GM Finds an Unlikely Leadership Opportunity

Who would have thought an article on the future of the automobile would have roused so many skeptics and naysayers from their winter hibernation? Certainly not me.

But the one I wrote a few weeks ago on Plug-in Hybrid Electric Vehicles (PHEVs) has kept our Customer Service department working overtime… fielding the firestorm of responses, both positive and negative.

Clearly Americans feel this is a hot topic and, being the glutton for punishment that I am, I decided to move from the frying pan into the fire and revisit it. In my first article, I dismissed an investment in General Motors (GM) - or any other car company for that matter - as financial suicide. However, I’m going to eat a little crow for breakfast.

The Death of the Combustion Engine

Let’s cut to the chase, and I’ll drive a stake in the ground right away: The internal combustion engine is dead.

I know that’s a bold statement. Perhaps shocking to those among us who have rebuilt one - all the while marveling at its internal workings - or have driven a pocket-rocket powered by one, reveling in the raw power.

But I think time will prove me correct. And oddly enough, it’s a car company - General Motors - that’s helping to hasten its demise. It’s going to be a slow death, to be sure. After all, gasoline and diesel engines have been around for over 100 years, powering ships, cars, trucks, motorcycles, battle tanks, generators, bulldozers and weed whackers.

Engineers will continue to redesign it, tweak it, shrink it… and attempt to squeeze every last drop of efficiency and power out of it. But it’s as good as dead.

Just ask Tony Posawatz, General Motors’ PHEV Vehicle Line Manager. It’s his responsibility to bring the Chevy Volt into production - and more importantly, into dealers’ showrooms - by the end of 2010. The irony is that as his employer struggles for survival, it’s betting the farm - and its future - on a segment of the industry that it all but ignored for nearly a decade: Energy-efficient cars, led by the game-changing Chevrolet Volt.

The Volt represents a paradigm shift in automobile technology. It’s the result of desperation - combined with stark reality - that finally overcame business as usual.

Unfortunately for Tony, the odds are stacked against him. It’s an almost perfect storm of roadblocks designed to keep PHEVs from gaining traction (no pun intended).

Just consider:

• Car buyers have been running for the exits… making do with what they currently drive.

• Dealers are laden with gas-guzzling SUVs that they’re having trouble selling regardless of the price.

• Credit markets - an essential element in the car-buying process for most customers - are still very tight, making it difficult for many would-be car buyers to get a loan.

• Gas prices have been cut in half in the last six months, wreaking havoc on the economic argument for going green.

• Battery technology needs to improve to make the economics more viable, regardless of the price of oil.

All these issues aside - and that’s not to trivialize them - the Volt will be the very first, widely available car powered by plug-in technology. And while there are other manufacturers not too far behind them, it’s clearly a leadership opportunity for GM.

In order for the world’s largest car company to make it happen, Tony’s engineers, designers and mangers had to think outside the box - way outside. And they had to do it faster than they ever did before.

Starting with battery technology: Lithium is the current technology that holds the most promise. And after GM evaluated dozens of potential battery manufacturers, it decided the best solution was to get into the battery business itself. Why? Because in Tony’s words, “When we get a battery pack delivered to the car line, it has to be the absolute best battery pack available anywhere… and it has to work.”

So what about the doubting Thomas and the naysayers that don’t think GM will ever be able to pull this off?

Tony’s not worried: “Certainly there is the element of gasoline savings associated with the car, but when prospective buyers get in and drive it, they will find it to be such a unique and pleasing experience, we’ll hook them right then and there.”

And based on the provisions contained in the recent Economic Recovery and Reinvestment Act of 2009, you better get in line fast if you want a tax break for purchasing one of these pump-passing beauties. After any one manufacturer first sells 200,000 PHEVs, the $5,000 individual tax credits will disappear.

Of course, by then, the prices will likely be comparable to their fossil-fuel gulping cousins, and the oil lobbyists will be redeployed schmoozing politicians for battery-technology improvement money, or something else associated with the electric car business.

Bottom-line: GM, if it can survive, could quickly find itself at the top of an automotive heap that will be shedding the internal combustion engine faster than anyone thinks is possible today.

And at $2 a share, investors could find themselves sitting on a 10- or 20-bagger just as quick (and I would be eating crow for the rest of my life).

Here’s to American ingenuity and GM’s survival. And to the vision of Middle East oil sheiks, scrambling to sell their oil to some other country… for peanuts.

Comments

[User 158164:]

What a genius, you discovered what EVERYBODY missed!

Either that or that is the max load requirements for the electrical service. You think the charger is going to run at that for 8 hours? If it was, the electrical service would be rated at 60 amps.

My source? news.cnet.com/8301-111... and about a hundred other articles.

You are such a dope.

Feb 24 09:19 AM

[gr678537:]

The capacity of the Volt battery is 16 kwh (kilowatt hours)

Assuming it is completely dead - 16 kwh * $0.15/kwh would be $2.40 per charge

Assuming an 85% efficiency on the charger unit - your cost per day on a full recharge would be $2.82 per day.

Feb 24 09:42 AM

[epeon:]

The guy who got $24/day for driving the car has got it all wrong. The volt has a 16 KWHR battery. If I use his numbers (and assuming charger efficiency of 90%),

16 KWHR * .10/KWHR / .90 = $1.78 for a charge. Divide by 40 miles per charge and you get about $.045/mile. This is equivalent to about 45 mpg for $2.00 gas. Pretty competitive.

Now, if GM is smart (dubious), they would encourage the utilities and the public service commissions to use an off-peak charger at night and reduce the above substantially.

Anyways, bottomline, electric cars are OK with $2.00 /gal of gas. Not great. Obviously, way better if gas is $3.00/gal.

Feb 24 10:11 AM

[Douglas Kor...:]

Lithium is NOT the best technology!

GM's failure to use lead-acid and/or NiMH for the VOLT shows that they are either complete idiots (yes) or deceptive (yes).

GM has not yet admitted that the EV1 was a success, nor been able to open its goo-goo eyes to see the RAV4-EV, still running over 100,000 miles (last sold in 2002) and up to 80 mph, over 100 miles on a charge.

Feb 24 10:11 AM

[Douglas Kor...:]

PS, the VOLT, while carring 16 kWh, can only use 8 kWh. With lead-acid or NiMH, it would only have to pay for, and only carry, 8 kWh for the stated 40 mile range.

You're thinking (wrongly) that 16 kWh is needed to go 40 miles!! Whereas, the real number is 8 kWh to go 40 miles.

The cost of the electric is NEGLIGIBLE.

And if you could buy a plug-in car, the money you saved NOT buying gasoline would pay for a rooftop solar system powerful enough to provide ALL the energy you need.

Feb 24 10:14 AM

[babyray:]

Finally someone putting a positive light on an American Icon(GM). Put me on the list for a new Chevy Volt!! I am in!!

Feb 24 10:34 AM

[Mad Hedge F...:]

On Friday General Motors (GM) hit a low of $1.60/share, taking its market cap below $1 billion. CEO Rick Wagoner says he “doesn’t know” if the company will need additional bail out money at the end of March if its $18 billion February request gets funded. The lowest market cap the company saw during the Great Depression was $4 billion. This company is toast.

Feb 24 10:46 AM

[Motor:]

I agree it was a good strategic decision that could potentially result in a leadership position. GM's track record of poor execution coupled with the strong competition that is likely to follow quickly, however, may diminish the potential.

Feb 24 10:57 AM

[31October:]

I love hybrids and hope to buy a PHEV or full electric -- after the technology has advanced by many generations. Until then, there is nothing on the planet Earth that can transport stored energy the way gasoline & diesel can.

Until battery (or capacitor) technology gets beyond 6% of the capacity of a piston engine, takes you across 3 states and back, and can last 300K miles with little maintenance, then the piston engine is not dead.

As for "...when prospective buyers get in and drive it, they will find it to be such a unique and pleasing experience, we’ll hook them right then and there”: WHAT? It is a restyled Chevy Cobalt with a $30,000 drivetrain! Tony better pray the shopper does not get into the Cobalt SS parked next to the Volt on the showroom floor.

This is a useless article, with no engineering basis, no scientific basis, and no acceptance of power storage/transport/conv... realities.

Feb 24 11:22 AM

[Byrontx:]

I am all for going green but I think this is initially a car for green fleets and, perhaps, the coasts. In Texas and other areas of the west and south the commutes are long and the ac is running. A hybrid/small diesel combination seems more practical. If we could back off on taxes to get the price of clean diesel back down to the price of regular the auto industry would have an instant revival.

Feb 24 11:40 AM

[evjw:]

GM's problem was never technology, it was the lack of management vision that doomed the company. They've always had good engineering and bad execution.

Feb 24 12:31 PM

[User 363598:]

Electric vehicle backers are dreaming. There is no infrastructure to handle mass produced and utilized electric cars. What will I have to do - carry around 600 yds of power cord so I can plug in my car to my office after my 60 mile one way drive to work? And what happens when I need a charge halfway home - pull over and wait for 30 minutes or two hours or whatever it takes before I can finish my drive home? Worse yet, I will have to buy extra batteries just in case. Sure, I will just put that in the back with the two car seats, stroller and groceries. Please.

Feb 24 03:33 PM

[Paul Killinger:]

Whoever said this article was "dead on" was exactly correct. The Volt will prove to be the final nail in GM's coffin, assuming they survive long enough to get them on the street.

Feb 25 10:14 AM

[Paul Killinger:]

There are presently some 250 MILLION ICE's running the U.S. roads. Anyone who seriously believes we should strand this multi-trillion dollar asset by building $100K Teslas and $50K Volts is drinking too much Green kool-aid.

Feb 25 10:20 AM

[Paul Killinger:]

And that goes for the Obamanistas now controlling our nationalized transport industry in Washington. Those idiots couldn't build a bicycle.

Feb 25 10:23 AM

[Paul Killinger:]

Oh, and lest we forget, they're well on their way to nationalizing our nation's energy industry, as well. So when you go down to your local dealership in a few years and all they're selling are Smart Cars that would fit in the bed of our present day pickups, don't be surprised.

Like the Toyota commercials used to say, "You want it, you got it, Obama!"

Feb 25 10:34 AM

[Paul Killinger:]

But take heart. You'll be able to ride Harry Reid's new multi-billion dollar rail line between L.A. and Vegas by then. There's some stimulus for you.

Feb 25 10:56 AM

[Mad Hedge F...:]

General Motors (GM) announced a Q4 loss, and a 6.2 billion cash burn, leaving them with a scant $14 billion left. The company will have to file for bankruptcy when this figure drops below $10 billion, or in about two months. Last year GM lost $84.7 million a day! Apparently when people are afraid of losing their job and their house and are maxed out on their credit cards, they don’t run out and buy a new car. At least some fiscal responsibility is returning. Unsurprisingly, CEO rick Wagoner was back on capitol hill today panhandling for more money. The death watch has started.

Feb 26 09:31 AM

[on_mitch:]

The current state of affairs should once and for all prove that finance people AKA “bean counters” cannot and should not run a company. G. Richard Wagoner, Jr. C.E.O. of GM is a bean counter and nothing more.
Bean counters define the future as “the end of the current quarter”.
Issues like customer satisfaction, product quality, value, and innovation, cannot be input into a spreadsheet and quantified so there for they must be evil and must be ignored at all costs.
Instead they can use these quaint phrases as just buzz words that sound good when speaking to the press.

John J. Riccardo, Pres and C.E.O. of Chrysler Corporation a bean counter owned the single largest corporate loss at the time $1.2 billion. He had the good sense to hire Lee Iacocca a car guy and engineer was brought in to save them.
While Rick Wagner of GM is no slouch himself, he owns the now second biggest 4 quarter loss in US corporate history $58 billion.

So now the US tax payers are being asked to bailout these terrible companies, with the promise that they can turn things around.
The only problem that I can see with this plan is that these companies are run by the same buffoons that ran them into the ground in the first place.

Put industry people in charge, and send the accountants back to their spreadsheets where they belong.

On_Mitch

Feb 26 10:41 AM

[LoebA:]

you generalize too much. GM led in technology innovation to the Depression, but after that it decided that new technology had too much risk, and it left innovation to Chrysler. meanwhile, GM had discovered that strategic and marketing innovation was much more successful and avoided the risk of sunk capital, so that's why GM became a laggard. if the industry leader is philosophically opposed to technology innovation over a long time, doesn't that sound like a recipe for the condition we are now in? I think that explains a lot. now, finally, GM decides to innovate, but it came too late. GM is trying to do it at a time when surplus cash has disappeared. it should have done this decades ago, but now the investment in technology threatens to sink the whole enterprise. that is, it has failed even in strategy. all very unfortunate.


On Feb 24 12:31 PM evjw wrote:

> GM's problem was never technology, it was the lack of management
> vision that doomed the company. They've always had good engineering
> and bad execution.

Feb 28 02:35 PM