Don’t call it a comeback. As General Motors moves forward with plans to recapture its status as a publicly traded company, one question seems to dominate coverage in the financial press: Why now?
Despite two consecutive profitable quarters, consumer confidence continues to drag and most analysts are pessimistic about the short-term outlook for both domestic and international auto sales across the industry. Meanwhile, GM’s market share has continued to shrink. As Dennis Virag, president of Automotive Consulting Group put it on Bloomberg Television today, there is a strong suspicion that the company’s decision to move forward with an IPO at this stage is “more political than practical.”
Still, GM’s S-1 filing with the SEC does provide us with some valuable insight into how it plans to turn things around in the coming years—even if it sends some confusing signals about what role the company’s newfound commitment to fuel economy will play in that process.
Now or Later?
On Tuesday, we summarized General Motors’s fuel economy strategy as follows: “Mild Hybrids, Then Full Hybrids, Then EVs, In That Order.” And while there’s certainly no question that winning the long-term market strategy battle is essential to success in the automotive industry, one questions just how far behind GM actually is in the efficiency race. What should be perfectly clear from reading GM’s S-1 filing though, is that the company would very much prefer that gas prices remain low for the time being.
The carmaker is still heavily dependent on truck and SUV sales, and according to Consumer Reports, only one of the company’s nine best vehicles gets more than 25 mpg in fuel economy. As GM itself put it in today’s filing, “Any future increases in the price of oil in the U.S. or in our other markets or any sustained shortage of oil… could reduce our market share in affected markets, decrease profitability, and have a material adverse effect on our business.”
That may sound like a blanket statement that would ring true for any carmaker, but it’s not. Toyota’s market share grew precipitously during the gas spike of 2008, and several other companies have radically shifted their business models to benefit from future price increases and the coming hikes in federally mandated CAFE standards.
Plotting a Different Course
As most carmakers ready a host of dedicated hybrid, TDI and even fully electric vehicles to compete in the coming years, GM is only now preparing to re-enter the hybrid sector with a series of mild hybrids that it plans to begin rolling out next year. While taking a more measured approach could ultimately be more beneficial in the short term if gas prices remain low, it only places more pressure on GM to deliver in a big way when it unleashes its more ambitious fuel-saving offerings in the future.
“We plan to invest heavily between 2011 and 2012 to support the expansion of our electrified vehicle offerings and in-house development and manufacturing capabilities of the enabling technologies-advanced batteries, electric motors and power control systems,” said the company in its filing. But we’ve already heard so much about the investment that GM has put into these technologies over the years—with only a famously-killed EV1, a scrapped lineup of mild hybrids, and a much-touted but still untested Chevy Volt to show for it.
Among the more promising cars on the horizon for GM are its forthcoming mild hybrids—which the company expects to produce 100,000 of next year—and several small cars like the Chevy Cruze. Those vehicles should offer fuel economy gains at a minimal price premium for consumers, which could turn out to be a lucrative strategy in emerging international markets like China and India, and help the company among urban consumers in the United States and Europe who have increasingly shunned large gas-guzzlers in favor of more practical, affordable offerings.
Few question whether General Motors’ lineup, outlook or corporate culture have improved since the company was forced to “get the message” several years ago. What remains in doubt is whether the economic climate—and oil price index—will be hospitable enough to sustain growth in the near term, and whether the carmaker has the right vehicles in the pipeline to compete further on down the road.