DETROIT — As General Motors reduces its global footprint, pulling out of Europe, Russia, India and South Africa, its North American business becomes even more critical to the automaker’s future. That region, responsible for 99.4 percent of GM’s total adjusted earnings since January 2014, is Alan Batey’s domain.
Under Batey, who serves as both the president of North America and the head of Global Chevrolet, GM is projecting profit margins for the region to top 10 percent for a third consecutive year in 2017 as the company rolls out redesigned versions of four high-volume crossovers. GM’s rising North American profits, even amid declining U.S. sales, have validated GM’s strategy of prioritizing retail customers while reducing sales to car-rental companies.
Batey, 54, spoke last week with Staff Reporter Nick Bunkley, News Editor Krishnan Anantharaman and Director of Editorial Operations Dave Versical.
Q: How close is GM to the end of its cutback in rental-car deliveries?
A: 2017 is a continuation of the strategy and the path we’ve been on now for the past three or four years — by design, really focusing on the retail market, really keeping a very disciplined approach, building our brands, getting our brand health to really stand up and reducing our rental volume. Last year I think the industry ran at about 10 percent of total volume, and we were down exactly on target with that. This year, as we look at the outlook, we’re forecasting to be down around 50,000 units year over year.
Is GM planning rental reductions beyond this year? Is there a certain level of sales you’re trying to achieve?
Yeah, I think you’ll see a further reduction in 2018. It’s a bit early in the year, honestly, as we pull our plan together, to give you a number on that. We like the rent-a-car business from a seats-in-seats perspective because it’s great test drives, and it’s a great opportunity to expose new people to our products. We don’t like it when it’s bringing too many nearly new vehicles back into the market to compete with our new business and compress our resale values.
You’re planning plant downtime later this year and have said your inventory buildup is because of that. But is there concern that you’ve accumulated too much supply?
We’ve got downtime coming as we prepare the plants for some important launches. If you look at it just from a pure downtime perspective, that will probably bring our inventory down somewhere about 100,000 units in the second half of the year. We remain extremely disciplined, whether that’s from an incentive perspective or an inventory perspective. We made the tough decisions on cars back at the turn of the year because we could see what was going to happen. That’s meant we haven’t had to discount as heavily as some of our competitors have had to do as they’ve tried to shed their inventory levels. This is a very agile process. You have to react to different things you see. The total market feels a lot like it did last year. If you look at where the SAAR was through May, it was actually very, very close to where it is today through the first five months of the year, and then what we saw was this acceleration through the second half of the year.
Do you expect a stronger second half, and what happens to GM’s inventory if it’s not?
Typically, 60 percent of pickups get sold in the second half of the year. That’s a trend we’ve seen in previous years. Only time will tell. You have to react to what’s happening in the market. We don’t control the external environment, but we have to react appropriately once we get clarity.
It’s an ongoing process, but we don’t have anything imminent to announce with regard to anything we haven’t previously signaled.
Incentives are rising across the industry, but GM has been more restrained than in the past. Will you need to increase your incentives to keep up with competitors?
You don’t live in isolation from your competitors. But clearly, our strategy has been around building our brand, staying disciplined and offering the consumers a great range of products where they’re seeing the value in it. And it’s played out really well for us. In the first five months of the year, we’re up in total market share, we’re up in retail share, and we’ve got some really important vehicles that are either waiting to be launched or just starting to launch. We think we’re in the early stages of a good growth opportunity for us. But yes, the market is competitive. We’ve seen some competitors that have obviously not seen the demand for their vehicles, so they’re going extremely deep on incentives. We’ve been able to keep our momentum and deliver on our goals with a very disciplined approach. When you look at what sort of proof points do we have of that, if you look at IHS loyalty, we won that award two years back to back. That’s a big award for me. All the efforts we’re doing around customer experience and the product, and if that really translates into loyalty, that’s going to be a great investment over time.
We’ve spent a lot on our dealerships with the amazing renovation program and new facility program we undertook. So that’s created an incredible environment. And to bring our customers into that environment, we offered them a free service opportunity to introduce them.
We knew that once we could get them in so they could enjoy the environment, that the opportunity for loyalty is going to play out. We’ve been growing this now over the last five or six years, and it’s been progressive. We’ve got a lot of unique tools at GM that really help us.
Our OnStar app can give a customer onboard vehicle diagnostics so they know where their vehicle is, and we can give them dealer-maintenance notifications. We’re really able to be proactive rather than reactive. We’ve invested big time in business development centers, which are really the key now to dealership operations. Only those dealers that are really progressive in BDCs, I believe, are going to be successful.
Is GM considering moving any production from Mexico to the U.S.?
As a sort of guiding principle, for many reasons, we want to build our vehicles where we sell them. It makes so much sense from a logistics perspective, it makes so much sense from a supplier perspective and obviously protects you from all the foreign exchange risks. That’s primarily what we do.
When we were going through the early stages of the changing administration, there was a lot of speculation, and we hadn’t had the chance at that point to sit down with the administration and really explain our business. I said on record that we’re the good guys in industry.
We do build where we sell. There’s a lot of industries that aren’t doing that at all. So I think over time we’ve been able to get the story out there, and I think it’s been well understood. What also wasn’t well understood was the flow of materials between countries.
So the administration has better understood how you operate in the months since President Donald Trump has been in office?
For sure. We hadn’t had a chance to sit down. When we were having a lot of these discussions around the turn of the year, the president wasn’t even in office at that point. It’s taken some time for us to be able to state our case.
Obviously having [CEO] Mary [Barra] have a seat at the table [on Trump’s economic advisory panel] helps a lot. Credit to the administration, they’ve been very open, they’ve asked a lot of questions and really wanted to understand our business. We think the dialogue has been very healthy and very positive.
GM sold about 6,500 Bolts in the first six months. How has the launch gone?
We’re still ramping up as we said we would. We obviously started out with California being our major focus. Sales continue to grow. May was another record month for us. It’s early days, but we’re definitely seeing that the vehicle is everything we said it would be. We’ve delivered on anything we said, an affordable EV for the people, and the response has been good.
Are you pulling people off Tesla’s Model 3 reservation list, or are the customers different?
We’re seeing a lot of people coming from conquests, no question about that. I actually think bringing more competitors into the segment is going to help increase demand. The No. 1 objective was not to sell X number — the Bolt EV is really our platform for the future of mobility. It’s much more than just how many we sell.
It’s about the other things the platform’s going to allow us to do and explore the future of mobility. That for me is what’s really exciting about it.
GM wants to be the first company to make a profit from EVs. How do you get there before the others?
Obviously, the battery cell cost is a massive enabler of that. We really believe that we have the best chemistry when it comes to cell cost, and that gives us the competitive advantage. Being strong in China is going to be a key part of that, because the market in China is going to require, from a regulatory environment, a lot of different electric applications, and that learning and sharing will help us to mobilize that globally.
You can understand when you see the problems they’re having with pollution that there’s going to be a lot of demand and a lot of scale developed there for electric vehicles.