GM, Ford CFOs Bring Different Backgrounds to Similar Challenges

Just over a year into their roles, the two CFOs are allocating billions of dollars to overhaul their businesses to align with changing market demands and industry shifts. Rival Tesla Inc. leads in sales of electric vehicles in many markets. The company’s market capitalization is around $960 billion, significantly higher than that of GM and Ford, which have about $80 billion in market capitalization each.

Today, we examine how GM’s finance chief is tackling the challenges ahead, and in part two tomorrow we will take a look at the approach taken by Ford’s CFO.

General Motors is taking the long view

Transformation is one of the critical missions at GM, Mr. Jacobson said. The maker of combustion-engine vehicles wants to become a producer of electric cars and create recurring revenue through sales of subscription services, insurance and other products. GM eventually wants to bring self-driving cars to America’s roads.

That requires a different mind-set across the company. “We’ve tried to coin the phrase ‘disciplined optimism’ because in a traditional industrial company, it’s all about cutting costs and driving efficiency,” he said. The mind-set of “every dollar spent is a dollar wasted” doesn’t work well in the context of technological shifts and new business models, he said.

Mr. Jacobson’s move to GM was somewhat unexpected. The executive had worked for Delta for nearly 25 years and had been its CFO since 2012. Mr. Jacobson said he thought he had accomplished “all I ever imagined, dreamed of” at Delta and had already announced his pending departure in February 2020.

It got delayed for a few months due to the coronavirus pandemic, but then, Mr. Jacobson left for real. In August 2020, GM’s finance chief Dhivya Suryadevara left the company to become CFO at payments firm Stripe Inc. Soon after that, the auto maker called on Mr. Jacobson.

Already, changes are visible. GM under Mr. Jacobson and Chief Executive Mary Barra set ambitious revenue and profit goals that go beyond the usual five-year horizons that many car makers have. Instead, the company outlined targets for 2030, including doubling sales to $280 billion a year, up from its current five-year average of $140 billion, and expanding its margins to about 12% to 14%, up from about 7.9% last year.

GM also wants to become carbon neutral by 2040 and has set itself a target to provide only renewable energy to its U.S. factories by 2025, a spokesman said. The company needs to make sure that “not every decision is taken through the lens of some short-term metrics,” Mr. Jacobson said.

In addition to long-term targets, GM provides investors and Wall Street with regular updates, interacting more than in previous years, analysts said. Management is pitching to investors the concept that GM, in the long term, will become a technology company that also happens to sell cars, according to analysts.

“It is important to me that people realize the inherent value of the company,” Mr. Jacobson said. GM is pointing to a host of ongoing projects, including the company’s efforts to build a supply chain for batteries and other components for electric vehicles for North America, coming model launches and its plans to quickly scale its new businesses.

GM’s stock has appreciated by nearly 50% since the beginning of the year and closed at $58.41 on Tuesday, down 1.25% from the prior day’s close.

Analysts are giving the company credit for having such long-ranging goals. “It is a risky proposition for a company to be doing that,” said Philippe Houchois, an analyst at Jefferies Group, an investment bank. “But, it is hugely valuable, because it allows you to plan.”

Despite recent bottlenecks caused by the lack of microchips and supply-chain constraints, GM earlier this month raised its guidance for adjusted earnings before interest and tax in 2021 to around $14 billion—up from its former range of $10 billion to $11 billion at the beginning of the year—as it benefits from strong pricing, cost controls and the fact that some of the semiconductor shortages weren’t as big as initially forecast.

The company expects to fund its investment plans—$35 billion by 2035—with internally generated cash, the CFO said. “There’s money in the account, the checkbook is open,” Mr. Jacobson said at a recent investor conference.

GM expects to invest billions in electric vehicles, including building a battery-cell factory in a joint venture with LG Energy Solution, a subsidiary of LG Electronics Inc. The auto maker also is looking to convert existing manufacturing plants to produce electric vehicles. Its Orion assembly plant in suburban Detroit will become a hub for making electric pickup trucks.

The LG venture is an example of how GM, like its rivals, is looking for new partnerships with part manufacturers. The auto maker has forged ties with some of the biggest names in semiconductors—including Qualcomm Inc. and NXP Semiconductors NV—and has agreements in place to co-develop and manufacture computer chips. Still, the lack of semiconductors is expected to remain a hurdle throughout 2022, Mr. Jacobson said.

GM plans to have more than 30 different electric models available for sale globally by 2025. Mr. Jacobson himself drives a rapid blue Corvette convertible and is a user of its Super Cruise function, which allows him to drive hands free. “I was like, ‘OK, what do I do with my hands now?”’ he said. He uses the newfound freedom to keep time with music.

Look tomorrow for part two on Ford CFO John Lawler.

Write to Nina Trentmann at [email protected]