General Motors: Navigating the Road to a Sustainable Future
After 100 years of innovation and sustained growth, the horseless carriage is on the precipice of disruption from somewhere that Henry Ford could never have predicted: Mother Nature
After 100 years of innovation and growth, the horseless carriage is on the precipice of disruption from somewhere that Henry Ford could never have predicted: Mother Nature.
Global warming represents $70 trillion+ in potential global economic cost
Each year the physical effects of climate change hit us with increasing severity. The frequency of extreme weather events, rising sea levels, and glacier recession have grown to alarming levels. Governments are grappling with the effect of climate change on human life, but there are significant economic costs to also consider. Citi estimates that the future cost (NPV) of inaction on the world economy is as high as $70 trillion [1]. For context, today’s global GDP is estimated to be $80 trillion[1]. In the face of these new challenges today’s corporations have three options: inaction, mitigation or adaptation [1].
Governments and consumers are putting pressure on the auto industry of greenhouse gas pollution to adapt and build a cleaner, more sustainable future. This pressure has created two principal threats: regulatory and competitive. For companies who are agile enough to respond, this seismic shift represents great opportunity.
“I believe the auto industry will change more in the next five years than it has in the last 50, as we develop new options and modes of transportation for moving us from point A to B. This gives us an unprecedented opportunity to develop cleaner, safer, smarter and more environmentally friendly vehicles for our customers.“ – Mary Barra, CEO of General Motors
GM faces real regulatory and competitive risk
Enter General Motors (“GM”). Can the company that introduced the world to the “H2” Hummer really transform it’s business and product line to be sustainable? Mary Barra, GM’s CEO, has made it clear that she believes the company can adapt their business to directly confront climate change.
GM faces intense regulatory pressure on both their manufacturing process and their products. The numerous regulations that govern GM are determined by a web of state, federal and international agencies that regulate pollution [2]. These agencies regulate both GM’s supply chain and their product lines. GM’s is held financially accountable for pollution or other environmental damage originating from its manufacturing operations regardless of cause. Meanwhile, other regulations require that GM’s vehicles meet annually increasing standards for car emissions, fuel economy and sales of zero emission vehicles (“ZEVs”)[2]. President Obama reiterated this point, proclaiming in his 2011 State of the Union that the United States would have 1 million electric vehicles on the road by 2015 [3]. Obama’s speech set off a race to create the next generation of vehicles, an electric car that would resonate with consumers pull the world into a more sustainable future.
Finding success with transparency and sustained innovation
General Motors believes that fostering conversation and investing in technology are the keys to navigating this new world of growing regulatory and competitive risk. To that end GM has made a commitment to provide full transparency for climate related data to start a dialogue and identify areas for improvement. This year, CDP, the world’s only global environmental disclosure system, awarded GM perfect scores on climate change data disclosure [6].
At it’s core, GM has always been an engineering company. They invest in a high-level of R&D ($7.5 billion in 2015) to deliver technologies that position GM to comply with regulation and compete more effectively [2]. These technologies include eco-friendly propulsion (Hybrid, Plug-In, Alternative Fuel Vehicles, Hydrogen Fuel Cell, etc.) and process innovations within GM’s manufacturing operations [2]. As of 2015, approximately 50% of GM’s manufacturing operations were landfill free [2]. Through these innovations, GM estimates that in 2015 alone, they recycled 2 million metric tons of waste and avoided ~9 million metric tons of greenhouse gas emissions [2]. These incredible results have earned GM praise and in 2015 GM was the only automaker to be named to the 2015 Dow Jones Sustainability Index for North America, the leading global benchmark for corporate sustainability [7].
The ZEV Opportunity: Converting world class technology into a world class product
In 2010, GM was first to market with their Chevrolet Volt, however the Volt did not connect with consumers and in its first year only managed to sell 7,671 units [4]. Subsequent year sales were no better, and unfortunately the Volt has never managed to exceed 24,000 annual units [4]. Tesla has emerged as a strong up-market competitor and validated the market with sales of 50,000 Model S units in 2015 [5]. If GM is to succeed in their strategy of sustainability they must convert their world-class IP library, global supply chain and portfolio of brands to compete and win in this high growth space. (780 words).
Sources:
[1]: Citi GPS Report: Energy Darwinism II, 08/15, Citi.com. Accessed 11/03/16.
[2]: General Motors 2015 Annual Report (form 10-k), Edgar (sec.com). Accessed 11/03/16.
[3]: 2011 State of the Union Speech by Barack Obama, 01/25/11, The White House. Accessed 11/03/16.
[4]: Chevy Volt Sales Estimates, 06/09/16, hybridcars.com. Accessed 11/03/16.
[5]: Tesla Model S Sales Estimates, 01/03/16, BGR.com. Accessed 11/03/16.
[6]: GM 2015 Corporate Sustainability Report, GMSustainabilityReport.com. Accessed 11/03/16.
Jordan – thanks for the insightful post. I agree with your assessment that the auto companies that most quickly adapt to the new standards of low environmental footprint will be the only ones to survive. In particular, the auto industry is fighting the following battle: it faces increasing manufacturing costs as a result of green regulation and customers wanting more in their cars (e.g. smartphone connectivity, better mileage, ergonomic seats, etc.) but the price of the average midsized vehicle has stagnated over the last two decades. I believe the Chevy Volt failed because it did not carry the “cool” factor that Teslas do, and provided little differentiation from the dominant player, the Prius.
The question for me is not really about fuel efficiency, which many companies are working on, but rather, whether GM can be a leader in designing urban transportation systems that incorporate driverless technology to reduce the carbon footprint. Do you foresee a world where very few people own their own cars, but everybody uses UberPOOL driverless cars to get to their destination, reducing traffic and increasing car utilization?
Thank you, Jordan. Building on Ilan’s point, I agree that the dilemma OEMs are facing today is around building more environmentally friendly cars through the use of more efficient technologies while at the same time dealing with the increased costs which cannot be passed onto the consumers due to their low (and increasingly lower) willingness to pay EXTRA for green products. While I think it is important to research and develop products for the next generation of propulsion technology (e.g. EVs), I don’t understand why the American OEMs (including GM) are not doing a much better job of deploying existing fuel-saving/carbon reduction technologies to their vehicle offering. There are a variety of technologies available, which have a very attractive $ cost/g of CO2 saved. These include for example start/stop technology which have a 80%+ penetration among European OEMs, but still have very little penetration among the US OEMs. Another one is the 48V mild-hybrid technology, which many European premium OEMs plan on rolling out in 2017. Here the entire board systems gets upgraded from a 12V to a 48V system, to enable better recuperation of break energy. A light battery and electric motor then provide extra boost to aide vehicle dynamics and also enable sailing and coasting (engine constantly shuts of in no torque required). This is effectively the inverse idea of the Volt with a main (chargeable) electric propulsion system and a back-up combustion engine. I think these described technologies could be the better path to achieving a quick and significant emission reduction while balancing profitability.
Thanks Jordan. A quick response to Ilan’s point about UberPOOL driverless cars. I suspect that it will not be in auto manufacturers’ best interest to see a rapid use of car pooling or mass transit in the United States. The U.S. market is so huge for GM that it could go as far as placing lobbyists in D.C in order to ensure that high speed trains, for instance, don’t become common place here.
GM has shown a strong commitment to sustainability, which must be commended. For some reason though, Japanese and Korean manufacturers have consistently produced more fuel efficient vehicles that their U.S counterparts. Is there a clear engine or aerodynamic technology gap between GM and the Asian giants? Could the difference simply be attributable to the seemingly larger cars produced by GM compared to say, Toyota?
Jordan, it was interesting to read your post about GM. I can assume GM must have huge complicate relation with the climate change. First, it is a huge manufacturing company, but more importantly, the regulation and environmental bar is changing very fast. Like your post mentioned, President Obama and other political leaders are getting more and more interested in the environment regulation. I think this will have a great amount of effect to GM even further. Nice to read your blog! Thank you.
Great post, Jordan! I really like your take on the two threats- regulatory and competitive. As far as the regulatory piece goes, I had no idea that the car industry was regulated so heavily. The competitive piece makes me think one thing, Tesla. Tesla has done such an incredible job in this space of appealing to the high-end segment with the introduction of the model S. That will only trickle down to even more robust market share when the model 3 (https://www.tesla.com/model3) officially hits the market. This, combined with the very weak showing (7,641 units sold in 2015) of the Volt, makes me believe that GM has some work to do.
I am very impressed with the perfect CDP score that GM received on data disclosure. This is remarkable! It is nice to see, especially with the controversy of VW this past year, a car company being fully transparent with respect to its carbon footprint. As I compare GM to other companies I have read about in this exercised, I am convinced that the firm is truly doing everything in its power to reduce its carbon footprint. The world is going electric, and if GM can’t find market share it may not exist in the long run.
It would be interesting to be able to quantify the affect of President Obama’s speech at the State of the Union last year on the electric car industry. I find it interesting that there was such a surge in electric car development and plans of development after the speech. President Obama has talked about global warming legislation in the form of a variant of cap-and-trade laws since taking office. I wonder if this “threat of regulation” has also been a key driver in GM’s sustainability efforts.
Thanks for the great post, Jordan! I’d like to try to answer Anto’s question about why GM has not been able to sell as many fuel-efficient/electric cars as their Japanese and Korean competitors. I think Jordan hit the nail on the head when he said, “Can the company that introduced the world to the “H2” Hummer really transform it’s business and product line to be sustainable?” In my opinion, GM likely has an image problem, in that their cars, like many American brands, are known for power and size rather than fuel efficiency and sustainability. I think that if they want to compete in this space, they will have to change consumers’ perceptions of what their brand stands for. This will likely be costly for them, but hopefully they can find a way to make the ROI work on this brand investment, as well as on the huge R&D investments Jordan mentioned.
Great post, Jordan! From my name, you can tell I also wrote a post about the implications of climate change on the auto industry (Nissan in particular). Do you think GM is really doing all they can to limit the effects of carbon emissions in its manufacturing process, and producing zero emission vehicles? My concern is that the CDP is rating a lot of these organizations with perfect scores, rather than pushing them to do more. I think the auto industry players should focus on more consumer education of on electric vehicles, limit the production of traditional gas vehicles, and further investigate the benefits of self-driving cars.
Thanks for the great post, Jordan. Something I hadn’t thought of until this post was how GM has to confront climate change on two fronts: its manufacturing processes and the products themselves. It must be a very challenging problem for GM to tackle-innovate to make your manufacturing process cleaner while at the same time push the envelope on electric/hybrid cars. It seems that GM has no choice but to attack both simultaneously. A single approach strategy would be incomplete and could make GM seem anti-green, a car maker whose lost its innovation edge, or a combination of both. I find it very interesting how it seems GM has gained more traction in reducing greenhouse gas emissions from its manufacturing processes when compared to the low popularity of its green products (such as the Volt). I wonder why that is. Perhaps it is easier to innovate your own manufacturing processes, which are not directly under the consumer eye. Secondly, the timeline of government regulation helps in this area. GM is under higher pressure to get its manufacturing emissions under control, given that the manufacturing emission reduction regulation push has been going on much longer than the electric car push from President Obama in 2011. The problem with GM’s approach is that it is losing market share competitiveness to companies like Tesla and Toyota by remaining stagnant in electric car innovation. The Volt was a huge step in the right direction, but it may have been too early for consumers and it did not strike the right chords with potential buyers. I think GM needs to reinvigorate its efforts on the electric car front and leverage its “first mover” advantage in this space. Thanks Jordan!
Jordan, thanks for this great post. I’m so interested in GM’s investments into future-facing technologies. They also recently invested in Lyft, citing the very long-term potential for changing car ownership and (hopefully/eventually) driverless cars. Did you come across anything in your research related to GM’s opinion on the subject?