GM Gets Ready for a Post-Car Future

A century later, the question facing automakers like General Motors (No. 10 on this year’s Fortune 500) and Ford (No. 11) is whether their horseless carriages are about to go the way of the horse. We may well have reached, or even passed, “peak car.” A record 17.5 million passenger vehicles were sold in the U.S. in 2016, but that number dipped to 17.2 million in 2017, and it could fall under 17 million this year. Fewer teens and twenty­somethings get their driver’s licenses: While 92% of 20-to-24-year-olds were registered in 1983, just 77% were in 2014.

Alternatives to ownership are taking off. In 2017, Uber provided 4 billion rides worldwide. The new generation of passengers has embraced ride-sharing—in cities where Lyft has launched its Line service, 40% of its rides are shared by two or more passengers. And gauged by myriad announcements and breathless media coverage, a world of shared electric, autonomous cars—a technology with all the promise of those first “horseless vehicles”—is just around the corner.

Photograph by Will Widmer for Fortune

A world that buys fewer cars seems to pose a challenge, to say the least, to a traditional auto manufacturer like General Motors. For almost a century, GM has engaged in a single process: building cars and selling them to individuals. It will continue to do that in the short term, but the long term is much less clear. Predicting the ultimate shape of this evolving mashup of auto manufacturers, chipmakers, ride-share network operators, and autonomous software providers is immensely difficult. As Mike Ramsey, an analyst at research firm Gartner who follows this space closely, tells me: “There are a lot of unknowns.” One thing that everyone acknowledges, inside and outside of GM: The 110-year-old automaker’s halcyon days are long gone, and the future is up for grabs.

Rank 10

2017 Company Profile: General Motors

Enter Mary Barra, who took over as CEO of GM in January 2014, becoming the first woman to run a U.S. automaker. Unlike the leaders of past victims of disruption like Blockbuster and Kodak, Barra isn’t in denial about the radical change that’s afoot. “I believe in it,” she tells me in an interview in early May.

We are seated across from each other in the anodyne “Synergy” conference room of Palo Alto’s Four Seasons hotel, which rises above Route 101 like a great glass Apple HomePod. Barra, sporting a black leather jacket, has a warm if guarded smile. She comes across as both approachable and extremely protective of GM and its people.

She has just flown in from Detroit to speak to a class taught by Laura Arrillaga-Andreessen at Stanford’s B-school, where Barra got her MBA. “Autonomous technology that’s safer than a car with a human driver is coming,” she explains, “and it’s going to get better and better and better with technologies like artificial intelligence and machine learning.”

Barra has GM in her bones. She was born just outside Detroit and graduated with a degree in electrical engineering from what was then called the General Motors Institute, a co-op university program that fed graduates into the company. Her father, Ray Mäkelä, was a diemaker who worked for 39 years in a Pontiac factory.

Photograph by William Widmer for Fortune

Now she must prepare the auto giant for a radical lane change. Barra’s challenge is to reinvent General Motors as a leader in the rapidly evolving transportation world, while simultaneously delivering great profits by doing what GM has always done—only better than it ever has. To use a term that is much favored by the company’s leaders and by management gurus, GM must be ambidextrous. On the one hand, Barra must help the core business to excel and continually improve; that’s where 100% of the company’s revenues and profits come from. On the edge, however, she must accelerate and invest in GM’s effort to develop autonomous electric cars, an effort led by Kyle Vogt and the 500 employees of Cruise Automation, the San Francisco startup that GM purchased in early 2016 for around $1 billion.

Charles O’Reilly is a Stanford B-school professor who laid out the concepts of ambidextrous management in Lead and Disrupt, a book he wrote with Harvard’s Michael Tushman. “I’ve yet to find a company that failed because of technology,” O’Reilly explains over breakfast. “They either had it or they could buy it. It’s a leadership issue.” O’Reilly, who teaches in a program Stanford runs for GM execs, believes that Barra has successfully driven changes that GM must make to compete in the future. “I think what GM is doing is more likely than their competitors to be successful,” says O’Reilly. “Although there’s no guarantee.”

Two years ago, when I first interviewed Mary Barra, she told me, “To change a culture, you have to change behaviors. It’s not what you say, it’s what you do.”

Back then, those words had a particular resonance at GM, which was still wrestling with the aftermath of an ignition switch engineering flaw that was linked to the deaths of over 100 people. For decades, the company had been known for its pass-the-buck bureaucracy. That “not my problem” behavior was directly implicated in the study GM commissioned to examine the causes of the debacle. Barra used the study as a cudgel to accelerate her efforts to change GM from within, and in 2016 she was just starting to see the impact. An internal collection of a few hundred change agents, operating under the moniker “GM 2020,” was beginning to make its mark. The 70 executives who had been through the first two yearlong “Transformational Leaders” programs were spinning out new programs like Maven, a car-sharing service. At GM’s technology center in Warren, Mich., one floor had been cleared out for Maven. It had around a dozen cubicles, a few offices with doors, a carpeted area that was used for publicity and marketing, and a lot of empty space.

This spring I went back to Warren to see GM’s radical overhaul of the tech center. A half-hour drive north of GM headquarters in downtown Detroit, the tech center, designed by Eero Saarinen in the 1950s, is the real heart of the company. Twenty thousand engineers, designers, and IT specialists work here in 38 buildings.

“What you saw two years ago was just the beginning,” says chief of talent Michael Arena, an industrial engineer who studied human networks and innovation at MIT “Now,” he continues, “it’s in the blood of the company.”

Arena is describing the culture shift, but he might as well be referring to the building we are in, the Vehicle Engineering Center. The spacious lobby, an airy, two-story-high glass enclosure, features a Starbucks, a variety of comfortable couches, and the Trans Am from Smokey and the Bandit. We checked in at a surprisingly unobtrusive security desk and went to the second floor. “This is all about the work,” says Arena. “It’s all about creating spaces for the different ways people choose to work.”

Introverts and others in search of quiet are served by a smattering of Steelcase’s portable Brody cubicles. Group work is often done at rows of white desks set off by temporary walls with panels in cool grays and bright primary colors. There’s a lounge area with a large flat-screen TV, and lots of open space to encourage random interactions. The tabletops in the dining area are hammered hoods of old Buicks and Chevys. Everything is set back from the building’s glass exterior, creating 622-foot-long corridors that look out onto the historic campus, and the floors are flooded with natural light. I’m reminded of the mile-long paths along the curved glass of Apple’s new headquarters in Cupertino.

Indeed, nothing about the new Warren campus would look out of place at Google, Facebook, Herman Miller, or any other company we more readily recognize as innovative. Top executives visited the campuses of all those companies for inspiration on a redesign that would suit GM’s new workflows. “This isn’t about furniture,” Barra explains. “It’s about creating an environment for collaboration and giving people tools they need to work effectively. How can we make sure you really have a work environment that’s enabling and empowering, instead of constricting?”

Barra’s question is timely. It’s easy to think of the company as a relic of the industrial age, but her GM doesn’t look like that. Some 40% of its 77,000 salaried workers have been with the company less than five years. “That influx is the catalyst for change from below,” says Arena.

The different needs and expectations of that younger workforce are helping Barra drive a mindset change throughout the company. “The skills and assets they bring, their expertise in social media, all these things are having a real impact throughout the company,” Barra explains. “In some cases, there’s reverse mentoring going on.”

Barra also has levers she uses to drive change from above. She led a companywide effort to define a set of seven behaviors to inform the actions of anyone anywhere in the organization, from a factory worker in China to a marketer in Brazil. To ensure that “Be Bold,” “Innovate Now,” “It’s on Me,” and the others are more than catchphrases, she has worked with Arena and her HR team to shape training sessions that are heavy on task-oriented design thinking and light on exhortation. In October she unveiled an audacious aspirational goal to focus everyone on a set of long-term targets: zero accidents, zero emissions, and zero congestion.

Barra is passionate about the Zero Zero Zero initiative. “We’re very proud that we’ve been providing mobility to people for over 100 years,” she tells me. “Cars changed the way people lived, where they work, how cities came together. It gave people a freedom that they still love. Well, what came with that? Safety issues, crashes, environmental concerns, and the frustration of congestion. With the new technologies, we’re now equipped to solve those problems.”

The program also provides the kind of collective sense of purpose that GM’s younger generation yearns for. “We know that people are 86% more likely to leave in their first year if their purpose doesn’t align with the purpose of the organization,” says Arena.

A noteworthy trend in management circles these days is that CEOs must take charge of their company’s talent: They can’t outsource personnel issues to HR anymore. Barra embodies this. She describes her key roles as “creating strategy, managing risk, empowering people to execute, and making sure we hold people accountable.” She spends a remarkable amount of time on the last two. Between April and late July, she will meet with the company’s top 270 executives in groups of 15 or 20 people to discuss their progress at pushing behavioral change. Every quarter she leads her top team of 14 executives at offsites to “focus on how we build the right level of trust and a shared vision of the future, and on how we manage conflict.” She has what might be called a kind of trickle-down personnel theory: If she works to have an open, trusting relationship with her top team, then those people are likely to put in the effort to have the same with their direct reports, and so on down through the ranks.

None of this would matter if Barra didn’t also make clear, tough decisions and deliver results. But she does and has. In April she fired the president of the Cadillac division, because, she says, “We were looking to pick up the pace.” Her toughest decisions, however, have been a set of moves that shrank the company with the goal of increasing profitability. Reversing decades of hungry pursuit of market share, Barra shuttered operations in India and South Africa, and removed the company from Europe by selling Opel and Vauxhall to Groupe PSA, the parent company of Peugeot and Citroën. In April she decided to keep GM in South Korea, but only after renegotiating onerous deals with the country’s powerful unions.

Those decisions, combined with demand for the company’s SUVs and light trucks, have turned a sick and unreliable company that the government had to save into a healthy, consistent earner. GM reported more than $9 billion in profits in both 2015 and 2016. For 2017 the automaker took a $3.9 billion loss, thanks to one-time charges related to the sale of Opel-Vauxhall and the new tax law. But many analysts are bullish on GM’s outlook for this year. Gross margins in North America exceeded 10% in each of the past two years, and margins are now rising across the company. That success has earned the company the right to contend for leadership in the next big wave of transportation. “Doing what we’ll say we’ll do quarter by quarter gives us the right to work on both [the short-term and the long-term],” says Barra.

Legacy companies trying to make the transition to a new technological era, argues Stanford’s O’Reilly, must succeed at three disciplines: ideation, incubation, and scale. “Everyone ideates,” he tells me. “Every CEO spends money on innovation, and that’s great. Some companies are okay at incubation. But scaling is the hard part. The rubber hits the road when you have to take assets and capabilities away from an existing profitable business and allocate them to new businesses that have lower margins and may cannibalize your existing business.”

Barra agrees. “Our capital allocation framework says we’re going to reinvest in the business to drive shareholder value over the long term, we’re going to maintain an investment grade balance sheet, and we’ll return the rest to shareholders in some fashion,” she says. “But the first pillar is that we’re going to reinvest in the business for the long term.”

As GM has cut back on unprofitable ventures in its core business, it has put real money behind its effort to develop an autonomous electric vehicle. In early 2016 the company made a $500 million investment in Lyft, the ride-sharing service known for being “nicer” than Uber. Two months later, GM acquired Cruise. Last October it bought Strobe, an 11-person startup that makes the “lidar” laser systems that help an autonomous car identify objects and discern its distance to them. The high cost of lidar systems and electric batteries will have to go way down for AVs to reach price points comparable today’s cars.

Barra and GM president Dan Ammann have been careful not to crimp Cruise’s style, or its startup speed. Doug Parks, who led the development of the electric Chevy Bolt, oversees GM’s autonomous efforts and serves as the critical conduit between Detroit and San Francisco. Part of his role is to protect Cruise from the mothership. “People at Cruise can go into the big company and pull out what they need,” Barra explains, “but the big company can’t come in unless Doug Parks knows what’s going on. It’s allowed us to keep the traditional things about a startup while giving them the great assets of a large company.”

Cruise has been on a hiring spree and now has more than 500 employees, up from 40 when it was acquired by GM. Most work from an unmarked, nondescript industrial building in San Francisco, behind a set of eight-inch-thick steel gates that are, in theory, monitored by security guards. When I arrive for a visit, however, no one is posted outside, and no one inside answers the intercom. I wonder if I’ve come to the right place. Just when I’m noticing that the parking lot has a couple of white Chevy Bolt EVs with the Cruise logo and autonomous hardware on them, a guard finally comes out to let me in.

Cruise does still feel like a startup, with all the trappings: open spaces, cereal dispensers, a visible informality. And it certainly seems to be moving at startup pace. In two years Cruise has developed four significantly upgraded versions of the autonomous Bolt EV. On the first version, the Cruise sensors and computers were bolted by hand to the roof, some wiring was simply taped into place, and the car had only rudimentary autonomous capabilities. The latest version, however, was built in a GM plant: 40% of its parts are unique to the autonomous Bolt, and it has no steering wheel or other human controls.

Both Cruise and GM executives point to this rapid iteration as proof that the two companies have successfully integrated. GM, like other auto manufacturers, typically takes years to develop a new car, in part because every system must be validated repeatedly for safety. When that car finally goes into production, nothing typically gets changed for at least a year. The Cruise software team, however, is accustomed to releasing new iterations multiple times a day. “Those are the two extremes you’re trying to bring together,” Ammann tells me in a phone interview. “On the surface, the processes seem completely orthogonal, but we have actually figured out how to have the two things work together. We’ve constructed the whole architecture of the AV to accommodate the necessary rates of change, whether it’s daily on software or monthly on some other components or never on others.”

Courtesy of General Motors

While Ammann and I talk, I’m sitting in my parked minivan in Brooklyn and waiting for 6 p.m. to arrive, so I can leave my vehicle in its spot without getting a ticket from the NYPD. The parking game is one of those collateral effects of traditional cars that I’ll be happy to give up.

By last November, Barra felt confident enough about the self-driving effort to make her boldest announcement yet: GM would launch an autonomous ride-sharing service featuring Cruise vehicles without steering wheels or other manual controls in 2019. The company didn’t disclose where the service would launch, other than allowing that it would be in a U.S. city. I ask Ammann if New York might be the site, since Cruise is currently mapping downtown Manhattan. A service in, say, the Wall Street area might juice the company’s stock price. “We haven’t commented on this,” he says. Ammann, a Kiwi with a dry sense of humor, pauses for a moment before continuing: “I will say this. We’re doing a significant majority of our testing in San Francisco, and so, you know, there’s a clue.”

Wall Street routinely cheers autonomous announcements. But why? Most investors are making long-term bets, and we are years away from anyone generating serious revenue by providing autonomous rides—and even further away from profits. Like GM has, Audi, Ford, Volkswagen, and other carmakers have made an array of promises about having one form of autonomy or another on the roads by a certain date. “Most of these car companies will ‘meet’ their goals,” says Mike Ramsey, “but the impact may not be great. Ford says they’ll have a fully autonomous vehicle by 2021. But what if the top speed is only 40 miles per hour and it’s limited to the urban core?” Nobody I spoke with outside of GM believes the company can launch anything of meaningful scale next year, in San Francisco or anywhere else.

I share with Barra what I’ve heard and ask if she worries that the company could be penalized for not delivering on her promise. “We believe we’re on track,” she says. “I think more and more people are understanding the difficulty of developing true autonomous vehicles that take the driver out. We are on track with our technology development. We will be gated by safety. And we’re going to do the right thing. Clearly, there’s regulatory aspects, and we’re working on those. We are still on track, we are still working to that, and I believe that we will. That’s where my focus is. I don’t focus on ‘What if we don’t?’—I’m focused on what will it take to do it.”

After that cautious affirmation of GM’s commitment, she smiles, and it occurs to me that it must be exhausting to have people constantly ask you to predict the future.

Radical new technologies take time to emerge. The development of what’s come to be called “transportation as a service” is in a particularly frustrating stage. The ultimate vision—a world where safe, shared, self-driving electric cars replace the ones we drive now, making the world safer and less polluted—is clear. But clarity about the destination doesn’t mean there’s an obvious path ahead. Right now, there are far more questions and contradictions than answers. The longer it takes to get those answers, the longer it will take to achieve the vision.

Photograph by William Widmer for Fortune

For example, many very smart people believe this is going to be a huge market. Bill Gurley of Benchmark, an early venture investor in Uber, once told me, “This is probably bigger than any market Silicon Valley has gone after.” GM’s Ammann and Barra both tell me it “will change the world.” Raj Kapoor, chief of strategy at Lyft, believes the side effects alone could disrupt $5 trillion of business—he’s thinking of such things as car insurance, loans, service stations, and even real estate. (Notes Kapoor: “14% of real estate in a city is parking. We’ll need some, but not nearly as much.”)

But what proof do we have that these people are right? There currently isn’t a viable mass market for electric vehicles; Lyft and Uber still lose money hand over fist; and it will take years and billions of dollars more investment to get self-driving cars to the point where they are safe and reliable on virtually all roads at all times. “What we don’t know isn’t the technology,” Ramsey points out. “What we don’t know is whether it will all be worth it.”

Then there’s this question: If all this effort does pay off, where will the real value lie? Lyft and Uber believe the network is what matters. I ask Kapoor whether Lyft, like GM, sees a lot of uncertainty ahead. “It feels really clear to us,” he says. “We don’t have an incumbent business that is about to be disrupted, like a traditional auto manufacturer. The big change that’s already been documented is people buying fewer cars and consuming transportation as a service. For us, the future is more of the same. In the U.S., just 0.5% of all the vehicle miles traveled are with ride-sharing companies. We have so much room to grow.”

GM and the automakers disagree. “The person who controls the autonomous technology, and the rate of development, will be in a very interesting position,” says Ammann. “We think that will be an important control point.”

Those diametrically opposed views help explain why GM’s partnership with Lyft has “dwindled,” in the words of one participant. The two companies are not working on anything together now.

Partnerships are really hard, but they are proliferating, in part because companies are desperate to secure some kind of foothold in whatever emerges from today’s explorations. In the early days of the horseless carriage, hundreds of outfits vied to establish themselves. General Motors itself rose from that morass, an amalgam of several companies.

What beast will come out of today’s scrum to battle for primacy in the new world of personal transportation? There are several unlikely contenders. Delphi Automotive, historically a key supplier to carmakers, has renamed itself Aptiv and is testing its own self-driving cars. Google has spun off Waymo, whose AVs have driven more than 5 million miles in California. Baidu, the Chinese search engine and technology company, wants to become the “Android” of autonomy and has formed an alliance with over 130 companies in China and around the world.

It’s likely that all this maneuvering is merely a very preliminary tussle. “The tug of war over value hasn’t started in earnest,” Ammann says. “This starts to get much more interesting when the driverless cars are about to begin operation.”

In four years at the helm, Mary Barra has remade GM. The core business is strong and in position to deliver solid profits for years to come, even if autonomous cars arrive in cities sooner than most people anticipate. “Our core business is going to be our core business for a long time,” she says. “Selling full-size trucks to Middle America, with increasingly better performance from a fuel-economy and safety perspective.”

GM is moving at an impressive pace, both in the core and on the edge of its business. The Bolt EV went from prototype to production in just one year. It debuted with a better-than-expected range of 238 miles per charge. And then there’s the autonomous progress at Cruise. “You’ve got to be impressed,” one executive at a self-driving competitor told me. “Two and a half years ago, GM was in no one’s conversation. They were totally irrelevant, a laggard.”

Early in her tenure, Barra asked all of her top execs to take the Myers-Briggs personality test. The CEO herself is an ISTJ, which the Myers-Briggs Type Indicator describes as, “Responsible, sincere, analytical, reserved, realistic, systematic. Hardworking and trustworthy with sound practical judgment.” It turns out that may be just what General Motors needs to figure out the future of horseless carriages. 

This article originally appeared in the June 1, 2018 issue of Fortune.