Interesting GM Alliances

[TxDoc]

This morning, I want to offer some observations on two trends that highlight the speed of this change - and I know that many other speakers will be offering their own views on both at this conference.

 

The first trend is global consolidation in the auto industry. The second is the impact of the so-called "new economy" on traditional manufacturing enterprises - the so-called "old economy" companies.

 

Less than two years ago, the merger of Daimler-Benz and Chrysler stunned the auto industry. This one surprise announcement set the stage for an incredible scenario of smaller players seeking relationships with larger ones -- and larger ones seeking to oblige them.

 

Most of you know what happened - but the story isn't finished yet.

 

Ford buys Volvo. Renault takes a controlling interest in Nissan.

 

General Motors expands its equity ownership in existing alliances with Isuzu, Suzuki, and Saab -and creates a new equity alliance with Fuji Heavy Industries (the maker of Subaru brand vehicles) and a non-equity alliance with Honda. And then, we create a new equity alliance with Fiat.

 

BMW sells its Rover car operations to a group in the UK, and Ford signs a memorandum of understanding to acquire the Land Rover brand. DaimlerChrysler then takes 34 percent equity in Mitsubishi Car, and Volkswagen takes controlling interest in Scania Truck.

 

Meanwhile, suspense is building behind the scenes as to where Daewoo, the Korean automaker, will end up. And, the press is speculating about an equity alliance between Volvo Truck and Renault Trucks.

 

Who knows how the script will end?

 

It's been moving so fast that we have a chart at General Motors that we call the "gameboard" just to keep track of who's after who.

 

The fundamental reason for all this action is that, in today's global industry, no automaker can remain viable if its strength is centered in just one country or region. The smaller players simply can't go it alone because of heavy R & D and capital-investment requirements and lack of economy of scale. In addition, the larger players are eager to expand their geographic reach.

 

General Motors has actually had what most players want for many years: namely, a truly global and diverse network of brands, manufacturing, and distribution. Our approach, however, has been to develop long-term relationships and alliances rather than limit ourselves to out-right acquisitions or mergers. In this approach, each partner gains something from the other that it could not gain on its own. Each also gains economies of scale without giving up its own identity.

 

For example, in the case of Isuzu, we have 49 percent equity. We gain Isuzu's strength in diesel engine technology and commercial vehicles as well as its strong foot print in the Asia-Pacific market, while Isuzu gains General Motors' strength in gasoline engine technology as well as access to capital.

 

In the case of Suzuki, we have 10 percent equity. We gain Suzuki's strength in very small vehicles and Suzuki gains General Motors' broader product development resources and global market reach.

 

With 20 percent equity in Fuji Heavy, we gain access to Subaru's strength in small utility vehicles, continuously variable transmissions, and all-wheel-drive systems, while Fuji Heavy gains our strength in technology, global distribution, and other areas.

 

In the case of Honda, neither company holds any equity in the other. General Motors will use a Honda engine and transmission for a vehicle under development, and Isuzu will supply Honda with diesel engines for the European market. We are also discussing other projects with Honda.

 

Finally, in the case of Fiat, General Motors has agreed to acquire 20 percent equity in Fiat, with Fiat taking around 5 percent equity in General Motors. We will create joint ventures for purchasing and powertrains and will also cooperate in financial services. We are also looking at many other future opportunities, including distribution and co-development of products.

 

All of this may sound complicated, but the alliance strategy itself is simple. It gives General Motors the specific benefits we want in very important technologies and markets without the capital commitment of full ownership. More important, again, each partner gains what it most needs without sacrificing its own identity or business objectives: a true win-win.

 

The market impact of these alliances also goes far beyond the investment we put into each one. As the Wall Street Journal reported last month: "Through these minority holdings, General Motors has now managed to assemble a group that accounts for nearly a quarter of the world's auto output, or nearly 14 million vehicles a year. The emerging GM colossus is nearly twice the size of its next biggest rival, Ford, with about 13 percent of the world market. The other global groups, led by Toyota Motor Company, Volkswagen, DaimlerChrysler and Renault, each account for 8 percent to 10 percent of the world market."

 

Of course, the word "big" has been used to describe General Motors for many, many years. One word that has not often been used to describe us is "fast." But that word is more pertinent to our business today than any of the terms usually associated with so-called "old economy" manufacturing enterprises. These days, we are moving fast, with a sense of urgency, in everything we do. Not only fast product cycles and business decisions, but fast innovation.

 

Here's how another Wall Street Journal story described us about two months ago: "General Motors has become a satellite-communications company with a unit that also sells cars."

 

The Journal was referring to our Hughes Electronics unit and how it is valued on Wall Street. GM Class H common stock, which tracks the performance of Hughes, had an implied market capitalization of around $60 billion until the market plunge last week (when it fell to around at $41 billion as of last Friday's close). This is actually somewhat higher than the market cap attributed to the rest of GM, which currently retains 68% of the economic interest of Hughes!

 

Hughes' value soared in recent months, of course, because of the way financial analysts rate the value of growth in subscriptions to its DIRECTV service. Far more value on these kinds of subscription revenues than on the assets, revenues, and earnings of traditional manufacturing and retailing companies.

 

Recognizing these valuations, I think you can understand why GM is working to create more of these kinds of value - including subscription revenues -- by applying wireless communications and e-business to the core automotive business.

 

Before looking at some of these applications, I also want to emphasize that General Motors has been doing a lot of other things to create value for its stockholders - many of which haven't received the kind of attention that DIRECTV's valuation has.

 

For example, since 1997, we have returned more than $25 billion of capital to stockholders through dividends, the re-purchase of shares, and the Hughes Defense and Delphi Automotive Systems spin-offs. During this three-year period, we have actually returned 84 percent of our earnings to stockholders through dividends and share re-purchase, compared to 20 percent during the years 1994-96.

 

We recently announced plans to return significant value to stockholders through a restructuring of our economic interest in Hughes. Under this plan, holders of GM common stock will have the option to exchange shares of GM $1-2/3 par value common stock for approximately $9 billion of shares of Class H common stock. The exchange ratio relating to this offer will be announced soon. In addition, General Motors plans to contribute $7 billion in Class H shares to our employee benefit plans.

 

These transactions unlock more shareholder value while at the same time further strengthening our balance sheet. In fact, this restructuring of our interest in Hughes will eliminate the need for contributions to our US hourly-rated employee pension plan for the foreseeable future. And, our vision is to be in the top 25 percent of the S&P 500 in shareholder return on an on-going basis.

 

[pause]

 

That leads to the second area I want to cover today - what General Motors is doing to create value for customers and investors in the new economy of e-business (B-2-C as well as B-2-B) and satellite and wireless communication.

 

B-2-C, of course, has tremendous potential for increasing revenues - and we believe General Motors is far ahead of the rest of the industry. B-2-B, on the other hand, has tremendous potential for cutting cost and speeding up the product cycle as well as the manufacturing and delivery process.

 

Early last year, we conducted a 90-day internal study of what was happening with e-commerce in other industries and businesses. We had several important initiatives underway around the world, but the conclusion was that we had a great opportunity to take the lead - if we moved as one company, and if we moved fast.

 

And that is exactly what we proceeded to do.

 

Fortunately, the foundation had been lain a few years earlier when we recruited a leading expert as Chief Information Officer and then recruited 200 other world class e-business leaders. The next step was to re-vamp our e-work environment. We increased our super computing capacity by 1,200 percent, created an award-winning global intranet, and gave all PC users full web and internet access.

 

Today, the e-world is becoming pervasive at General Motors. It is changing everything: Bringing people closer together, enabling them to look at problems and opportunities in new ways, and empowering them to find and execute new solutions. We believe it has allowed us to move faster into B-2-C and B-2-B than any other automaker. More important, it has fostered a new sense of speed and creativity in all areas of our business, including GMAC Financial as well as administrative functions and vehicle design, engineering, manufacturing, and distribution. It's the foundation for a new "Go Fast" culture, rengineering the old and creating the new.

 

On the B-2-C front, our GM BuyPower web site is already the most frequently visited OEM automotive consumer site on the Internet, with nearly two million visits this past January and February. With the latest research data showing that more than 65 percent of American car and truck shoppers visit the Internet at least one time before making their purchase decision, we feel we have only scratched the potential.

 

This past January, we established new e-commerce relationships with Sony, AOL, NetZero, Kelly Blue Book, and Edmunds. These alliances increase our Internet visibility and make it simpler for consumers to go directly to us on the Web.

 

No other automaker has this kind of reach on the Internet - and we have a lot more coming. And, our dealers are working with us to make our portals and sites even simpler and more effective in building relationships with customers. We expect our alliances to generate 10 to 15 times more "hits" on GM BuyPower this year than last year, which will generate 50,000 to 100,000 conquest sales. In short, the power of e-commerce in this industry is real - and we are moving fast to leverage it.

 

Turning to the world of B-2-B, we created GM TradeXchange last November to link our suppliers on the Internet. The goal was to use the Internet to make business simpler, faster, and more effective for all parties concerned. We developed the system with Commerce One. Within a month of its creation, TradeXchange conducted the industry's first business-to-business Internet auction of material and equipment, with more than a hundred suppliers participating.

 

That was an impressive demonstration of the Internet's potential for reducing cost and complexity and adding speed to the purchasing process. However, at the same time we established GM TradeXchange, Ford announced plans to develop its own system, working with Oracle. We were concerned that our supplier base would have to use two exchanges -- a costly, cumbersome, and time-consuming process.

 

So, we made an unprecedented move. At the end of February, General Motors, Ford, and DaimlerChrysler announced plans to join together in developing an integrated supplier exchange through a single global portal - and I believe several of you were there when we made the announcement. This exchange will be a separate independent business. It will create the world's largest electronic - or virtual - marketplace. The three companies together purchase more than $240 billion in automotive parts alone each year, and each company's direct suppliers purchase another $500 billion.

 

That makes this one of the largest b-2-b enterprises yet created. To quote one of the industry's respected analysts, David Cole: "The dimensions are staggering. It represents the merging of the e-world with asset-based manufacturing. This will go beyond the auto industry."

 

We are also working on an e-business strategy that will link the dealer and customer as well as the engineering and manufacturing functions to allow a vehicle to be custom-built through the Internet. We call it order-to-delivery, and it will allow customers to custom order the exact vehicle they want and receive it in a matter of days rather than months. It will actually link and integrate all our other B-2-c and B-2-B initiatives. It will also speed up the purchasing and manufacturing process as well as the delivery process. As the vehicle is built, the customer will actually be able to track its day-to-day progress over the Internet.

 

As you can imagine, we are working on a number of other e-business initiatives but are not ready to talk about them.

 

At another level, the automobile itself is being transformed into a "new economy" communication and entertainment system as well as a transportation system. General Motors' OnStar system is just the beginning.

 

Just three years ago, we had fewer than 20,000 OnStar subscribers in the US and Canada. So far this year, we have around 170,000. We are adding new subscribers at a rate of 1,000 a day, and we expect that rate to grow to 5,000 a day by the end of the year - for a total of a million subscribers. And, we expect that number to grow to four million by the year 2003.

 

But that's also just the beginning. Sixty-to-seventy percent of the time billed to cellular phones in this country is from calls made by people in their cars or trucks. And, there are around 90 million cellular phone users. So, why not put the dial tone in the car itself?

 

That's what we're doing. We will be offering phone service as a built-in option by the end of this year. This phone service, called OnStar Personal Calling, will be voice-controlled. The driver will not have to move his or her eyes from the road or hands from the wheel. There won't even be a handset - the caller will push the OnStar button, then say "dial" and say the phone number.

 

This service has the potential to make OnStar this country's largest re-seller of cellular phone time. And, the OnStar subscriber will receive just one bill - from OnStar itself - for all these services. By the way, the cellular service will be provided by Verizon, the new wireless communications company created by the merger of Bell Atlantic and Vodafone AirTouch.

 

Finally, we will launch the industry's first Web car this year. Using the Virtual Adviser developed by OnStar, it will give the driver voice-activated access to the Internet. The driver, in turn, receives information from the Virtual Adviser's voice response rather than a computer screen. You get almost anything you would want from the Internet - including stock quotes and e-mail - and you don't take your eyes off the road.

 

We also announced last week that Cadillac will offer a new system called Cadillac Infotainment on Seville and DeVille models this fall. When the vehicle is stopped or parked, drivers will be able to read their e-mail on a screen in the instrument panel. When the vehicle is moving, they can hear their e-mail through the OnStar Virtual Advisor. The system will also allow them to download e-mail to a personal data assistant, such as a Palm, and read them later.

 

And, next year, we will begin offering more than a hundred channels of satellite radio news, entertainment, and information. This will happen through yet another alliance - this one with XM Satellite Radio. Take your pick: AM, FM, XM - all at the push of a button.

 

We think it's no wonder that Scott McNealy, CEO of Sun Micro Systems and one of our e-business alliance partners, made the following observation: "You can think of a GM vehicle as a Java browser on four wheels." And he wasn't talking about coffee.

 

Tomorrow, we will be showing all of our OnStar-related technologies to a broader group of analysts.

 

Before taking questions, I want to re-emphasize that cars and trucks remain our core business. The focus is on operating as a global company, integrating the e-world and dozens of other technologies to develop innovative automobiles that offer the customer new benefit and value: vehicles that re-define their segment of the market.

 

Nowhere is this commitment more evident than in trucks.

 

This year we will introduce two new engines and a new automatic transmission that will give us the undisputed edge in heavy-duty pickup trucks: the new 6.6 liter Duramax diesel engine, developed in a joint venture with Isuzu, which is the most powerful and quietest diesel in this segment of the market - so quiet that some engineers have been unable to detect it running when the enter a vehicle equipped with one; the 8.1 liter gasoline engine, which is simply the biggest and most powerful V-8 engine ever offered in a heavy-duty pickup - with more torque as well as horsepower and excellent fuel economy and emissions ratings; and the new Allison 1000 Series heavy duty five-speed automatic transmission, the only transmission in this class that is able to handle all the torque provided by the engine, allowing the customer to actually use all the power he or she is paying for.

 

Allison already accounts for 80 percent of the commercial-duty automatic transmission market, and this new entry promises to extend that lead. We will also introduce a new ZF heavy-duty 6-speed manual transmission.

 

All of these product innovations will be offered in the new Silverado and Sierra heavy-duty pickups launched this fall. These two vehicles will feature new power front-end styling that is distinctive from their current full-size sisters. They will also offer the most horsepower, the highest torque, and the highest hauling and trailering capacity of any light trucks on the market.

 

The heavy-duty segment accounts for one-third of the full-size truck market. We expect sell more than 250,000 of the new Silverado and Sierra heavy-duty pickups a year. This compares to about 100,000 heavy-duty pickups last year. That's an increase of 150 percent, and it's also more volume than four of the top ten best-selling cars in the US.

 

We will also be the first automaker to offer four-wheel steering for full-size trucks. This system, called QUADRASTEER, was developed by General Motors and Delphi Automotive Systems. We will introduce it in the 2002 model year, before any other automaker.

 

QUADRASTEER is terrific for trailering and is a quantum leap for those who love their full-size pickups or SUVs but hate to park them and maneuver them in tight spots. It reduces the Silverado's turning diameter from around 46 feet to around 37 feet - which is also the turning diameter for a Saturn coupe.

 

Over the next 30 months, we will be introducing a total of 20 new full-size truck models. We now account for around 40 percent of the US full-size pickup market and more than 60 percent of the full-size SUV market. These new models, including the new heavy-duty pickups, will strengthen that leadership in this very profitable part of the market.

 

We have increased our total North American full-size truck production by more than 60 percent since 1993 and by 45 percent since 1996. Last year, we built 335,000 more full-size pickups and 20,000 more SUVs than we did in 1998. We are now adding even more truck capacity by re-configuring the reconfiguring our Arlington and Flint plants and converting the Oklahoma City plant from cars to trucks. We expect our full-size truck capacity to reach 1.7 million units next year without adding any bricks and mortar.

 

Here is a just a brief look at where our truck portfolio is headed:

 

 

 

In addition to the new Silverado and Sierra heavy-duty pickups to be launched this fall, the Chevrolet Avalanche will go on sale next year. It is the ultimate utility vehicle - part pickup, part SUV, with a cab that adapts easily to different customer requirements.

 

 

Beyond that, we will launch the GMC Yukon Denali and Yukon XL Denali; the GMC Sierra C-series pickup; and, the new 2002 Oldsmobile Bravada. All four of these vehicles will be unveiled later this morning at the Auto Show. Later this year, we will also unveil the new Cadillac Escalade, which will be in showrooms early next year.

 

 

And, in 2002, we will begin building the Hummer H2, a more civilized, driver-friendly sport utility version of the traditional Hummer. We acquired the Hummer brand last year and see tremendous potential for it.

 

 

On a smaller platform, the Pontiac Aztek, will be in showrooms this summer . . . combining the best features of a sport sedan, SUV and mini-van in a vehicle targeted at younger buyers with active lifestyles.

 

 

Beyond North America, we launched the new Opel Zafira van this year. Its unique flexible seating system has changed the game for vans in Europe and made Zafira a solid hit in the market. In fact, it forced two competitors to cancel launches in this segment because their planned entries couldn't compete against it.

 

 

We also just launched the Opel Agila microvan in Europe. This is the first microvan built by a European manufacturer. It was developed with our alliance partner Suzuki and offers more headroom than many conventional sedans. This is our first entry into a growing segment of the market.

 

Returning to North American trucks, our longer-range portfolio will be defined by even bolder cross-over vehicles . . . as witnessed in several concepts we unveiled this year.

 

Among them are:

 

 

 

This Chevrolet Super Sport Roadster, with the utility of a pickup and flair of a sports roadster - and a retractable hardtop roof.

 

 

The GMC Terradyne, a 4-door mega cab pickup whose cargo box can be extended 2 feet with a retractable tailgate . . . and also featuring Quadra-Steer.

 

 

And, the Pontiac Piranha, a combination sports car with the functionality of a four-seat, four-wheel-drive pickup. That's just a brief peek at where we are headed. There is a lot more to come . . . and all of it will very different from what you might normally expect from an "old economy" company.

 

We are re-inventing ourselves in every way. And, we are confident that it will soon be reflected in all analysts' ratings of our performance.

 

With that, I'll be glad to take questions.

 

Thank you.

[Hemi]

oh-my-god

I drive a Kenworth  

[silverado man]

how long did that take to type.  :sleeping:  :sleeping:

[CMNTMXR81]

This is really nothing new.  GM was one of these "globalized" companies LONG before D-C or ford decided to do it.

 

For as long as I know, GM has had affiliations with Isuzu, Toyota, Lotus, Subaru, Opel, and various other European and Japanese manufacturer's.  They just didn't take full advantage of them.

 

I didn't see the recently announced news that GM is acquiring Daewoo.  And before you all freak out that GM is buying that sh*tcan car company, they are buying it to obtain a foothold in that emerging car market.  Also many forget the might LeMan's of the late 80's that Pontiac imported.  Guess who made it?  Daewoo.

 

Also, FYI, I think a lot of this information was copied and pasted as some of the info is old.  For instance, GM Hughes division has informally sold to Rupert Murdoch's "News" corp.  Just waiting for regulatory approval I believe.

[carguru]

Was this from a speech a couple of years ago?  Detroit auto? or SAE? I believe I remeber hearing this before.