I bought a first-year model GMC truck a few years ago and had to have it towed three times in the first month. The computer was causing the emergency brake to lock up and not release. It took GM a few weeks to work out a computer patch, but once they did, it has been one of the best vehicles I’ve ever owned.
GM might be better at patching than innovating.
General Motors’ earnings report was noticeably better this week than Wall Street’s estimates. It focused less on China and electric vehicles and more on North American trucks. Does the American economy need to do the same thing?
The phrase “As goes GM, so goes the nation” comes from a 1953 congressional hearing by Charles Wilson, the CEO of GM at the time. He thought that since GM was the largest manufacturer of its time and America was dependent on GM’s economic production, whatever was good for GM was generally good for America. Those hearings led to Wilson becoming President Eisenhower’s secretary of defense.
GM is no longer the largest U.S. employer now that Walmart and Amazon have grown so much. However, U.S. businesses could learn something from a GM that won’t seem to die. While GM filed for bankruptcy as recently as 2009, it has tried to maneuver its way back into respectability, and some of its moves are worth watching.
GM’s CFO Paul Jacobson said in a news conference, “It was truly a great first half and second quarter, and we’re positioned to have a very strong year.”
So, what repositioning has GM made?
They are pulling back on China. GM entered the Chinese market in 1997 when the Buick brand became one of the most popular brands in the country. They are reducing inventories in China to better match customer demand after their Chinese operations lost $104 million last quarter.
GM is pulling back on electric and self-driving vehicles. GM announced that it is indefinitely pausing production of its self-driving car, Cruise, after a huge drop in demand following an October accident in which a driverless Cruise hit and dragged a woman 20 feet. They are also delaying a new Buick electric vehicle and a new EV truck factory because of slower-than-expected electric vehicle adoption by U.S. consumers. GM lost more than $600 million last quarter on electric cars and self-driving vehicles.
They are refocusing on their core vehicles. GM is redirecting marketing and attention to its North American operations, especially its core truck-and-SUV business, which had earnings of over $4 billion because of a 40% earnings increase. These huge numbers pushed GM to beat estimates despite large losses in EVs, driverless cars and China.
It is no longer “As goes GM, so goes the nation,” but maybe it should be: As GM shifts, so should U.S. businesses, as well.
The businesses in America that are thriving in this challenging environment are those that aren’t getting too far ahead of their customers’ spending habits. Even as I write this, the Nasdaq is dropping after lackluster Google and Tesla earnings, worrying investors that Big Tech’s train is slowing down.
GM is weaning itself off of China and letting its customers tell it when they want more electric vehicle options. Refocusing on its “bread and butter” might be a good strategy for many other companies. Profits can be made in China and other international areas, but the biggest source of profits is found in North America with products Americans are familiar with. The shift back to North America is fully in force, and change is speeding up as more companies see how difficult it is to do business in China. The companies that make the shift will be rewarded, while those who don’t will struggle.
I saw the guy who oversees the service department at the local GMC dealership at a restaurant last weekend.
He said, “Have you had any more problems with that brake?”
I laughed and said no.
He said, “You know, sometimes GM gets a little ahead of itself but almost always figures it out in the end.”
I think he might be more right than he knows.
Have a blessed week.
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