General Motors (GM) made real waves at the Detroit Auto Show this week. Of course, GM has had a reputation for making waves in recent years, between needing an enormous bailout in 2009 and then having to recall 30 million vehicles for safety reasons in 2014. But these waves were different waves. These were the type of smooth, soothing waves that haven’t lapped the banks of the Detroit River in many years.
For starters, the company revealed its 2017 Chevy Bolt, an entirely electric car that’s hitting the market at about $30,000 (after rebates), beating Tesla’s (TSLA) Model 3 to the punch. Actually, the Model 3 appears to target luxury sedan buyers while the Bolt appears a more utilitarian hatchback, but it shows a degree of leadership in the segment on GM’s part that is a sharp turn from the company’s historical norm, particularly on the heels of the news that it had invested some $500 million into ride-sharing app Lyft.
Of course, for those less interested in the future and more concerned with their finances in the present, the company also announced that it was increasing its profit outlook for 2016 in addition to boosting its dividend and share buyback program. It was enough to boost shares by 0.63% on a day when the markets were tanking and the S&P 500 lost more than 2.5%.
All told, GM’s future is suddenly looking bright for the first time in a very, very long time. A company that had become a punchline as the personification of the inadaptable American dinosaur even prior to its bailout and recall scandals now appears to be thriving in the present while building for the future.
And at the center of this evolution and rescue is a woman who was initially met with intense skepticism and derision: CEO and now Chairwoman Mary Barra.
A Rapid Turnaround Under Barra’s Leadership
When she inherited the leadership position at GM, Mary Barra was seen by many at the time as a sacrificial lamb. Stepping into the company in the midst of the recall scandal, taking over a company that had just five years earlier required a government bailout, was seen as a bad situation. Some went so far as to suggest that GM was thrusting its first female CEO onto the “glass cliff,” referring to how companies may promote women into leadership roles only in times of crisis wherein their ultimate failure seems assured.
Of course, that perception has proved incredibly unfair to Barra, whether the glass cliff critique is warranted or not. Barra’s ascent has been a long time coming, as she’s been working at GM for over 35 years, filling roles from engineer to plant manager to C-level executive. She also describes in interviews how she had been groomed for some time, with GM investing time and effort into helping her evolve into leadership roles and praising the company’s commitment to its female employees.
Now? A mere two years into her tenure, Barra, who took over the Chairwoman position in addition to her role as CEO just a week ago, appears to have rapidly remade the company into a sleeker, more forward-looking car company that’s prepared for the rapidly shifting economic landscape ahead. It might be unfair to give her all the credit, but the shift is so stark, and so neatly matching the beginning of Barra as CEO, that failing to give her enough credit would seem a more likely issue.
Is the Chevy Bolt an Electric Model T?
Electric cars represent an obvious economic trend, and one that American manufacturers infamously avoided for years. Even now, the market options remain somewhat limiting, with Tesla’s high-end vehicles pricing out the majority of Americans. If the Chevy Bolt, which features less charging time and a 200-mile range, can be the car that turns the tide on electric vehicles, it could be a major coup for GM.
Henry Ford once made history with his Model T, a car priced modestly enough that it made the automobile accessible for the average American family for the first time. That car was the lynchpin to sparking the driving world in which we now live. Whether or not the Bolt can play the same role for the electric vehicle has yet to be seen, and it has enough competition that it’s highly unlikely it will do it alone, but getting the Bolt to market ahead of Tesla and others could represent a major win for Barra and GM, particularly if the model proves as popular as some are hoping.
Most notably though, it would represent GM getting out ahead of the trend, a position it seems the company hasn’t been in since World War II. Instead of chasing the future and being forced to react to the market, Barra’s GM now seems interested in taking an active role in shaping it.
Investment in Lyft Envisions a Different Sort of Car Company
Of course, the other trend that appears poised to reshape the car market is the self-driving car. With the rise of the sharing economy, different ownership and use models based on the proliferation of smartphones and new levels of interconnectivity are making every industry rethink the most basic aspects of their business.
In fact, today, the very idea of car ownership is on the chopping block. The rapid rise in popularity of Lyft and Uber points towards a world where owning a car is less necessary than it has been since, well, the Model T was hitting the market. Simply hailing nearby drivers to take you to your destination neatly excises so much of the messiness of car ownership, particularly as these networks grow in size, improve in price, and increase in convenience.
That picture gets all the more intriguing when you consider the rapid advancement in the world of self-driving cars. As prototypes hit the roads that are proving consistently safer than human drivers (not that that would be all that difficult to do), most of the auto industry is starting to sit up and take notice. Particularly when it’s combined with the rising tide of ride-sharing apps. A future where companies like Lyft and Uber are simply maintaining fleets of self-driving vehicles in various urban centers, working together on a carefully maintained grid to maximize efficiency, is one where the nature of auto transport is permanently altered.
Where the GM of old would likely have just watched sales figures erode over the years as things moved away from their traditional understanding of the industry, Barra appears to be taking a proactive role with the company’s $500 million investment in Lyft. Understanding that the company’s future may lie in building fleets of self-driving, electric cars for major transportation companies is precisely the sort of forward thinking that could guide GM to a bright future.
Future Plans Don’t Supplant Present Profit
All of this sort of makes GM sound likea tech company, plowing its profits into future endeavors...the type of company that the old GM would have ignored until it was too late.However, the announcement on Wednesday pretty clearly demonstrated that this isn’t the case. As an income stock, GM could be positioning itself among the best.
Along with the announcement that it was expecting a quarter per share more profit in 2016 than previous estimates (a range of $5.25 to $5.75 per share, up from $5 to $5.50 per share), it also boosted its dividend by 5.6% from $0.36 a share to $0.38 a share, putting its yield solidly into the 4.5-5% range. Barra also announced that the company would extend its share buyback by $4 billion, taking its total from $5 billion to $9 billion for an 80% jump.
These are the sorts of moves geared at rewarding a shareholder base in the near term, giving back profits and boosting interest from investors. In doing so, GM seems to be sending a pretty clear message that it’s not going to let investing in the future stop it from enriching shareholders in the present. That’s a delicate balance, one that continues to be difficult a lot of CEOs. Barra, though, seems to have set a middle path for the time being.
Leadership at GM Appears to Have Forged a New Path
It’s certainly far too early in her tenure to draw any really meaningful conclusions about Mary Barra. Placing too much importance on the Bolt or Lyft this early would be a mistake given that both could just as easily blow up in Barra’s face over the next couple of years, as could the increased dividend and share buyback if the anticipated profits dry up. The true mark of a successful CEO has to be measured over many years, if not decades.
However, it’s hard not to look at where GM is now as opposed to where it was sitting at the moment Barra took the helm and not notice the difference. Where she inherited a company limping back from the brink of destruction and culpable in the death of over 100 people with a pending recall of tens of millions of vehicles, Barra now appears to be deftly guiding a large-cap behemoth towards a promising future without shorting shareholders in the present. If she can keep it up, it would represent a turnaround that would be as important to the American economy as it would her employees and GM investors.
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