GM's Plan for World Domination

Wall Street may not have caught on yet, but things have been changing in a big way at General Motors (NYSE: GM  ) – and there are more big changes to come.

GM held its annual Global Business Conference on Tuesday, hosting a select group of Wall Street analysts in Detroit for a day of presentations by senior GM managers. Your humble Fool wasn't among that select group, but I did get a copy of the slides and was able to listen in by phone.

And I'm glad I did. GM laid out part of its plan for the next few years, and it's both very interesting and very familiar.

A better idea worth stealing
It's clear that GM CEO Dan Akerson and his team have taken a page -- OK, more like several books, a copy machine, and a library card -- from Ford (NYSE: F  ) , the local shining example of how to turn around a moribund automaker.

Lest you think I'm knocking the company for that, let me be really clear: That's a good thing. Ford's medicine, with some modifications, is exactly what is needed to cure what still ails post-bankruptcy GM. This sort of approach is what I was hoping for when I bought GM shares in the wake of the IPO last year, and it's why I've continued to be (mostly) optimistic about the company's future even when old boneheaded GM-think occasionally seemed to reassert itself.

The essential idea behind the "One Ford" plan that GM is riffing on is this: Reduce the number of products sold around the world and build them on the smallest possible number of "platforms," industry-speak for a set of common dimensions and parts that can be shared among different models to lower costs and streamline production. With fewer products to engineer from scratch, more money and resources can be lavished on the development of each.

That in turn results in better, more competitive products, which can be sold at higher prices with fewer of those margin-killing "cash back" incentive campaigns. And that means strong sales and greater margins. Add in strict cost controls and sound attention to business fundamentals, and the result is solid, sustainable profits.

That, more or less, is how companies like Toyota (NYSE: GM  ) and Honda (NYSE: HMC  ) have done business for decades. Ford has been working on its plan since 2006, and over the past few years, the fruits have been apparent -- a string of hit products and solid profits, despite a sluggish sales environment.

And now, that's where GM -- which is already profitable and already has some strong products -- is planning to go.

Maybe these guys know what they're doing after all
Back in January, when Akerson designated Mary Barra as GM's new product chief, I couldn't quite see what he had in mind. There was no doubt that Barra was a capable executive, someone said to have a knack for getting diverse groups to work well together, but her background in manufacturing and HR seemed to make her an odd choice to succeed retiring product visionary and Detroit icon Bob Lutz.

It turns out that Barra's role wasn't really to be the next Lutz, but rather to do the hard work of streamlining GM's global product portfolio -- and the maybe-even-harder work of fixing GM's messed-up product-development process once and for all.

Barra said yesterday that by 2018, the company will be building 90% of its vehicles -- total, around the world -- on just 14 "core architectures," or global platforms. GM today has about 30 different platforms, some of which are used only in a single region, and the latter account for quite a bit of volume. Only 31% of GM's current production is built on genuinely global platforms.

Rationalizing and globalizing those architectures will lower GM's engineering and production costs significantly and allow the company to spend more developing each, just as Ford is doing.

But it's the other part of Barra's mandate -- to fix the product development process -- that really got my attention during Tuesday's presentation.

How to make a quick billion dollars
GM's new-product process has for years been marked by what Barra calls "churn." These are practices like starting and stopping and restarting projects in response to economic conditions or management whims, making major changes very late in development, canceling projects after significant money has been spent, and making major changes in leadership or assigned staff mid-development. Anyone who has watched the company for years has seen plenty of this kind of thing. It's classic old-GM dysfunction.

New GM, on the other hand, estimates that this churn has cost the company a billion dollars annually. Barra's plan is to minimize churn from now on by stabilizing development plans and committing to what she and CFO Dan Ammann called a "straight line investment strategy." Simply put, that means that GM has committed to steady product investment even through economic downturns, something made possible by the company's $30-billion-plus cash hoard.

The upshot? Faster time to market, more efficient use of internal resources, and a huge cost savings that will be realized in "months, not years," Barra said yesterday.

The upshot: The right way forward
Barra's revamp is only one part of what GM presented yesterday, and I'll be writing more about other aspects in the coming days. But I highlight it here because it elegantly shows us where GM is headed -- and it's in the right direction.

The trick will be in the execution. It's one thing for GM managers to lay out a sensible plan and another thing entirely to get GM's cumbersome bureaucracy to play along. It'll take some time before we know how well this revamp is going to work out in practice, and continued skepticism may well be warranted.

But I'm thinking that I may have underestimated Dan Akerson. His tenure hasn't exactly been smooth, and his understanding of the nuances of the car business may still need some work. But in terms of fixing what has been for decades a very broken business, he might yet turn out to have been the right guy for the job.

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Fool contributor John Rosevear owns shares of Ford and General Motors. You can follow his auto-related musings on Twitter, where he goes by @jrosevear. The Motley Fool owns shares of Ford. Motley Fool newsletter services have recommended buying shares of Ford and General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (7) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 10, 2011, at 9:01 PM, JosephBoyle wrote:

    I wish them the best but i really do not think they understand that is has always been about quality and reliability over the long term, not for the first couple of thousand miles. Management does not see this because they get to ride new cars and return them when they have just a few miles. I love GM cars but the repair bills have kept me away. Unfortunately for GM, Japanese cars are cheaper to maintain.

  • Report this Comment On August 10, 2011, at 10:19 PM, bbwinski wrote:

    Even if GM can move forward as planned, it will not succeed because it has lost its credibility among former stockholders who were dumped when GM filed for bankruptcy and by tens of thousand of others who, for the same reason, do not trust GM; both groups will be hard pressed to buy any GM product.

  • Report this Comment On August 11, 2011, at 2:20 AM, youngblood58 wrote:

    Buy Ford instead. And don't forget Toyota and Honda.

    GM is still a strong brand, but I just don't want anything to do with them or their crappy vehicles.

  • Report this Comment On August 11, 2011, at 5:14 AM, NextGen2020 wrote:

    Fools...Just sit still and watch GM PASS you by.

    GM is winning in many areas today and will win in even more tomorrow.

  • Report this Comment On August 11, 2011, at 8:50 AM, fr8bil wrote:

    Until GM learns how to be consumer friendly/responsible they will not dominate anything. Take the 2009 Lambda platform encompassing the Buick Enclave, GMC Acadia and Chevrolet Traverse all powered by the 3.6 V-6 with direct injection. There is a well-known expensive problem with this model year engine wherein it is very prone to stretching the timing chains driving the overhead cams. GM, still driven by it's 1960's management style, has chosen not to recall these expensive vehicles and replace the defective chains with newer, updated parts. Instead, they send letters to the owners telling them to take the vehicle to the dealer for a "re-flash" of the on-board computer adjusting the Oil Life Monitor system to require more frequent oil changes. Like that is going to "fix" anything. GM management has left these owners swinging in the breeze hoping that the chains won't stretch until the warranties have expired which will save them about $4K ea. in repair costs. Owners know this, deeply resent it and are spreading the word not to buy GM products as they do not back them up and repair their manufacturing errors when they are discovered.

  • Report this Comment On August 11, 2011, at 2:42 PM, chadscards1274 wrote:

    My only question is let's say GM continues to impress and make money, let's say the market allows this stock to get up into the $30 or $40's doesn't the government still own something like 27% of the company? We know the US Government isn't a long term investor so shouldn't this overhang cause a ceiling on the stock?

  • Report this Comment On April 17, 2013, at 10:51 AM, veteranpatriot wrote:

    I like GMC products. WHAT I DON'T CARE MUCH FOR IS THAT GMC IS UNDER THE THUMB OF OUR FEDERAL GOVERNMENT. WHY WONT THEY PAY OFF THE LOAN AND GET THE HELL BACK TO BEING A PRIVATE BUSINESS? GMC IS CATERING TO CHINA, WHAT ABOUT WE' THE PEOPLE? WE PUT GMC ON THE MAP, THEY NEED TO MAKE THINGS REALISTIC FOR ALL AMERICAN AUTO OWNERS TO MAINTAIN THEIR VEHICLES. THERE IS SO MUCH RED TAP FROM THE GOVERNMENT IT'S HARD TO KEEP THE OVER ALL COST DOWN FOR ANY PART OR SERVICE. WILL ENTREPRENEURSHIP LEAD THE WAY? WILL ANY GROUP OF PRIVATE BUSINESS OWNERS/INVESTORS, BRING A NEW AMERICAN BREED OF VEHICLE TO THE MARKETPLACE, OWNED BY THE EMPLOYEES, AND THE AMERICAN PEOPLE. 1.)(ALL AMERICA MOTORS, 2.)WE' THE PEOPLE MOTOR COMPANY. WE CAN MASS PRODUCE THE WATER HYDROGEN VEHICLE, THE TECHNOLOGY IS STABLE. TO BRING DOWN THE COST AND SAVE ON INSURANCE EXPENSE'S, MANUFACTURE THE BODIES OUT OF HEMP. YES, HEMP, IN THE THIRTIES A VISIONARY CAR COMPANY BUILT A PRO-TO TYPE THAT WAS RESILIENT TO IMPACT, THE HEMP AUTO BODY TESTING LIVE WAS A MAN WIELDING A SLEDGE HAMMER TO THE FENDER, IT BOUNCED OFF WITH NO DAMAGE, DIDN'T EVEN KNOCK THE PAINT OFF. WE HAVE THE KNOWLEDGE, WE HAVE THE TECHNOLOGY & WE HAVE THE TOOLS. WE HAVE TO MAKE A TRUE DIFFERENCE IN THE AUTOMOTIVE WORLD. 3.) my favorite, GREENWATER MOTOR COMPANY, THE FUTURE IS NOW. HOPEFULLY THIS WILL PLANT THE SEEDS OF INNOVATION.

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