Armchair CEOs love to bash Mary Barra, especially when it comes to the direction the automaker is taking in refocusing the GM business strategy on electric vehicles and autonomous driving technology. It’s a tired old argument we’ve seen countless times before in varying degrees of lucidity. But beyond the internet commentary criticism, Barra’s move towards EVs and AVs doesn’t come as some haphazard, spur-of-the-moment decision. Rather, it’s a strategy that looks to capitalize on future opportunities before it’s too late.
Indeed, the heart of the matter doesn’t lie in the next quarter’s sales numbers or earnings, or pleasing naysayers discontent with the interior of the new Chevrolet Silverado or GMC Sierra. The real fight lies much further down the road.
Barra addressed the controversial GM business strategy in a recent interview with Bloomberg, with the following being the takeaway quote: “If we don’t take the steps to keep the company healthy for not just the next few years but the next few decades, then shame on me,” she said.
Put another way, the modern automotive climate is no place for the timid, as the cost of doing nothing could be far greater than doing something.
Huge changes are afoot, and not just in the GM business strategy. Technology progression has already affected massive change and disrupted the auto industry to the core, but the bigger changes remain just over the horizon. Every major automaker knows this full well.
Thus, the tough question is this: what’s the opportunity cost of standing still? Or better yet, what’s the cost of not doing something fast enough? What happens to GM in that scenario?
We already know the cost of cutting models like the Chevrolet Cruze, or Buick LaCrosse, or Chevrolet Sonic. In reality, GM was either no longer making a profit on these vehicles, or not making a profit substantial enough to warrant the effort invested into them. And, as we’ve covered previously, GM is no longer the “everything for everyone” company that it was back in the 20th century. Nowadays, the compact sedan segment is dominated by the Japanese automakers, so why should GM struggle to compete in a contracting segment when it can instead make moves to dominate in a future segment instead?
But it goes a step further. In fact, killing off unprofitable models permeates every aspect of GM as a company, and becomes an integral part to the GM business strategy, particularly when it comes to human resources. For example, rather than devoting engineers – a resource that costs decent amounts of money and is increasingly difficult to attract – to make the Cruze more competitive with the Honda Civic and Toyota Corolla, why not allocate that talent to a future opportunity, such as EVs? The same can be said of employees every level, from the program managers, to production, to supply chain management, to accounting.
Rather than slog through a segment where it is obviously losing, GM has elected to instead move faster towards a segment where it could actually win.
No starting gun was fired, but make no mistake – the race is on.