GM Gets It Right & Wrong

General Motors posted a spectacular Q4 earnings beat last week, reporting $2B in profit (a record $14.5B for the full year) on $43B in Q4 revenue.?GM retook the North American sales crown in the period, while also noting a record average selling price per vehicle of $51,000.

The earnings call was filled with syrup-y analyst congratulations and GM self-congratulation for such a surprisingly strong performance in the midst of global economic turmoil and supply chain uncertainty.?In fact, the company predicted more of the same in the coming year as GM transitions to an EV-centric lineup.

GM even trotted out Cruise CEO Kyle Vogt to answer a question or two and trumpet his team’s geographic expansion in spite of the division continuing to contribute billion-dollar losses to GM’s bottom line.?Most recently, Cruise has also attracted the negative attention of local transportation authorities in San Francisco for Cruise vehicles impeding traffic and first responders; and there has yet to be any indication of technology developed for or by Cruise with any commercial value to GM – not even for BrightDrop...yet.

More surprising was what was omitted from the call rather than that which was included.?Once again, GM gave short shrift to its groundbreaking connectivity technology – OnStar – and neglected its semi-automated driving solution Super Cruise.?These are notable omissions as these two technologies, increasingly bundled across a growing number of GM vehicles, are redefining the ownership experience and brand value of GM.

More important than redefining the brand and user experience, though, OnStar and Super Cruise are contributing to the ongoing rise in average transaction prices for GM vehicles (and their perceived value) while leading the way on the industry’s evolutionary path toward a subscription-based relationship with consumers.?Last year, GM began adding a non-optional $1,500 charge to new Buick and GMC vehicles to cover the cost of OnStar connected services for three years.?The decision was controversial because the $1,500 charge appeared as a line item on the Monroney sticker of new cars as if it were an option, though it was not optional.

GM has begun selectively increasing prices across its lineup.?While the average selling price record in Q4 was attributed to the mix of vehicles being sold, it is likely that GM learned from its Buick/GMC non-option/option announcement and is simply increasing the prices of its vehicles to reflect three or more years of built-in wireless charges.

That means OnStar, already a multi-billion-dollar division, will be adding to its revenue and profitability contribution to GM results.?OnStar is already embedded in corporate cost savings/avoidance actions and is implicated in service and sales retention measures in coordination with dealers.?OnStar may finally be on a path via which this division’s results are sufficiently material to be recognized and broken out separately by GM in future earnings calls.

All GM vehicles come equipped with OnStar connectivity.?A growing number of those vehicles come with Super Cruise as an available option. ?A total of 22 GM vehicles from Buick, Chevrolet, Hummer, GMC, and Cadillac are expected to have Super Cruise by the end of 2023.

OnStar and Super Cruise go together since an OnStar subscription is required to access Super Cruise functionality.?And GM has brought Super Cruise most recently to a sub-$30,000 price point in the 2023 Bolt EUV.

The Super Cruise implementation in the 2023 Bolt EUV does raise questions, though, since the car does not offer fast charging.?A Bolt EUV owner can add 95 miles of range after 30 minutes of charging – which means the car is best suited to everyday use rather than longer journeys – in spite of its 200,000 miles of semi-autonomous Super Cruise highway driving capability. In other words, GM loaded up the Bolt EUV with wireless charging, wireless CarPlay and Android Auto, 250 miles of range, and Super Cruise - but drew the line at fast charging - likely a mistake.

Bottom line, GM’s long-term EV supply chain and production preparations are impressive and show the company poised to take on Tesla in the EV sector.?As important as those EV investments are GM’s moves to shift the ownership model toward a connected services-experience initially launched as an included cost, but likely evolving toward subscription-based services shows that, once again, GM/OnStar is pointing the way forward for the industry.

There is little doubt that competing auto makers will themselves be increasing vehicle prices to reflect embedded connectivity costs.?The true challenge for all auto makers will be to craft a suite of connected services that is sufficiently compelling to attract consumers to subscribe beyond the period of "free"/included connectivity.?GM already has a winner with Super Cruise.?Now, maybe GM will acknowledge the existence of Super Cruise on its NEXT earnings call.?Can’t beat that!