It appears that GM (GM) has fallen in love. It is committing its future to a plug-in hybrid power plant, and its new beloved does look beautiful. It promises the dual benefit of virtually unlimited miles per gallon of gasoline if the owner drives only 40 miles before recharging plus offering a standard 300 mile range with refueling available with ordinary, universally available gasoline if so desired. Yes, if oil prices stay high and especially if they go much higher, the public will buy that proposition. So GM’s planned Volt, the first production model plug-in hybrid, is morphing into a whole range of vehicles that will virtually redefine General Motors, as described in this news item.
The only problem is that a lot of people outside GM - including the U.S. Department of Energy - say that the lithium-ion battery on which the Volt is based cannot be produced at a cost the public would be willing to pay. Others say that with volume production, the battery cost will soon come down. So is GM betting the company on the unproven economics of an unproven battery? Or is it putting forth a dream so attractive that the U.S. government will be seduced into giving GM a cheap loan to fulfill it? Will the taxpayers own GM after the Volt - and its offspring - take over the company but fail to make a profit?
Maybe the real deal is that GM knows it has to go bankrupt to escape the uneconomical legacy costs that it cannot shed any other way. And maybe management is simply designing the most elegant possibly way of going into bankruptcy - by producing a dream car that America will also fall in love with and want to finance, thus giving political cover to the Congress that will have to authorize the take-over of GM.
