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Autoline on Autoblog with John McElroy
Unlocking GM's Inner Value
Even though it's bankrupt and the price of its stock has collapsed, General Motors is worth a lot more money than most people realize. And if the company were to take a radically new approach to how it runs its business the payoff could be enormous.
GM's market capitalization is at ridiculously low levels. The total value of its stock is presently less than half a billion dollars. But the company is really worth a lot more than that. When you add up the value of all the land, buildings, tools, machinery, equipment, patents, research labs, proving grounds and every other asset it has, GM is worth over $140 billion. There's even more value in the know-how, knowledge and experience of its people.
But how do you unlock all that value?
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John McElroy is host of the TV program "Autoline Detroit" and daily web video "Autoline Daily". Every week he brings his unique insights as an auto industry insider to Autoblog readers.
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This is kind of like the way they did it in the glory days when Detroit's automakers still dominated the global automotive industry. Back then the general manager of Chevrolet, for example, ran the division as if it were a stand-alone company. He'd be in charge of everything from design to engineering, manufacturing, sales and advertising.
Yes, there were a lot of duplicate resources and overlap with GM's other divisions. But if you want to capture 50% of the market you have to tolerate a certain amount of inefficiency. GM was able to grab that much market share because every division had a crystal clear focus on what its brand stood for and the products it had to make. The division managers didn't have to make compromises to satisfy the "greater good" of the corporation.
Why not revive this concept and apply it to the new GM? But with a couple of modern updates.
Certain corporate functions, such as Design, Engineering, and Manufacturing should remain as centralized corporate operations. But under this scheme they would be treated as their own separate business units, with their own P&L.
The different brands, brought back as separate divisions, would contract the work they need from the centralized corporate operations. Chevrolet for example, would contract with GM Design to design the cars and trucks it wanted. It would contract with GM Engineering to develop them and with GM Manufacturing to build them. The same would hold true for Cadillac, GMC and Buick.
Once this system was in place and operating smoothly, the car divisions would publish their own annual reports. The next step would be to go public with their own IPO. Investors would be able to buy stock in whichever division looked best to them, and to ensure it shared in the wealth they generated GM would retain majority ownership in each of them. And of course investors could still buy stock in GM.
The company already did something like this when it owned Hughes Electronics and EDS. Investors could buy GM-H or GM-E stock.
By providing investors with a much clearer view inside the corporation they would be able to invest their money in the most profitable parts of the company. This would truly unlock the tremendous value that is currently trapped within General Motors.
We live in a brave new world. What seemed impossible just a matter of months ago is completely within our grasp today. The auto industry is going through a violent restructuring, and whoever comes to grips with the new reality first is going to be way ahead of all the others.
Autoline Detroit
Airs every Sunday at 10:30AM on Detroit Public Television.
Autoline Detroit Podcast
Click here to subscribe in iTunes
Follow Autoline on Twitter for ongoing updates every day!
Even though it's bankrupt and the price of its stock has collapsed, General Motors is worth a lot more money than most people realize. And if the company were to take a radically new approach to how it runs its business the payoff could be enormous.GM's market capitalization is at ridiculously low levels. The total value of its stock is presently less than half a billion dollars. But the company is really worth a lot more than that. When you add up the value of all the land, buildings, tools, machinery, equipment, patents, research labs, proving grounds and every other asset it has, GM is worth over $140 billion. There's even more value in the know-how, knowledge and experience of its people.
But how do you unlock all that value?
____________________________________________________________________________________
John McElroy is host of the TV program "Autoline Detroit" and daily web video "Autoline Daily". Every week he brings his unique insights as an auto industry insider to Autoblog readers.
____________________________________________________________________________________
Brand managers have been little more than glorified sales managers.
I'm fascinated with the approach that Sergio Marchionne, Fiat's CEO who is now running Chrysler, is taking to reorganize Chrysler's management structure. Up to now the brand managers have been little more than glorified sales managers. But taking a page of how he turned Fiat around, Marchionne is naming a CEO for each brand and giving them full profit and loss (P&L) responsibility.This is kind of like the way they did it in the glory days when Detroit's automakers still dominated the global automotive industry. Back then the general manager of Chevrolet, for example, ran the division as if it were a stand-alone company. He'd be in charge of everything from design to engineering, manufacturing, sales and advertising.
Yes, there were a lot of duplicate resources and overlap with GM's other divisions. But if you want to capture 50% of the market you have to tolerate a certain amount of inefficiency. GM was able to grab that much market share because every division had a crystal clear focus on what its brand stood for and the products it had to make. The division managers didn't have to make compromises to satisfy the "greater good" of the corporation.
Why not revive this concept and apply it to the new GM? But with a couple of modern updates.
Certain corporate functions, such as Design, Engineering, and Manufacturing should remain as centralized corporate operations. But under this scheme they would be treated as their own separate business units, with their own P&L.
The different brands, brought back as separate divisions, would contract the work they need from the centralized corporate operations. Chevrolet for example, would contract with GM Design to design the cars and trucks it wanted. It would contract with GM Engineering to develop them and with GM Manufacturing to build them. The same would hold true for Cadillac, GMC and Buick.
The executives running these operations would treat them more like their own business.
This would provide tremendous transparency and accuracy as to the true cost of bringing new cars to market. The budgets of the centralized operations would be determined directly by what they could sell to the car divisions. The executives running these operations would treat them more like their own business. Decision-making would be pushed down much deeper into the organization and would be done far more quickly than today.Once this system was in place and operating smoothly, the car divisions would publish their own annual reports. The next step would be to go public with their own IPO. Investors would be able to buy stock in whichever division looked best to them, and to ensure it shared in the wealth they generated GM would retain majority ownership in each of them. And of course investors could still buy stock in GM.
The company already did something like this when it owned Hughes Electronics and EDS. Investors could buy GM-H or GM-E stock.
By providing investors with a much clearer view inside the corporation they would be able to invest their money in the most profitable parts of the company. This would truly unlock the tremendous value that is currently trapped within General Motors.
Spin off GM Powertrain, and convince Ford and Chrysler to sell off their powertrain operations to it.
One more thing. I'd spin off GM Powertrain, and convince Ford and Chrysler to sell off their powertrain operations to it. The new Powertrain Company would build engines and transmissions for all three, achieving massive economies of scale and providing each of them with much lower costs. And then I'd do an IPO with the new Powertrain Company, with GM, Ford and Chrysler collectively holding a majority share.We live in a brave new world. What seemed impossible just a matter of months ago is completely within our grasp today. The auto industry is going through a violent restructuring, and whoever comes to grips with the new reality first is going to be way ahead of all the others.
Autoline Detroit
Airs every Sunday at 10:30AM on Detroit Public Television.
Autoline Detroit Podcast
Click here to subscribe in iTunes
Follow Autoline on Twitter for ongoing updates every day!
Reader Comments (Page 1 of 1)
Throwback 4:07PM (6/19/2009)
Interesting comments but why would Ford sell their powertrain department to a competitor? That would be suicide.
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Adam Marcello 4:12PM (6/19/2009)
I have to disagree with the power train idea. Part of having multiple makers of cars means having different driving experiences. Engines and transmissions are a huge part of what makes cars unique.
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David 4:29PM (6/19/2009)
Transmissions are already made by a common supplier in many instances (my old Ford Mustang comes to mind, which had a Tremec T-56 transmission -- the same model (with a couple variations) that Tremec produced for Chrysler to use in the Viper and Chevrolet to use in the Camaro.
You might have a better argument with engines. But even then, we already see quite a lot of sharing going on between manufacturers without compromising the 'personality' of their cars. Who would guess [without knowing already] that the Hyundai Genesis coupe and the Mitsubishi Evo X share a very similar engine?
jpm100 5:03PM (6/19/2009)
That remark about Transmissions coming from common suppliers applies only to manual transmissions. And its true, they use the same suppliers, but there are multiple suppliers to pick from.
benzaholic 4:31PM (6/19/2009)
Yup. The Powertrain suggestion is the one I question most.
To a large extent, the mark of a car company is still the engines they create.
Consider Honda, Mercedes, BMW, even Toyota (especially with the validation provided by Lotus in using Toyota engines). Nissan's VQ family, Ford's EcoBoost family (and even the DuraTorqs that we still can't get domestically).
To really get the economies of scale, GM Powertrain would have to design a limited number of engine families and just provide minor tweaks for each customer. That removes a huge differentiating factor.
From an enthusiast's perspective, unique approaches to engines may not appeal to the huge general buying public, but standardized engines across the Big 3 reduces the possibility of choosing an engine whose design choices better match my desires. Think of engines like Saab's turbos before GM acquired them, Mercedes-Benz's bulletproof diesels of the early 80s, Alfa's overhead cam screamers of the 70s, BMW's current twin turbo 6, Porsche, or even Subaru's boxers.
John's suggestions may certainly make the most financial sense, but I think they would clearly lessen the value of each brand. It's bad enough being able to buy basically the same car under either the Ford or Mercury brand, or Chevy/Buick(/Pontiac/Caddy/Saturn, too, for many models).
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biznut 5:00PM (6/19/2009)
I agree with John and disagree with the powertrain nuts. I used to work for Powertrain (won't say which OEM) and when you really get deep inside each of the divisions, the real differentiator these days is software. The hardware and manufacturing ops can be spun off, but the differentiation can be done through software calibrations plus any hardware tweaks needed such as special cams or valve openings or transmission control head mods etc. The tweaks in hardware can be done in a way that still add significant volume to do car lines. How does powertrain do this kind of stuff today? It's the same principle multiplied by 3.
The upside I see is that in this case, Powertrain as a supplier will be forced to compete with the likes of Bosch, Denso, and others who are in segments of this business.
This will also force OEMs to standardize the interfaces between engines, transmissions and vehicles and force the powertrain supplier industry to follow (right now, everyone wants their own proprietary interfaces out of fear for competition in the guise of 'differentiation'). Wouldn't you, as an OEM, or a CEO of a Chevrolet or Cadillac, love to combine, in your car, the best in class engine and transmission (and chassis and others) just like it's done for the rest of the parts?
This is considered heresy in 'old' Detroit, while the rest of the world is moving on.
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Reimer 5:32PM (6/19/2009)
John was on the right track until he mentioned powertrains.How can a guy even think about Ford MOTOR Company selling off and then out sourcing its motor division?That's borderline heresy!
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Gardiner Westbound 5:43PM (6/19/2009)
How can giving the brand CEOs full P&L responsibility work when they have no control over design, engineering, and manufacturing quality and costs?
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KLR 6:00PM (6/19/2009)
Each division would probably have to sign off on the common services they want. If the pre-lim work doesn't satisfy them they'll have to push for more. Similarly, if the common services can't satisfy the brand managers then the services will have to answer to the top for that.
bvz 2:49PM (6/22/2009)
And to take this one step further, what happens if the CEO's are unhappy with what is being offered them from the design services etc.? Are they then free to contract with a service that is not under the GM umbrella? Not that I think the idea is a bad one, but I have questions.
Jimbo 6:08PM (6/19/2009)
I also disagree with the idea of spinning off the Powertrain divisions into one combined entity. We already have seen multiple problems with suppliers (Delphi, Visteon, American Axle, etc) going bankrupt or having union issues and forcing manufacturers to halt vehicle production. With one company providing powertrains to all 3, it could effectively shut down the whole U.S. vehicle manufacturing system if it ran into trouble. With each company having their own Powertrain division, that doesn't happen.
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dougjp 6:08PM (6/19/2009)
The article is built off this premise as a supposed "statement of fact", briskly followed by " But how do you unlock all that value?":
" The total value of its stock is presently less than half a billion dollars. But the company is really worth a lot more than that......GM is worth over $140 billion. "
Well I'm sorry but I don't agree, not even close. Value is the key word here, how did you establish that? Most of those assets are not marketable at ANY price, much less the ones you presumably gave great value to.
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warren 7:25PM (6/19/2009)
More half-baked bulls--t from McElroy. He should probably save it for the bar stool at the local watering hole instead of inflicting it on the Autoblog readership. I appreciate that McElroy's act amounts to "angry-man-with-a-mic" talk, grumbling on about "Government Motors" and how "Obama is designing cars" and all that other puerile crap.
The simple fact of the matter is that GM in North America has long since lost both the talent and the passion for greatness. Most of the people who have contributed to the middle-management bureaucratic nightmare that stops any really excellent idea from coming to the top are STILL THERE. Everyone else has left for greener pastures. It doesn't matter if some guy has a great idea that could put GM on top of the competition in some area... the good ideas will get stamped out by risk-averse middle-managers who (especially now) don't want to be seen doing anything that could be considered dangerous. I personally know people that left GM for Volkswagen, and to a one, all of them are happier for it.
Speaking of which.... Volkswagen Auto Group is a much larger company than GM and you don't see them struggling to bang out challenging and fascinating projects like the Audi Q5, the Mk. 6 Golf GTI, the Lamborghini Estoque Concept, the Bentley Continental Supersport, on and on and on. Every division of VAG has at least two very interesting projects going on, and -- significantly -- none of them compete with eachother. None. There is no significant overlap in their offerings, except for maybe some of the Skoda & Volkswagens in Europe and the UK. The idea that divisions of a car company should compete with eachother is rubbish -- it's extremely wasteful and it forces large swaths of the company to focus some of its energy on hurting sales of its other divisions. No. The right thing to do is to separate your brands and target them at different groups of people.
Finally -- the real value of a company is rooted in its ability to PRODUCE SALABLE GOODS, not in the dollar value of its assets. You don't buy stock in a company because they own $100 billion worth of assets; you buy stock in a company based on their ability to make a profit on those assets. GM isn't doing enough to show that they can compete on merit, and no serious investor is going to take it on faith that they can turn it around.
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tuxchown 8:11PM (6/19/2009)
You don't see Volkswagen building a reliable car either.
xtasi 2:04AM (6/20/2009)
@Warren: I agree with most of what you say, except the "not having divisions compete with each other." We have already seen that happen at GM. Omitting some features options from Chevy so that only Cadillac has them (look at GPS with a screen, other then the Corvette, which other Chevy has GPS?). In order to push forward, you need to try new things. Some will work and some wont... that's how research goes.
We already see cooperation among companies creating common tech, the hybrid tech on the GM trucks/SUVs is also shared with Chrysler and BMW (I think). However, the building of components is not. Having the industrial knowledge is a differentiating factor. If GM and Ford share an engine, but GM can build it cheaper, then GM has the advantage.
Mike!!ekiM 7:00PM (6/19/2009)
- Sell all patents related to the EV1.
- Sell the EV1 Cad-Cam files.
- Sell everything required to Make the EV1.
China-India are Still Growing even during this "Great Recession". Large field oil finds are getting harder to find and taking longer to find. Every barrel of oil is getting More Expensive to Extract, that isn't going to change. Now is the time to Get OFF OIL.
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dwaltr 8:54PM (6/19/2009)
Go back to la la land. The use of oil isn't going anywhere anytime soon. It's used for many other things than just the car industry.
Avinash machado 2:04AM (6/20/2009)
They also need to avoid overlapping cars across the brands. Now with just four brands it will be easier.But what about Traverse Vs Enclave Vs Acadia? Is there a need for all three?
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Rene Curry 11:12AM (6/20/2009)
Once you spin off the new powertrain unit as an independent entity they will have no competition, the price will rise, not drop. The automakers will have no flexibility using other suppliers or have alternative drivetrain selections. They are locked into the Powertrain model. Next, the auto companies will rethink the model and start making their own engines again or start buying from other automakers. This will do two things.
1) The new powertrain entity will drop prices and start selling to everyone at discount prices. This destroys their business model. So much for that spin-off.
2) Other virtual car companies can now be created that do not need to invest in infrastructure. Previously the "barrier to entry" into the auto market was knowledge, capital equipment, & labor. You just created a whole new level of competition that will take the auto market to the lowest based commodity model like the electronic industry.
Sidenote: The US auto industry will still be on a downhill slope, even after the bankruptcy reorganizations and the economy comes back. Too much manufacturing capacity in the world.. The only solution is for the dollar to continue to weaken and currencies in competing economies to strengthen. (namely China, Japan, India)
That would give domestic manufactured products a pricing advantage. Then the next wave would be for those foreign manufacturer's to come here and build vehicles. That would be good for our economy (if the Peso also strengthens) , although this may not be good for Ford, GM, & Chrysler.
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