time Frame Capital Spending (% of revenue)
2014 4.4%
2016-2019 5%-5.5%
2019+ 4.4%

A prime reason for the increase in short-term capital spending is the updating of GM’s Arglinton, Texas factory that produces full-size SUVs — the Chevrolet Tahoe and Suburban, GMC Yukon and Yukon XL, and Cadillac Escalade and Escalade ESV. The vehicles are notorious cash cows for The General, and the automaker is believed to be facing production constraints for the vehicles as demand outstrips supply.

After the increase through 2019, capital spending will decrease closer to the 2014 levels as a share of revenue, enabling the automaker to direct it to new priorities such as autonomous vehicle technology, offering new kinds of services into vehicles using the high-speed in-vehicle internet connections, and new business opportunities such as ride sharing.

In January 2016, the automaker finalized a $500 million investment into ride-hailing start-up Lyft. A few weeks later, it launched its own car-sharing service under the Maven brand and then moved to reorganize all autonomous and electric vehicle engineering and development efforts under one executive so as to speed development of those technologies.

Many Wall Street investors, who have typically been bearish on GM, are expecting Chief Executive Mary Barra to deliver the promised long-term cost savings. The expectation is noteworthy since the automaker mostly failed to contain capital investment and engineering expenditures over the past three decades.

The GM Authority staff is comprised of columnists, interns, and other reporters who provide coverage of the latest General Motors news.

Subscribe to GM Authority

For around-the-clock GM news coverage

We'll send you one email per day with the latest GM news. It's totally free.

Comments

  1. Well the pay off only comes after the spending to get them to where they need to be. GM should be in pretty good shape by 2020 platform and drive train wise. At that point all areas should have been updated post bail out.

    This is where can contribute more to the dividend to help increase stock value also cutting cost to the point they save money but do not hurt sales is key for all automakers with development cost so high.

    I think many just do not grasp how expensive development it today compared to just 10-20 years ago. Regulations, materials, labor and technology has driven cost up so much it is crazy.

    Reply
    1. Yes and no: GM runs into new regulatory issues as it enters/expands into new markets. An example can be India with the Trax difficulties that lead to the development of a heavily modified vehicle. This is the cost of a global automaker and is being experienced by every carmaker.
      As for North America the regulations are stable when compared, for example, to the 1970s.
      GM, while now using modular platforms, had yet to transition to architectures/kits which is on the way to being an industry norm and this will be a remarkably expensive transformation ranging from R&D to factory conversion.
      GM is building a great line up capable of besting popular rivals. The General can’t afford dusty, aging product as it tries to resurrect damaged brands. At most, these platforms will be competitive for 8 years.

      Reply
      1. Yes and no to your yes and no 🙂

        GM has already made the transition to kits, even before VW’s MQB/MLB, etc. initiative. It was the first in the industry to adopt a common electric and LAN architectures across most of its vehicles. Its Alpha short and Alpha long platforms are also heavily “tool-kitted”, despite not being officially recognized as a tool kit. Omega is also part of that kit, albeit built with very different materials.

        The point is GM isn’t sitting on its hands as the rest of the industry (but in reality only VW, MBZ, BMW, and PSA) are moving to kits, as GM is also moving in that direction. And because of this, it won’t be as remarkably expensive. Outside of that, GM still has a significant amount of scale efficiencies to gain with the “good ol” platforms approach. Examples:

        – Unifying the midsize and full-size truck platforms, of which there are currently 3, into a single architecture
        – Unifying all Cadillac vehicles onto Alpha/2 and Omega/2 architectures (with the exception of the upcoming sub-ATS sedan and crossover and the Escalade)

        Those two moves in and of themselves will result in hundreds of millions or perhaps even billions in cost savings as a percentage of revenue.

        That said, the move to extend platform life cycle is quite excellent. I disagree with the notion that these platforms “will be competitive for 8 years” at most. Instead, the platforms themselves can remain competitive for at least a decade. What will need to be updated and even overhauled are the exterior and interior designs, powertrain, and in-vehicle technology, all of which happen to the priorities of most car buyers.

        For instance, the Delta 2 platform underpinning the first-gen Cruze is now entering its ninth calendar year. The vehicle could have easily received a heavy refresh or even a redesign inside and out, gotten the new Turbo LE2 new engine, and new in-vehicle tech… and it could have continued on quite nicely for another 5 years. Granted, it’s a little heavy and not as specious in the rear seat — both of which the D2XX program addresses very well. So now, starting out with an extremely solid platform, I see no reason that D2 can’t stick around for a good 10-12 years, and not be “on its last legs” at the 12-year mark. Toyota has been doing that with the Camry for how long, now?

        Reply
  2. Fine, as long as they use the platforms they have now. Omega, I’m looking at you.

    Reply
  3. Although it is true that GM can’t continue at the spending rate they are now , and every automaker has re-tooled for the next decade . I think GM’s biggest problem is when they have a good seller on a specific platform they squeeze as much as the can from it , just one example is the Terrain , Equinox and SRX . Six to seven years selling the samething minus a two year freshening of the first two . Meanwhile other car makers come out with new product as GM’s age .
    There’s nothing wrong making money , thats GM’s goal but it can hurt them in staying fresh with the others .

    Reply
    1. I’d characterize it in a slightly different fashion: the problem isn’t keeping a good-selling vehicle around for a while but rather keeping a good-selling vehicle around for a while and letting it get very stale — which is what happened to the SRX, Terrain, Equinox, Cruze, Verano, ATS, CTS, etc.

      By contrast, look at the mid-cycle refreshes applied to the 2014 MY Regal and LaCrosse — those are substantial refreshes for ok-selling vehicles.

      The strategy should involve freshening a vehicle more often and more substantially than GM has been doing. Changing up the lights and bumper covers a year prior to the overhaul of a vehicle as with the Cruze, Equinox and Terrain isn’t gonna cut it with longer platform life cycles, which is something that I believe they are well aware of.

      Reply

Leave a comment

Cancel