Recalibrating the Auto Industry
It's a Sign of Change When GM's Bob Lutz
Says It Might Be Time for a Smaller Hummer
October 2, 2006
PARIS – Robert Lutz, General Motors Corp.'s vice chairman for world-wide vehicle development, has built a reputation over four decades in the car business as a bold guy who likes to think big. Remember the 12 cylinder Cadillac sedan show car a few years ago? That's Bob Lutz's kind of car -- designed to a big impact with a big engine and big power.
So it says something about the rapidly shifting currents of the auto business that Bob Lutz would come here to the Paris Motor Show and sing the praises of biofuels, small cars and higher gas taxes.
"I'd say the best thing the (U.S.) government can do is to raise the gas tax by 10 or 15 cents a year until it reaches European levels," Mr. Lutz said, during an impromptu interview just before GM Europe's media event last Thursday.
That way, he says, car makers could concentrate on designing for the U.S. market the kinds of fuel efficient and increasingly luxurious smaller vehicles that characterize the European market. "In Europe people buy $30,000 Golfs," Mr. Lutz says. "People are willing to pay lots of money for extremely well equipped, fuel-efficient cars."
Of course, this has become increasingly true in the U.S. market, as gasoline prices have risen from their late 1990s lows. For a time, Detroit executives appeared to be unconvinced that a major shift away from the old "small cars make small profits" formula was in progress. But in Paris, executives responsible for making future vehicle plans, including Mr. Lutz, sounded as if they were ready to embrace a new reality in which the U.S. market looks more European.
For GM, he said, that means a shift in emphasis toward designing more appealing smaller vehicles. Look at Hummer, he says. Three years ago, GM's instinct would have been to make future Hummers even bigger and more massive than the current H2. "Now our instinct would be to go down instead of up" in size, toward a vehicle even smaller than today's H3," he says.
"Three months from now if gas is $1.60 a gallon, people are not going to go rushing out to buy 400 horsepower SUVs," Mr. Lutz said. "People now have understood the concept of volatility. People will hedge their bets."
Of course, should consumers want a huge, overpowered SUV, GM can still offer them the Cadillac Escalade. But GM will stress that the Escalade could run on E85 ethanol, if you can find it. GM is high on biofuels such as ethanol not just in the U.S., but in Europe, where Saab's recent promotion of alcohol fuel capability has gotten positive traction.
Mr. Lutz's comments reflect a recalibration by senior auto industry executives -- particularly those focused on the U.S. market -- of the best way to balance the clashing forces of energy price volatility, global competition and the relentless pressure to cut costs. This rethinking will result in vehicles for the near and medium term future that will be different than they would have been had Katrina, $70 a barrel oil and Al Gore's "An Inconvenient Truth" never happened.
Paris is a fine place to come and think about alternative futures for the car business, not least because the French car market is nothing like America. Most of the cars on the streets and freeways in Paris are cars Americans never see at home -- Renault Clios and Meganes, Citroen Picasso minivans, Smart ForTwo city cars. The engines are mostly diesels. The styling, particularly of certain Renaults, is, well, very French.
PARIS AUTO SHOW
[Auto show video]1
See video of the newest models2 from Mercedes, Renault and Dodge. Plus, see a photo gallery3 and the Auto Show Notebook4.
Still, France and Western Europe reflect the global reality of the car business more accurately than, say, Texas or Michigan. The hubbub last week about whether GM and Renault, along with Renault's alliance partner Nissan Motor Corp., would wind up in a three-way grand alliance isn't just a story about corporate intrigue. It's also a story about a fundamental disagreement on what road to take to get to a business model that allows a car company to prosper without having to dominate any one country's market, rely too heavily on one kind of vehicle, or bet the company on oil remaining at one price or another.
Instead, car makers will have to be flexible across several dimensions. They'll have to be able to respond quickly when China gets hot and Germany cools down. They'll need an array of technologies to cope with an energy future in which oil may not be the only option and global-warming concerns cannot be waved away. And they'll have to be able to profit if consumers want small cars, or big SUVs, or some combination of both.
Behind the scenes of many of the glitzy Paris motor show new model presentations, you could find various examples of the industry's new calculus at work.
Consider GM's new Opel Antara, a compact crossover wagon designed mainly in Korea as part of a new lineup that will eventually be sold under several model names in several markets world-wide. In the U.S., for example, the Antara will be sold, more or less as is, under the Saturn brand.
The Antara was one of a gaggle of compact, fuel efficient SUV-like vehicles shown in Paris developed to be appealing in markets where fuel costs matter, such as Europe, Latin America and Asia. Another was the Nissan Qashqai, which is also designed on the basic underpinnings of a car.
Transforming a small or medium-sized car into an all-wheel-drive wagon is one way to make money on a car. Another is to design a car that can sell in huge volumes around the world. This is what Toyota Motor Corp. and Honda Motor Co. do with their respective Corolla and Civic models. Renault and Nissan are collaborating to do the same with their so-called "B" class small cars. The hardware that undergirds the Nissan Versa, a new subcompact Nissan on sale in the U.S., is basically the same as that which Renault uses to build its Clio in Europe.
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