GM Charts Course for Noncore Businesses – Wall Street Journal

Posted: Friday, November 04, 2016

General Motors Co. finance chief Chuck Stevens said more of the car maker’s profit will come from noncore operations like the Maven mobility brand, which offers car-sharing services and rents or leases vehicles to drivers for ride-sharing firms.

General Motors Co. is planning for life after the light-vehicle boom ends.

The Detroit auto maker expects to add $2 billion in operating profit from noncore businesses such as vehicle financing programs and car accessories by 2019, a top executive said on Thursday.

Finance chief Chuck Stevens, speaking at a Goldman Sachs conference, said revenue gains from its GM Financial lending arm, mobility services like ride sharing and other lines of business will contribute more to the company’s bottom line. The $2 billion forecast represents nearly 20% of what analysts expect the company will earn on an operating basis overall this year.

The estimate comes as U.S. auto sales cool. GM once relied on businesses outside of car-making, such as its former GMAC lending arm or Hughes Electronics, for meaningful profits and diversification, but it divested those units as it tried to save its core business.

Having spent most of the last decade slimming down and cutting manufacturing costs and other overhead, GM now is pursuing “growth opportunities,” Mr. Stevens said, in new ventures centered around transportation needs such as GM’s Maven mobility brand, which offers car-sharing services and rents vehicles to drivers for ride-sharing firms Lyft Inc. or Uber Technologies Inc.

Drivers using the Maven system have logged 23 million miles across 10 cities since its launch early this year.

GM is among several car makers looking for a role in the fast-growing business of tech-enabled transportation, like ride-sharing where companies including Uber or China’s Didi Chuxing Technology Co. have a head start. In September, Ford Motor Co. told investors a new business unit focused on transportation services like robo taxis, bike sharing and shuttle vans eventually will generate 20% operating margins, 2½ times that of its core car-making business.

Still, analysts question whether mobility can generate big profits for traditional auto makers soon. GM’s noncore profit target will come more from expanding the GM Financial lending arm and other established businesses rather than new innovations.

GM was forced to divest its former GMAC finance arm, now Ally Financial, in the cash-strapped years before the auto maker’s 2009 bankruptcy. Since then, it has gradually built GM Financial into a captive-finance operation that rivals Ford Credit, partly through the $3.5 billion acquisition in 2010 of subprime lender AmeriCredit.

GM Financial generated $837 million in operating profit last year, and GM wants to grow it by expanding inventory financing for dealers and boosting loans to well-qualified borrowers. GM said last year that the captive lender could more than double profits to as much as $2 billion annually by 2018.

The auto maker has said GM Financial also helps sell more cars by building customer loyalty through exclusive lease programs, for example. Stevens estimated that the lender adds $500 million in annual operating profit by boosting sales volumes, a figure he sees doubling in coming years.

GM also is attempting to expand parts and accessories sales, offering pricey add-ons like bigger wheels and custom exhaust systems for pickup trucks and sports cars. GM President Dan Ammann said in 2015 the parts and accessories business generates “billions of dollars” annually in operating profit, with between 30% and 40% margins among the highest of any product line.

GM also wants to boost profits from its decades-long investment in OnStar, which has included equipping nearly all of its models with a high-speed wireless connection. Last week, GM said it would introduce a service that uses International Business Machines Corp.’s Watson artificial intelligence technology to connect drivers with merchants.

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