To drive its growth, GM sees more than cars

DETROIT — Netflix. Peloton. General Motors.

The three companies seemingly have little in common today, but by the end of the decade, GM wants to be held in similar regard — by customers as well as investors.

"We're launching businesses that will bring new customers and new revenues to GM," CEO Mary Barra said during GM's investor day last week. "We have changed the world before, and we're doing it again."

GM says it will double its annual revenue to about $280 billion by 2030 while expanding its profit margins to as high as 14 percent, but building and selling vehicles won't be the primary driver of that growth. The company plans to develop software and technology designed to keep customers coming back, stretching a typical one-time vehicle transaction into recurring purchases. Within a decade, GM expects as much as $25 billion in annual revenue from software and subscription services.

But can GM pull all of that off? The software space is competitive, with the likes of Apple and Google already dominating the market. And if average transaction prices continue to climb, consumers may be unwilling or unable to pay additional subscription fees each month.

"The only way consumers will buy into this is if it's more convenient and cheaper and a better experience than just using an app on their phone," said Sam Abuelsamid, principal analyst at Guidehouse Insights. "As long as Apple CarPlay and Android Auto exist, this might be a very tough sell."

GM executives are confident in the subscription strategy, in part because of the company's 25-year-old OnStar in-vehicle safety and security business. OnStar has 4.2 million paying subscribers and will generate about $2 billion in revenue this year at a margin of more than 70 percent, GM said.

With its nationwide reach and high margins, OnStar is comparable to Netflix, Peloton and Spotify, said Alan Wexler, GM's senior vice president of innovation and growth.

On average, customers will spend $135 a month on subscription services, according to GM's research. GM plans to offer several features as subscriptions, including Super Cruise enhancements, in-vehicle personalization themes, over-the-air navigation and park assist. Commercial customers would be able to pay for insight on their vehicle fleets. GM projects that connected vehicles and other new businesses, such as BrightDrop commercial vans and OnStar Insurance, will produce more than $80 billion in annual revenue by 2030.

"This is the bedrock for a growth opportunity and recurring revenue," Wexler said. "Within the subscription services, one metric we're keenly focused on currently is customer share of wallet. We know our products and services don't exist in a vacuum. We must compete constantly for customers' time as well as dollars."

In August, the average new-vehicle transaction price hit $43,355, setting a record for the fifth consecutive month, according to Kelley Blue Book. Prices will continue rising as automakers add technology to their lineups and transition to electric vehicles.

GM expects EVs to generate $90 billion of annual revenue by 2030. The automaker plans to spend $35 billion on electric and autonomous vehicle development through 2025 and aims to eliminate internal combustion light vehicles a decade later.

GM eventually will roll out EVs geared toward mainstream buyers, but it will start its parade of next-generation EVs this year with the nearly $113,000 GMC Hummer pickup.

"Nearly every major OEM has high hopes for new revenue streams in the coming years based on in-vehicle connectivity," Abuelsamid said. "However, unless vehicle and option prices come way down at the same time, I think doubling revenues is likely to be unrealistic. The only way this works is if they can bring more lower-cost EVs to market, but that also runs counter to the revenue gains."

GM isn't saying how much its future subscription services might cost. Its Super Cruise driver-assist technology, available on select vehicles today, is priced at more than $2,000 as a standalone option. OnStar ranges from $25 to $50 per month.

"On the higher end, [consumers] probably can afford those subscriptions, but at the other end of the spectrum, not so much," said Michelle Krebs, executive analyst at Cox Automotive. "It feels like you're cutting out a big part of the market — the lower end of the market. Right now, it doesn't look like there is much affordable for middle-class America."

GM is counting on the appeal of its add-on products and services, along with the lower operating cost of EVs, to drive subscriptions, CFO Paul Jacobson said.

"It's part of the evolution of the industry. The way we interact with our vehicle is going to be very different as this migration, this transformation continues to happen," Jacobson said. "We see it as something that's a good baseline for more to come as customers get more comfortable with that subscription service and the value that they want to purchase through the vehicle."