General Motors is prepared for an economic downturn, but continues to cut costs to achieve a trimmed-down norm going forward as the automaker closes the gap in profit margins between electric vehicles and those of gasoline-powered cars, CFO Paul Jacobson said Thursday.
Speaking at the Deutsche Bank Global Auto Conference in New York, Jacobson touched on a wide range of topics including where GM can trim more costs after its headcount reductions earlier this year and how GM expects to make more money by selling subscriptions to consumers. He even touched briefly on the upcoming contract negotiations with the new leadership at the UAW.
“We’ve got to maintain a good relationship with our employees,” Jacobson said. “You want people who are putting quality effort into the work and that they feel valued for the work they’re doing going forward. We’re in a period where we are trying to seek understanding with each other and get to a period where we can work it out.”
Where can GM cut to save $2 billion in costs by the end of 2024?
As the Free Press first reported on Feb. 28, GM cut several hundred jobs from its global salaried workforce of 81,000 that day. In April, GM said about 5,000 salaried workers accepted buyouts.
“Our cost program came out of the gates really strong,” Jacobson said, noting that GM expects to achieve half of that $2 billion in cost reduction by the end of this year. But GM is cutting across the company, including in its “marketing, discretionary spend, such as travel, overhead … et cetera,” he said. GM will share more detail in its second quarter earnings call next month.
“We don’t want this to be a program and then go back to what it was,” Jacobson said. “We really gotta change and cultivate improvement. We know where we need to be as we get EVs’ margins comparable with (internal combustion engine), then ultimately expand those EV margins going forward. This is laying a lot of track for the future and it’s building that level of discipline.”
What happens to GM if there is an economic downturn?
GM has a “playbook” to cut parts of its capital expenditure — the money GM spends to maintain operations and fund research and development.
“We’ve got enough flexibility… and the cushion is the free cash flow that we’re generating now,” Jacobson said. Free cash flow refers to the money left after a business pays its day-to-day operating expenses. “Even with the capital expenditure that we’ve got, we’ve still got $5.5 billion to $7.5 billion in free cash flow coming out of that. We’ve got pretty good shock absorbers in place.”
GM is spending $11 billion to $13 billion a year through 2025 to fund its transformation to EVs. In a downturn, Jacobson said, some of that money could be cut or reprioritized.
Will GM self-driving subsidiary Cruise deliver profits by the end of the decade to make it worth GM’s billions in investment upfront?
“Absolutely,” Jacobson said. “We put a lot of capital into it; we need to be able to harvest the returns on that capital.”
As Cruise gets to $1 billion in revenue in 2025, he said the company will be able to grow it beyond there pretty rapidly because the cost of the technology will go down as it advances.
GM said software services will deliver $20 billion to $25 billion annual revenue by 2030. What will customers have to pay for?
Jacobson said GM will have more details about its plans for subscription revenue at its Investor Day this fall, but hiring Mike Abbott, a former Apple executive, to run GM’s software division will help GM lay out its commercial platform.
“We don’t want this to turn into customers got something for free before and now they have to pay for it,” Jacobson said. “It is more, how do we enhance the experience for those customers who want to purchase it and then how do we create so much demand for it because of the … awesomeness of the technology and what it can do? These are features customers are happy and excited about purchasing up, because it enhances the performance of the vehicle.”
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Contact Jamie L. LaReau: jlareau@freepress.com. Follow her on Twitter @jlareauan. Read more on General Motors and sign up for our autos newsletter. Become a subscriber.