Fall 2016 McKinsey & Company Project

General Motors Business Line Expansion Strategy

 Travel Team

Timothy Machasio Rachel Oberst Lan Zhou Jiayi Chen Catherine Etchart
Junior Junior Sophomore Sophomore Sophomore
Economics and Finance and Economics and Economics and Economics and
ACMS Theology ACMS Political Science ACMS

Stephen Jones
Jiale Hu Daniel Tawil Colin Humble Jennifer Prosser Benjamin Kilano
Sophomore Junior
Sophomore Junior Junior Junior
Finance,
Business and Chemical Finance and Finance and Economics and
PLS Economics &
English Engineering ACMS Political
Statistics
Science

2
Executive Summary

General Motors is the leading automotive

Client manufacturer in the United States, and the worlds
third-largest by revenue

The company enjoys a strong strategic position in

the $61B U.S automotive industry
Situation Autonomous vehicles and ride-sharing represent a
revenue opportunity for General Motors both now
and in the future

Acquire Lyft and own ride-sharing fleet of AVs

1. Improve existing competencies in vehicle production
by pursuing Electric Vehicles
2. Organically aggregate mapping capabilities by
Recommendation improving OnStar platform
3. Build capabilities in AV hardware and machine
learning both organically and inorganically
4. Roll out AVs through partnership with Lyft

3
 BACKGROUND

Automotive
Industry Trends
Industry Overview

General Motors Competitive

Overview Landscape

STRATEGY AND EXECUTION

Production Customer
Considerations Considerations

Table of Contents

RISKS

4
The US automotive industry is a fragmented and mature field
with many key players

US Industry Outlook Industry Revenue by Year (millions USD)

Diverse, mature market capped at ~15 million Recovery &
2,650,000.0
light vehicles with light duty trucks outselling Cheap oil
2,450,000.0
passenger cars 2,250,000.0 Recession
Little growth in unit sales in US, Germany, and 2,050,000.0
Japan, but a 20% annual growth in Chinas 1,850,000.0
emerging market 1,650,000.0
Low price of oil has increased total car sales, 1,450,000.0
especially light duty trucks (LDTs) 1,250,000.0

2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Federal fuel-efficiency regulations from 2012
Electric car sales: 30% annual growth rate

US Market Share Key Competitors

2%2% 7% 19%
General Motors
Ford
4%
Toyota Motor Corporation
Fiat Chrysler Automobiles 4%
Honda
5%
Nissan Motor Company
Hyundai 14%
Kia 8%
Subaru
Mercedes-Benz
Volkswage
9%
Other
13% 13%

Sources: Wall Street Journal, New York Times, Statista, Forbes, Bloomberg 5
 BACKGROUND

Automotive
Industry Trends
Industry Overview

General Motors Competitive

Overview Landscape

STRATEGY AND EXECUTION

Production Customer
Considerations Considerations

Table of Contents

RISKS

6
GM has historically been strong in light duty truck sales and
weak in car sales

Top Ten Considerations for a New Car %Change from October 2015 YTD sales by
60% 5 Product Type
50%
Cars
40% 0
30% LDT
20% -5
GM
10%
0%
Industry
-10
Fuel Efficiency
Quality

Ride

Exterior
4WD AWD

Safety

Price

Brand

Reliability
Reviews

-15

-20

GM Profit Margins by Product Type (USD) GM Product Segments by YTD Sales

Cars LDT
Cars

Chevy Chevy Chevy Chevy

Trucks Cruze Mallibu Equinox Silverado

0 5000 10000 15000 155k 186k 193k 475k

Sources: Wall Street Journal, JD Power via NY Daily News, New York Times 7
 BACKGROUND

Automotive
Industry Trends
Industry Overview

General Motors Competitive

Overview Landscape

STRATEGY AND EXECUTION

Production Customer
Considerations Considerations

Table of Contents

RISKS

8
A number of changes will dramatically impact the automotive
industry

Hybrid/Electric
Autonomous Vehicles Urbanization Ride Sharing
Vehicles
Rapidly growing and Grew 20% in last 50% YOY growth Oil prices decreased
developing segment ten years, Partnerships 42% over 3 years,
Estimated $42B continuing between auto and fuel efficient sales
market by 2025 Population less apps decreased 30%
All major players are likely to own GM and Lyft, CAFE mandate 36
implementing vehicles, more Volvo and Uber, mpg average in 2016,
various levels of likely to use Tesla system, 50 mpg average by
ADAS tech alternative Google system 2025
(Advanced Driver transportation
Assistance Systems)
2014 ADAS Market Urbanization and Sharing Population CAFE Mandate mpgs
(in millions) 60
280 25
13% 14% 50
270
20
40
18% 14.3M 260
vehicles 21% 15 30
250
10
20
11% 240
10
23% 5
230
0
Fiat-Chrysler Ford Group 220 0 2012 2017 2021 2025
General Motors Hyundai 2014 2015 2016* 2017* 2018* 2019* 2020* Small Car Large Car
Toyota other Sharing Users Urban Population Light Truck

BCG, Frost & Sullivan, Marketwatch, US Census Bureau, US Department of Energy 9

The automotive industry is shifting towards sharing
autonomous vehicles

Forecasting Impact Why Ride Sharing

More reliable than taxi or

Current Trends public transit

Developing ADAS Urbanization and ride- Less expensive than a taxi

technology sharing Use drivers you feel safe
riding with
Good option for older adults
with limited mobility
Auto Market Good jobs for those who want
flexible work hours
Decreasing vehicle
Record new car sales Saves users time and stress
registration
Yes No
0 20 40 60 80 100

Future of the Automotive Industry Why Sharing Autonomous

Autonomous vehicles Peak, plateau, decline
in a shared economy in sales Buy AV Safety (88%) Use
because Convenience (75%) and
share
Opportunities for GM AV,
Don't buy AV High price (60%) dont
Restructure business around autonomous because Complexity (50%) buy
vehicles in a serviced sharing fleet

WSJ, US Census Bureau, Merill Lynch, AAA 10

 BACKGROUND

Automotive
Industry Trends
Industry Overview

General Motors Competitive

Overview Landscape

STRATEGY AND EXECUTION

Production Customer
Considerations Considerations

Table of Contents

RISKS

11
 Other vehicle manufacturers are working towards
establishing a presence in the AV space

30 vehicles on Skipping Level Tripling Fleet

road 3 2017

Cloud-based
Semi-Autonomous Model S
Pivotal
Software
70,000 Cars
Level 2
Velodyne LIDAR Sensors 250 million miles

Level 5 roll-out
3D Mapping
Alliances Civil Maps
Capabilities
Embedding Hardware into all new vehicles
Machine Over-the-air software updates
SAIPS Learning and
AI
Tesla Network
Car Software
Blackberry On-demand ride-sharing
Development

Target AV Rollout: 2021 Target AV Rollout: 2018

Summary: Develop hardware and software through Summary: Build own hardware and software, then
partnerships, then expand through own fleet expand through own ride-sharing fleet

Sources: Bloomberg, McKinsey, Morgan Stanley, The Guardian, Forbes, USA Today 12
Technology companies without a core competency in vehicle
production are establishing a presence in the space as well

First in US to make
self-driving car
Avoiding Semi-
Roughly 55 AVs available to public
Autonomous
Pittsburg (Sept)
Ford 20 Ford Fusion

100 Modified
XC90s
First AI to qualify Volvo
Driven 2m Miles Spend $300m on
as driver autonomous car
development
Alliances
Driverless Truck
Startup
Otto
Fiat Chrylser Manufactures
Adding 100 to fleet Partnership own LIDAR
2017 Software 100
Minivans Advanced
Carnegie Melon Technologies
Center

TargetTarget AV Rollout: 2020

AV Rollout Target AV Rollout: 2020
Summary: Level 5, then expand through OEM Summary: Develop hardware and software
partnership(s) internally with acquisitions, then expand through
OEM partnership(s)
Sources: Business Insider, Google Self driving Car, Bloomberg, PHYS, GreenCarReports, Water Street Partners, NHTSA, Washington Post, USAtoday, Fortune, Recode 13
 GM can succeed as a player in the autonomous vehicle
industry sub-segment
Won award for customers most loyal to manufacturer
2015, can leverage relationships to introduce AVs
GM customer loyalty
Revamped loyalty program after sliding to 35% retention
before bailout, reached 52% 2015

Industry leading OEM with largest US market share means

capability to quickly produce new AVs
INTERNAL Infrastructure/Manufacturing
Capabilities Developed facilities and manufacturing capabilities to
ADVANTAGES integrate AV hardware and software into cars

Mass producing EVs, Chevy Volt 15% of EV sales in

2016, capability for expected EV roll-out of AV
Early Mover in Electric
Vehicles Releasing Chevy Bolt in 2017, expected to rival Tesla
Model 3

External Opportunities for vast data gathering and thorough,

Advantages widespread testing to develop AV software faster than
competition

Partnership with Lyft

Access to fast market entry with expected ride-sharing
strategy for AV implementation
EXTERNAL
ADVANTAGES Provide new source of technology development to
accelerate software progress to keep up with Tesla and
Google

Cruise Automation
Offers option to integrate semi-autonomous capabilities
to cars in market, allows for capture of vehicles already
in market

Sources: Business Insider, Forbes, Fortune, Reuters, HybridCars, Wired, The Detroit News 14
 BACKGROUND

Automotive
Industry Trends
Industry Overview

General Motors Competitive

Overview Landscape

STRATEGY AND EXECUTION

Production Customer
Considerations Considerations

Table of Contents

RISKS

15
Autonomous Vehicle production encompasses four components

Vehicle
(Chassis,
wheels etc.)

AV Hardware
(LiDar Autonomous Mapping
sensors,
inertial Vehicle Software
sensors etc.)

Machine
Learning

16
An established OEM (Original Equipment Manufacturer),
GM has a core competency in vehicle production

GM is first-mover in vehicles Electric Car Comparison

Despite not having the same association with
electric cars as a company such as Tesla, GM is Chevrolet EVBolt
mass-producing eco-friendly automobile Cost: $30,000
Charge: 238 miles per charge
GM has massive car production capital and
logistics
11 assembly plants in US Nissan Leaf
Next biggest: Ford with 8 plants Cost: $30,000
Charge: 107 miles per charge

Options for Growth in Vehicles

Cell Battery Improve cell Acquire or Tesla Model 3
battery partner with:
technology with Amprius or Cost: $35,000
start-ups Envia Charge: 200 miles per charge

Funding Use current Utilize

revenues to fund government
electric car R&D funding for Ford Focus Electric
alternative fuel
Marketing Provide electric Brand company Cost: $29,000
Charge: 100 miles per charge
cars to Lyft as eco-friendly

Source: WIRED, Seeking Alpha, MIT Technology Review 17

GMs OnStar service provides a good bedrock for AV
mapping technology
Overview
The digital basis for autonomous vehicle
mapping software for AV is more specific than
typical tracking software
GPS already uses tracking software AV
cars are tested by ability to plug
inputs of 3D environment into the cars
system
Synergizes with the hardware of the car
Cameras, Radar, LiDAR
GM Position
GM has an advantage in mapping software with
OnStar service system
Provides drivers with directions and
on-demand or automated emergency
services
GM ought to use OnStar data on
when, where, and conditions of
emergencies to inform software and
drivers while driving AV automobile

Opportunities for Growth

Invest more R&D into Partner with graphic Use cloud network to
Begin Internal Synergy
3D visualization company inform AV network

GM needs to make More R&D makes the Partnerships with Building the mapping
sure R&D has access 3D technology more companies like Nvidia software as a cloud
to OnStar information receptive to will help make system will make car
to reinforce AV spontaneous and mapping software to car networking
technology safety natural input from the processing faster and easier in future
surrounding smarter

Source: GM, Fortune 18

 GM should improve its AV hardware manufacturing
capabilities through new partnerships

Overview

Hardware

Sensors Processors Actuators

Super
Lidar Radar Cameras GPS Brakes Steering Gear
Computers

GM Position Future Focus

GM has inherited several hardware components Advantage with production capital
Production Can outcompete with higher margins
from its acquisition of Cruise Automation
GM uses a combination of millimeter-
wave radar, stereo video cameras, Sensors
Need to commercialize sensors
Partnership with Quanergy for R&D
GPS, and inertial sensors
Important to note that Cruise
Automation does not use Lidar Utilize OnStar to lower production
GPS costs
The total cost of producing its hardware is
$10,000
Monetize electric charging stations
Not produced en masse Charging Station to prepare for network

Source: Technavio, Vision Systems Intelligence, Institute of Electrical and Electronics Engineer, BCG, Wired 19
GM should partner with technological companies to
build competencies in machine learning development
Overview GM Position
Machine learning: a form of artificial Compact neuromorphic chip developed by GM
intelligence and Boeing-owned research lab HRL
Computers analyze large data sets Could be used in large numbers to
and make increasingly accurate build a kind of supercomputer
predictions A type of learning specialized for learning
One learns, all learn Energy-efficient; some can even
More information enables smarter decisions automatically reprogram to learn
new skills

Other Players in Machine Learning Development Partnership Possibilities for GM

Ford
Acquired SAIPS Possible
Partnered with Nirenberg Neuroscience Partnerships
to bring more humanlike intelligence

Toyota
Work with MIT on machine learning Nvidia NXP

Google
Developing chips called tensor processing BlueBox system
Graphics processing
units tailored to speed up machine- contains a chip that
units (GPUs)
learning applications makes decisions

Source: MIT Technology Review; Fortune; Forbes

 BACKGROUND

Automotive
Industry Trends
Industry Overview

General Motors Competitive

Overview Landscape

STRATEGY AND EXECUTION

Production Customer
Considerations Considerations

Table of Contents

RISKS

21
GM should leverage Lyfts strong market presence and the customer
network to expand broadly

Lyft Overview

Type Transportation network company

2.8 million passengers
Founded June 2012
315,000
Founders Logan Green, John Zimmer 152 million rides
drivers
Headquarter San Francisco, California 800 million
65 cities 28 states
revenue
Revenue US $800 million

Why Lyft? Lyfts autonomous roll out by 3 Phases

Financial Products Public Praise

Today 5-10 years 10 years+
Drive Express 97% of Human Autonomous Autonomous
$2.1B in 9
passengers feel + Human
Rounds from 35 Lyft for Work
Lyft has high
investors Lyft Line/Plus safety standards

GM should roll outs its first AVs through Lyft

Market Presence Increase the visibility of its latest products in Ridesharing platform:
urban areas A key educational conduit for
Testing autonomous vehicles consumers to learn how self-
Technological Experiment driving cars work

Source: S&P Capital IQ, WSJ 22

 GM is taking incremental steps towards autonomous
driving through its partnership with Lyft

An analysis of the partnership Leveraging the GM and Lyft strategic alliance

A 9% stake in Lyft Short-Term Long-Term

$500 million investment Express Drive Program-
All-electric
On-demand network of
2017 Chevrolet
Expand a national grid of Bolt autonomous vehicles
rental hubs
Autonomous On-
Rental Hub
Demand Network
Putting cameras and sensors on the Express Drive vehicles
GM president Dan
Ammann sits on
Lyft's board Gathering tons of data on rides to help build autonomous technology

Joint Mobility
Connectivity
Offerings Fueling a push into a city-wide self-driving car network

The transition period is essential to ease public fear and upraise the incentive for acceptance

A Strong
Shorter Reduced Incentive
Self-driving
Commute Traffic For
On/Off
Times Variability Consumer
Adoption

Forbes, Fortune, WSJ, KPMG 23

 GM should acquire Lyft before a fleet of AVs is available
in the market
Projected Number of Autonomous Shifts in Profit in the Auto Industry
Vehicles in the US (Units in millions)

6.000 $400 billion $600 billion

5.000 100%
Shared Mobility
4.000 90%
29%
Digital Services
3.000 80% 41%

70% Software Supplier

2.000 10%

60%
1.000 10% Traditional Supplier
50% 16%

0.000 11%
2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 Insurance
40%
11% 4%

GM should acquire Lyft 30% 11%

Financing
14%
5%
20%
GM has roughly $20 Lyft could be a Eliminate the risk
billion in cash on profitable long-term that Lyft chooses to Aftermarket
hand $8-9b is business if it were work with other 10% 14% 20%
affordable incorporated into GM automakers
4%
0% Vehicle Sales
2015 2030
0% 0%
Sources: BCG, Lyfts official website, Morgan Stanley 24
GM could also roll out AVs through Maven

Maven Background Projected EBIT

Inception January 21, 2016 Worse Case Better Case
500
Operations Car-sharing, Ride-sharing rentals
400
Fleet Size 305

EBIT ($mm)
300
Competitors Zipcar, Car2Go
200
Growth 38% mo.-over-mo. (customers) 100
Services Maven City; Maven Residential; 0
Express Drive (with Lyft)
-100 2016 2017 2018 2019 2020
COO Dan Grossman, former Zipcar VP Year

Better Case Worse Case

Approach Approach
Top-down, using GM forecast to predict Bottom-up, looking at Maven operations
Extrapolate EBIT using assumed growth Predict EBIT each year

Some Assumptions Some Assumptions

GM mobility segment is Onstar and Maven Maven fleet composed of 6 car models
GM forecast applies at regional level Maven heavily utilizes Bolt in future
Maven is exclusively in North America Customer acquisition is similar to Lyft
Mobility segment growth to be higher GM continues fuel, insurance subsidies
GM Financial growth to remain high Maven rental revenues remain low

Source: GM 10-Ks; Maven; GM; AAA; EIA; TechCrunch; WIRED; AutoFinance News; Morningstar; Regional Newspapers (e.g., Detroit Free Press); ReCode 25
 GM should acquire Lyft to maximize synergies and profit
potential

Revenue Projections for Maven

2020 Projected EBIT: $255.5 mm
Projected growth rate of ride-sharing: 39%
2030 projected profit potential: $ 6.9 bn
NPV Year 2017: $1.93 bn
EBIT calculated as average of Better Case scenario and Worst Case scenario

Revenue Projections for Lyft Acquisition

2030 global industry GM 2030 profit potential Lyft Acquisition cost:
profits: $600 bn $55.2 bn $8.5 bn
Total Customer Acquisition Cost: $0
2030 Profit Potential: $46.7 bn (not discounted)
NPV Year 2017: $7.5 bn
GM would own 80% of Global Industry Sales
GMs current global market share is 11.5%
Assuming WACC of 10%

26
 BACKGROUND

Automotive
Industry Trends
Industry Overview

General Motors Competitive

Overview Landscape

STRATEGY AND EXECUTION

Production Customer
Considerations Considerations

Table of Contents

RISKS

27
GM can cement its place in the market through the short-term
focus on ride-sharing and continuation of current partnerships

Competitor Status: Google Competitor Status: Uber

Lexus and Fiat partnerships; Volvo partnership; small Pittsburgh

Google cars fully autonomous fleet
Pilot Pilot
Program Goal: commercialize by 2020 Program Goal: fully autonomous by 2021
Four geographically different 90 day discounted rental program
testing locations for drivers
State of GM
Testing 58 publicly operational vehicles Response Maintaining Lyft partnership

Predicted Trends Consumer Willingness to Test

Decline in Personal Increase in Ride-

Car Ownership Sharing Options Very Unlikely
18%
27%
As much as 43% of Current state: Unlikely
new car sales Uber and Lyft 12%
could come come Tesla Autonomous Neutral
from driverless Ride Sharing 25% 17%
taxis by 2040 Network Likely
Most drastic Possibility of
short-term Google app United States Very Likely
change in cities

Sources: Business Insider; BI2; BI3; Bloomberg ; Google Monthly Report 28

Appealing to the needs of specific consumer groups can increase
overall comfort with autonomous technology despite concerns

Key Statistics US Drivers Likeliness to Buy

Very Likely
US drivers who want an element 11%
61%
of semi-autonomous technology
25% Likely
11%
US drivers who would be fearful
75%
of riding in a self-driving car Neutral

Women who expressed fear, as 23% Unlikely

81%
opposed to 67% of men 30%
Very Unlikely

Consumer Comfort by Age Group Strategic Focus

60
No Increase available information
50 Women
Automation Highlight ease of use
40 Emergency
Particularly relevant to drivers
Only Cost
30 with kids, Millennials, GenX
Help Driver
20
Improve safety
Too New Make a common public item
10 Partial
0 Autonomy
Full Semi- Emphasize safety,
Autonomy Autonomous convenience, stress-relief

Sources: Statista, Statista 2, AAA, MIT 29

Investment in ride-sharing will not cannibalize current sales of
LDTs

No Demographic Overlap in Customer Base Needs for Car Ownership Will Continue

GMs LDT customer of E.g. Chevrolet SUVs Urbanization

Mostly are male in Baby Boomer Owning LDTs: for weekend trips; personal
generation from late 40s to 60 and family tours
Ride-sharing customer Ride Sharing: for professional short-term
Mostly Millennial generation of 22-40 errands; transportation in business trips

U.S. LDTs Market-Annual Revenue and Growth Rate

14
Projected Annual Revenue
12 Oil Price Growth of 4.66%
Drop
10
8 Self-Driving
Revenue (x
Tech 100,000 $)
6
4
2 Growth (%)
0
2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E
-2
Sources: Bureau of Transportation Statistics; IBIS World; Mintel; MarketSchool 30
Conclusion: GMs eventual goal should be to own an AV ride-
sharing fleet

Traditional automotive industry is mature

Rationale Emergence and growth of ride-sharing industry
Customer willingness to try AVs

Technology: Traditional competencies in vehicle

production and mapping
Execution AV Hardware and Machine Learning capabilities
present opportunities for growth
Target ride-sharing industry

Build capabilities in AV hardware and machine

learning both organically and inorganically
Recommendation Roll out AVs through partnership with Lyft
Eventually acquire Lyft/own ride-sharing fleet

31
APPENDIX
Market Analysis Expanded Data

Passenger Car Sales by Year

25
China US Germany Japan
20
Car Sales (million units)

15

10

0
2011 2011.5 2012 2012.5 2013 2013.5 2014 2014.5 2015
Year

Source: Statista 33
Market Analysis Expanded Data

Gas Prices in US by Year

Price per Gallon (US$)

3.8
3.6
3.4
3.2
3.
2.8
2.6
2.4
2.2
2.
2011 2012 2012 2013 2013 2014 2014 2015 2015
Year

Source: Statista 34
Industry Forces Continuation

9.1 Levels of AV 9.2 Sales of ATV

Sale of Hybrid/Electric Vehicles

Most functions still controlled by human but a
specific function can be done automatically by 600000

Level 1 cars (e.g. cruise control, lane guidance)

500000

400000
Driver is disengaged from physically operating
the vehicle by having hands off steering wheel 300000
and pedal at the same time. Must be ready to
Level 2 assume control (eg Tesla highway) 200000

100000

Drivers perform in safety critical functions 0

(certain traffic and environmental conditions),
Level 3 dont need to monitor situation as intently

Fully Autonomous, perform all safety-critical

functions for entire trip, limited to operational
design domain-doesnt cover every driving
Level 4 scenario. Has steering wheel and brakes.

Fully autonomous system that can cover all

driving scenarios including extreme environments
Level 5 like dirt roads. Has no steering wheel or brakes.

Sources: US Department of Transportation, US Department of Energy 35

10.1 US Registered Vehicles

Automobiles Registered USA

160000000

140000000

120000000

100000000

80000000

60000000

40000000

20000000

0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Source: US Census 36
10.2 US Vehicle Sales

Source: Trading Economics 37

Consumer Public Perception

Ride Sharing 2014 2015 2016 2017 2018 2019 2020

Projections
(Regular Users)
Adult Users 8.2 12.4 15.0 17.0 18.2 19.4 20.4
(millions)
% Change 57.4% 51.4% 20.5% 13.3% 7.2% 6.6% 5.0%

% of Adult 3.4% 5.0% 6.0% 6.7% 7.1% 7.5% 7.8%

Population

Percentage of U.S. adults who have used a ride-sharing service

All U.S. Adults 15%

18-29 28%

30-49 19%

50-64 8%

65+ 4%

Source: eMarketer; Pew Research 38