GM Restructuring Reveals a ‘Disconnect’ Between SUV Sales Today and an EV Future
General Motors’ long-term success may come down to how well it bridges the divide between current demand for lucrative, gas-powered SUVs and an all-electric future
General Motors announced Monday that it will undergo a major corporate restructuring that includes plant closures and job cuts, in response to declining consumer demand for traditional gasoline-powered sedans.
Going forward, the top-ranked U.S. automaker said it will continue to support the growth of its crossovers, trucks and SUVs, while prioritizing future vehicle investments in its next-generation of battery-electric architectures.
GM expects that more than 75 percent of its global sales volume will come from just five vehicle platforms by early next decade. In the near-term, optimizing its vehicle portfolio will mean halting production at three assembly plants and two powertrain plants starting in 2019. GM will also end the production of several vehicle models currently manufactured at those plants, including the Chevrolet Cruze, the Cadillac CT6 and the Chevrolet Volt — GM’s flagship plug-in hybrid vehicle.
The company’s North American workforce will shrink by 15 percent, representing more than 14,000 jobs, including a 25 percent cut to the executive team. Leadership said these changes will produce cash savings of approximately $6 billion by the end of 2020, due to cost reductions of $4.5 billion and an annual capital spending reduction of nearly $1.5 billion.
At the same time, GM said it will double spending on electric and autonomous vehicle programs over the next two years.
Chairman and CEO Mary Barra said the restructuring reflects the need “to stay in front of changing market conditions and customer preferences to position our company for long-term success.”
The move gave a boost to GM’s stock price, which closed up 4.79 percent. But the stock is still down from a recent high in June.
There’s tension around how this shift will play out for GM, with political pushback expected from Canada and areas of the U.S. directly affected by the plant closures. There’s also tension baked in to GM’s new strategy.
While the automaker underscored its commitment to electric vehicles in today’s news release, GM’s vision for a zero emissions future appears to conflict with its present-day focus on selling popular gas-guzzlers.
“I like what they said about electrification; the problem is what they’re investing in,” said David Reichmuth, senior engineer with the Union of Concerned Scientists’ clean vehicles program. “A lot of it in the short-term has been around their SUVs and pickup trucks. I think GM and a lot of the companies know that electrification is the future, but they’re prioritizing the short-term profits from some of these less efficient gasoline vehicles.”
One need only look at the latest National Climate Assessment released Friday to see that “dragging our feet on switching away from gasoline is really not an option we have at this point,” he said.
So how does a company effectively plan for and invest in a low-carbon future when current market demand is trending in the opposite direction?
“A huge disconnect”
“There definitely is a huge disconnect between the 70 percent of the market today that’s SUVs and trucks, and the autonomous and EV future that’s advertised,” said Jeremy Acevedo, manager of industry analysis at the automotive research and purchasing site Edmunds.com.
But Acevedo doesn’t see these automaker strategies as entirely at odds.
“It comes down to really leveraging the high profit nature of the SUVs and trucks that are so popular today […] so they can really focus on bridging over to the future that’s really autonomous and electric,” he said.
It’s somewhat counter-intuitive, but the sale of larger SUVs and trucks should pave the way financially for the sale of smaller, more fuel-efficient and electrified vehicles in an autonomous future, according to Acevedo.
GM isn’t the only automaker taking this approach. Ford Motor Co. announced earlier this year that it will stop selling sedans in North America, while reaffirming its commitment to launching five high-performance SUVs with hybrid powertrains, and one fully battery-electric model, by 2020.
The issue is timing. Automakers from around the world have promised to bring more electric SUVs to market in the U.S., but right now the list of offerings is quite short.
The Tesla Model X and the Jaguar I-Pace are among the only electric SUVs currently for sale stateside, and they come with high sticker prices. A wave of new electric SUVs is scheduled to come to market, but when they’ll achieve widespread commercial availability is unclear. Customer demand is also a wild card.
“The timeline is the big question,” said Acevedo. “Across the market there’s buy-in that electrification is the future … but we’re kind of waiting to see it.”
The fact that Americans are buying record numbers of trucks and SUVs “puts a pause on that vision,” he said.
“A little hypocrisy”
GM’s reorganization arguably primes the market to move away from electrification, or at least pits the automaker’s near-term and long-term strategies against one another.
When asked if current market demand for SUVs and the unpopularity of sedans is at odds with GM’s pledge to move further into zero emissions vehicles, a spokeswoman replied simply via email: “GM is still committed to an all-electric future.”
“I think there is this pull in two directions,” said Reichmuth. “They want to show investors that they’re going to be able to compete in the future, they have the technology to go electric and they’re looking at these other mobility options, including autonomous vehicles or different ownership models like shared vehicles.”
“They need to be able to show they can do that, but at the same time they have the sunk costs, the investments they’ve made in gasoline technology and they want to try to get as much out of that as they can,” he said.
The key here from an emissions perspective is to ensure that the gasoline-powered trucks, crossovers and SUVs being sold in droves today are becoming more fuel-efficient, as the shift to electrification unfolds, Reichmuth added.
Current U.S. fuel economy and vehicle emissions standards for passenger cars mandate better environmental performance for all types of cars, regardless of size, over time. At least they will, if the Trump administration doesn’t implement a freeze on the rules currently on the books.
GM recently submitted public comments on the proposed rollback of fuel economy standards, in which the automaker proposed introducing a nationwide electric-car sales program — to replace the fuel economy rules — starting in 2021. But while that idea sounds great on the face of it, Reichmuth found that GM’s specific proposal wouldn’t do much, if anything, for the EV market. Meanwhile, the plan would be giving gasoline vehicles a break.
“I think there’s a little hypocrisy in talking about cleaner cars and electric vehicles while at the same time directly or indirectly, through trade associations, asking for lower standards for gasoline vehicles,” Reichmuth said.
The Trump administration is currently reviewing tens of thousands of public comments from stakeholders across the transportation ecosystem. The Union of Concerned Scientists, the State of California and others claim the U.S. EPA’s proposal contains mathematical errors and are calling for the administration to throw out their proposed replacement plan.
“Meeting shoppers where they’re at”
Acevedo at Edmunds believes the tensions playing out within the passenger car segment are merely the symptoms that come with any major transition. He doesn’t doubt that automakers are committed to an electrified future. Rather, he believes they’re still trying to navigate what this market looks like.
“I think that segment is just going through growing pains and figuring out what it takes to appeal to these shoppers and meeting shoppers where they’re at,” he said.
GM’s Monday announcement that it will no longer manufacture the Volt in the U.S. is a sign of this. The Volt was a pioneer of the plug-in car market, but sales have languished as new options have come to market and as compact cars have generally fallen out of favor.
“I wouldn’t be surprised if they take that same kind of plug-in hybrid architecture, all their leanings, and release an all new plug-in hybrid in the Volt’s place,” Acevedo said.
Plus, GM and its competitors can’t avoid producing more and better EVs, even if U.S. adoption rates have yet to reach the mainstream. China is GM’s largest market and it isn’t shying away from EVs — of all types and sizes.
“I definitely think that [GM’s] international strategy, more than ever now, is dictating what we’re going to see in the U.S.,” said Acevedo. “I believe a big part of the commitment that we’re seeing to the EV architecture is because so many international markets are demanding the production of electric vehicles.”
Delivering on Mary Barra’s pledge for long-term success may come down to how well GM bridges the divide between lucrative SUV sales today and an electric, autonomous future.