General Motors and the War against Climate Change

The story of how a large company took the driver's seat in the battle against a much larger issue

While it is evident that a range of industries (e.g., commodities, tourism) will be directly affected by climate change, another set of industries (e.g., oil & gas, automotive) are likely to be impacted by direct consequences of the phenomenon – stricter regulation and changing consumer preferences. General Motors (GM) is a classic example of a company whose industry is being affected by these forces and is making a concerted effort to remain relevant in an environmentally friendly world.

GM is a $50 bn multinational corporation that produces ~10 mn vehicles in 37 countries under 12 brands [1]. GM’s operations are being affected due to three fundamental shifts due to climate-change:


Exhibit 1 – Impact of Climate Change on the Auto Industry [2]

Changing Customer Preferences: Due to increases in fuel prices, the type of cars being purchased is expected to change dramatically, that will, in turn, affect manufacturing. Although we are currently seeing lower oil-prices inflating demand, on a longer time scale, manufacturers are seeing reductions in sales of SUVs and fuel-intensive vehicles (Ford F150, Hummers etc.) [3]. Consequently, sales of smaller cars and light vehicles are expected to increase. In addition, a growing trend towards electric and hybrid cars is further proof that a manufacturer’s portfolio in twenty years will look radically different.

Government Regulation: Since CO2 emissions move in tandem with fuel consumption, governments globally are developing stricter regulations on automotive manufacturing [4]. Auto companies, meanwhile, are finding it tougher to adapt to these standards. For example, in 2016 itself, three reputed global auto manufacturers (Volkswagen, Mitsubishi, Suzuki) admitted to wrong-doing while trying to “game” government-set emission regulations [5] [6]. The implication of this dissonance is twofold. One, the bar on quality of manufacturing will become much higher – it is of paramount importance that all car models meet each of the individual countries’ regulations. Two, auto manufacturers must engage more with Government to earn their trust so they can, together, develop standards that are both impactful and realistic.

Innovation: Innovation will transform the sector over the next few years. In 1997, Toyota’s Prius was the first mass-produced hybrid car, marking the first major shift in energy technology. Since then, Nissan’s Leaf and Tesla’s Model S began the movement towards electric plug-in vehicles. McKinsey believes climate-change related regulation will be one of the key drivers towards adoption of electric cars [7]. This step-shift in engine technology increases the necessity for auto manufacturers to invest deeply in R&D to adapt to changing times.

It is evident that auto companies face a burden in adapting to climate change. This burden is substantial – investors have warned the industry it must accelerate its readiness for climate-change and take specific actions (put climate change specialists on their boards, engage better with policy-makers, and invest more heavily in low-emission cars etc.) [8].

Given this context, GM has been making fundamental shifts along the following themes to ensure it is prepared to succeed in a world affected by climate change:

Public Commitment: Mary Barra, CEO of GM, was one of the 7 Auto CEOs that united to publicly vow to tackle climate change [9]. This is an unprecedented step that has large implications – if the top manufacturers are committing to the cause, the rest of the industry will follow.

Energy Efficient Operations: In the short-term, GM announced that it has saved $73 mn in 2016 through energy-efficient activities and operations [10]. In the long-term, GM declared that it has committed itself to using 100 percent renewable energy by 2050 across its 350 facilities in 39 countries. By 2050, wind, solar and landfill gas will be GM’s main source of energy [11].

New Technology: GM is investing heavily in new technology to prepare for a world with electric and hybrid cars. GM’s new Chevy Bolt (2016 release) is expected to be a strong competitor to Tesla’s cars. In 2014, GM invested ~ $500 mn in next-generation electrification [12]. In addition, GM’s bet on ride-sharing through its investment in Lyft also shows its commitment to preparing for the next wave of technology upgradation in the automotive space.

That said, GM can continue in its push in its efforts in climate change adaptation. A few additional ideas are listed below:

Financing for Electric Cars: When SUVs sales slowed, GM offered financing options for customers to buy SUVs. A similar initiative for electric cars can be impactful.

Discontinuing fuel-inefficient lines: Although gas-guzzlers are profitable and loyal customers exist, GM could lead the transition by discontinuing its fuel-inefficient carbon-intensive product lines.

Supplier Focus – Quality to Environment: Auto OEMS have tremendous leverage in demanding behavioural changes in component suppliers. If the last few decades involved forcing suppliers to enhance quality, GM could enforce rigorous environmental standards on the massive auto component market.

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[1] General Motors Annual Report, 2015

[2] “How Climate Change could affect corporate valuations”, McKinsey & Company, 2008

[3] “Rising Gas Prices Might Kill the Once-Might SUV”, Wired, 2008

[4] “New Automobile Regulations”, Access Magazine, 2012

[5] “Emissions Scandal Latest”, Top Gear, 2016

[6] “Volkswagen Reaches Deal in US over Emissions Scandal”, The New York Times, 2016

[7] “Disruptive Trends that will transform the Auto industry”, McKinsey & Company, 2016

[8] “Investors warn car companies over climate change”, The Guardian, 2016

[9] “Auto Industry CEOs Unite in Rare Vow to Tackle Climate Change”, Forbes, 2015

[10] “Energy Efficient Initiatives Save General Motors $73 million during 2016”, General Motors, 2016

[11] “GM Commits To Be Fossil Fuel Free By 2050”, General Motors, 2016

[12] “GM Invests $449 for Next Generation Electrification”, General Motors, 2014


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4 thoughts on “General Motors and the War against Climate Change

  1. What if GM not only responds to a market niche of environmentally friendly cars, but actually drives the growth of the industry? The article captures perfectly GM’s strives to become a greener company, but by actually changing consumer preferences via strong marketing, GM could not only transform itself but force a transformation in the industry. That would not only create social value, but will give GM a much needed competitive advantage as one of the first players in this new market.

  2. Thank you for contributing this post, Vinay. There were a few areas of this post that I found particularly thought provoking. First, in Exhibit 1, its interesting that McKinsey views a short-term negative impact on GM’s valuation from climate change due to near-term increases in emissions standards while in the long-term McKinsey believes there is a business opportunity for the Company if it can successfully adopt to new technologies and pass through costs to consumers. It will be interesting to see how many automakers are able to successfully make this shift in technology and, as Pablo points out, consumer positioning.

    Second, it would be interesting to better understand the current consumer demand for electric cars. Is there enough demand in the market for automakers to offer creative financing solutions for them to be indifferent to discontinuing fuel-efficient lines? If not, how can the auto industry help to shift consumer preferences?

    Finally, as I was reading your post I couldn’t help but think back to our Ikea case where we discussed Ikea’s efforts to incentivize its supply chain to become ‘climate change compliant’. You mention in your additional ideas the power GM has over its suppliers. It would be interesting to better understand how GM is trying to push through climate change initiatives throughout its supply chain.

  3. “By 2050, wind, solar and landfill gas will be GM’s main source of energy.” I think it is great that GM is marketing a focus on more sustainable practices but I have no sense of whether this plan is ambitious or just a marketing ploy. I only say this because ‘main source of energy’ is a vague statement and doesn’t imply GM’s intention to eventually source all of their energy sustainably. Also, 2050 is so far in the future that by the time it actually comes around, there will be no reputation consequences for having made this type of statement in 2016. I want to believe that GM will make this a reality and I agree with you that they should be offering more financial options and incentives to purchasers of their electric vehicles. If GM begins taking actions to drive sustainable practices (such as discontinuing SUVs), then I will be more convinced of their intentions.

  4. Thanks for the great post. I think one additional thing to add to the points you make in your post is how GM can drive faster adoption of low-carbon/alternative-fuel cars so that they can become more of a mass-market product rather than a niche one. I think much of that will be tied to developing the necessary supporting infrastructure (e.g., charging and refueling stations for alternative fuel) across the US and making those stations as accessible as traditional gas stations. I would be curious to learn more about how much GM is investing towards that end. In addition, another challenge would be to just change consumer perceptions about how difficult it is to “keep up with” an alternative-fuel car – I know the reason my family has not purchased an electric car is because of perceptions that it’s just harder to manage and to learn how to use. So how can GM and other automobile manufacturers combat those perceptions?

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