GM to cut spending on self-driving Cruise unit after crash

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General Motors is scaling back expectations for its self-driving Cruise unit following a pedestrian injury last month, which prompted a halt to testing.

The automaker behind Chevrolet and Buick will outline Wednesday a rate that cuts planned spending on self-driving technology that was once at the forefront of its field to investors.

For many years the car maker has done business under the line of “zero accidents, zero air, zero congestion”, a testament to its bet on the future of cars that are electric and self-driving.

Although it is not expected to drop an official slogan, the company will spend less on the unit in the future, due in part to a slower rate of testing, according to two people briefed on the deal. GM’s quarterly investment in Cruise totals about $700mn. Its driverless cars have been operating in some US cities including San Francisco as a taxi service.

GM, which did not immediately respond to a request for comment, previously said it remained committed to Cruise, and that “its strategy is to relaunch in one city and prove our performance there, before expanding . . . (immediately). . . we have taken action of improving our safety culture and rebuilding trust”.

Pushing back any Cruise schedules would also affect GM’s long-term revenue targets previously set at $80bn by 2030, driven by new areas such as autonomous driving and software revenue.

Cruise halted all self-driving operations in October, days after California regulators banned the vehicles from the state’s roads. The decision followed a highly publicized accident in San Francisco, in which a woman pedestrian was thrown by another vehicle into the path of one of Cruise’s self-driving cars and then dragged 20 feet underneath.

The California Department of Motor Vehicles said the vehicles were “unsafe” and accused Cruise of “distorting” the details of the incident. Cruise maintained it “actively” shared the information with the relevant authorities.

Cruise has since brought in the law firm Quinn Emanuel – one of the law firms that sued Volkswagen over the 2015 diesel scandal – to investigate its response to the crash.

GM’s decisions on Cruise’s use are not tied to the time frame of the law firm’s investigation. But the company will likely face questions about whether its long-term prospects are realistic, according to analysts.

“The big question is to what extent ‘Zero Zero Zero’ was also based on zero rates,” said Barclays auto analyst Dan Levy, adding that investors have been resistant to projects without profits.

“This has been a big theme this year in cars; everyone has had to step back from the fun”.

Following the accident, Cruise’s testing method, which critics said amounted to a race to be first, came under close scrutiny.

A letter signed by 26 transportation workers’ unions to the US Department of Transportation and the National Highway Traffic Safety Administration expressed their “serious safety concerns about the expansion of testing and operation of autonomous vehicles” and issued calls for the department to “take action” to better regulate self-driving cars.

“The public also recognizes that not knowingly being a guinea pig for an unproven technology that is not heavily regulated is not something anyone has signed up for,” said Matthew Colvin, chief of staff at the Department of Transportation and one of the co-authors of the letter.

GM has sunk billions into Cruise, including buying Softbank shares for $2.1bn last year. It now owns about 80 percent of the business. Other investors include Honda and Microsoft.

But GM’s own investors have grown more cautious about Cruise following the crash.

“Cruise’s problem as a business is GM depends on all programs (revenue) targets that the company has set,” said one. “We don’t see a way to make a profit, but we see they’re going to burn a lot of money trying. GM would be well placed to recoup its bet, and return cash to shareholders.

Cutting spending “as much as possible” from Cruise on Wednesday would be an “easy win”, the investor added.

Cruise lost $1.9bn in the first nine months of the year, and had $1.5bn in cash at the end of September. In the third quarter, Cruise burned through about $500mn of cash, meaning its current reserves will last until the middle of next year if it does not receive additional financing. The company, however, has a deal with GM’s financial arm that would allow it to borrow up to $4.3bn to buy self-driving cars from GM or for other expenses.