Can the Volt recharge GM?
A plug is seen coming from the Chevrolet Volt electric car during the North American International Auto Show in Detroit.
After decades of mismanagement and missed opportunities, General Motors pins its future on an electric Chevy as it tries to avoid financial blackout
Barrie Mckenna and Greg Keenan
Washington, Toronto — Saturday, May. 30, 2009 03:53AM EDT
Bankruptcy is a word heavy with stigma. It's a sign of defeat, and typically of retreat.
But don't tell that to Tony Posawatz, the General Motors Corp. (GM-N) executive in charge of producing the auto maker's first electric car for the masses. For Mr. Posawatz, GM's current crisis is just a bend in the road. He's focused on the horizon – years out – when the humiliation of a government bailout and filing for bankruptcy protection is just a bad memory.
In Mr. Posawatz's vision of the future, GM has leapfrogged archrival Toyota Motor Corp. in the race to produce the world's greenest car, re-establishing its global technological lead among car makers. And his baby, the electric-powered Chevy Volt, is creating such a buzz among buyers that it casts a halo over everything else the car maker sells, from Camaros to Silverados.
“The Volt is really about setting up the future, and how we can win and compete,” Mr. Posawatz, a lifelong GM employee whose father also worked at the car maker, said in an interview. “We want it to be viewed as an iconic technological marvel, a remarkable machine.”
Think of what the iPod did for Apple, or the Wii for Nintendo, and you have some idea of how much is riding on a car that won't even begin production until 2010. That's more than a year after GM emerges from a bankruptcy filing expected on Monday.
The Volt is GM's equivalent of a moon shot – a car that re-energizes the crippled giant and saves it from technological oblivion. It is now at the heart of the company's struggle to reinvent itself as a lean and green auto maker, shedding the baggage of years of dependence on gas-guzzling pickup trucks and sport utility vehicles that generated profits but covered up cracks in the foundation of what was once America's mightiest company.
How GM reached the point of desperation where it needed the halo of a game-changing car and tens of billions of dollars in government financial help is a tale of decades of mismanagement, missed opportunities and the arrogance that comes from being the world's largest auto maker for 77 of its 100 years of existence.
The expectations are extraordinarily high for what looks to many outsiders as a bit of a fringe car. GM is likely to lose money on every Volt it sells, at least initially, while producing as few as 11,000 in the first year. And the Volt is expected to sell for roughly $40,000 (U.S.), about twice the price of a competing vehicle, the 2010 Toyota Prius.
The project originated in 2005 from the growing frustration of Bob Lutz, GM's recently retired vice-chairman and product czar. It ate at Mr. Lutz that Japanese rivals Toyota and Honda were getting all the credit for leading the green revolution with new hybrid and battery technology.
So he conceived and championed a vehicle that would put GM back on top.
“In one respect,” Mr. Lutz remarked, “it is the car that will save General Motors in that the car almost single-handedly re-established General Motors' aura of technical competence – if not technical leadership.”
Reversing the collapse
It is a stretch to characterize the Volt as the car that will save General Motors from the host of other critical ailments the wounded giant faces.
The company still has too much assembly capacity in a market that has all but collapsed from the level of 16 million vehicle sales annually through most of this decade. GM is scaling back to four divisions from a bloated eight by shedding Hummer, Pontiac, Saab and Saturn, but even four brands may be one too many in the shrunken market.
And halting and eventually reversing years of market share declines and consumer perceptions that GM quality doesn't stack up to the best is a mammoth undertaking.
Yet the Volt has carried that burden since its public debut in January, 2007, at the North American International Auto Show in Detroit.
Its genesis, however, came a couple of years earlier.
Back then, Mr. Lutz was looking for the next big thing to halt the steady erosion of GM's market share to Toyota and Honda. He figured the time was right for GM to revisit the electric car, something that would blow the hybrid Prius out of the water and put the largest Detroit auto maker back on top of the technology game.
“Before we did the Volt it was, ‘Look, Toyota is wonderful, they've got the Prius and Honda is working on fuel cells and you guys are nowhere. You're just technological idiots,'“ he said.
Mr. Lutz, who rejoined GM in 2001 after a stint as head of battery maker Exide Technologies, had always been a fan of electric vehicles: He counts a Segway and an electric scooter among the large collection of vehicles at his home.
He quickly determined that GM was ready to try again and commissioned an internal white paper to explore the idea of mass-producing an eco-friendly vehicle, initially code-named the iCar, shamelessly borrowed from the iPod. Without defining exactly what the car would be, Mr. Lutz began assembling a team to build the car of the future.
But even Mr. Posawatz wasn't convinced GM was serious. The veteran GM vehicle line director, who had worked on successful rollouts of the Escalade SUV and the Avalanche pickup, told his superiors he wasn't interested in doing another fringe car. “We have had a history of doing a bunch of concepts that were great exploration exercises, but that never really had a chance to go into production,” he lamented.
But Mr. Lutz and other top executives assured him the Volt was the real deal. And so in early 2006, Mr. Posawatz became employee No. 1 on a team that now numbers more than 1,000, working out of a seldom-used theatre on a corner of GM's sprawling research complex in the Detroit suburb of Warren, Mich.
At the time, the company was still haunted by its first major foray into electric cars – the EV1.
Mr. Posawatz remembered the ill-fated EV1, a project he and many other Volt team members worked on. In the late 1990s, GM produced more than 1,000 experimental plug-in EV1s – one of the greenest vehicles ever made. The company leased the cars to hundreds of enthusiasts, who fell in love with them. But it pulled the plug on the project after determining the pricey two-seater with limited range would only appeal to geeks. The experiment cost GM $1-billion (U.S.).
And that misadventure was only a small one in the decades-long history of GM's decline from the bluest of blue-chip companies.
Searching for a saviour
The slow bleeding began with the two oil shocks of the 1970s and GM's woeful response to the Japanese invasion of North America and takeover of the small-car market. But it really started to gather steam during the reign of chairman Roger Smith in the 1980s, satirized in the documentary Roger and Me . He undertook a reorganization that blew up a long-standing corporate structure. He followed that by spending billions of dollars to buy high-tech company Electronic Data Systems Corp. and defence giant Hughes Aircraft Co.
“That was really the moment of the company's identity crisis, where they had thrown up their hands about the auto business,” said John Casesa, who has followed the company for years as a Wall Street analyst and now as managing partner of consulting firm Casesa Shapiro Group LLC in New York. “I'd say that was a critical point.”
GM tried to fight back against the growing encroachment by Honda, Toyota and other Japanese auto makers by creating Saturn Corp., billing it as a different kind of car company. The Saturn gambit failed, and it's now bundled into the assets GM has put on the block to scale back its operations.
GM's crisis continued under Mr. Smith's successor Robert Stempel, who in 1990 signed a contract with the United Auto Workers that established the infamous Jobs Bank, where workers whose jobs were eliminated would stay on the payroll waiting for a new spot to open up. But there were no new jobs amid the recession, and that meant millions of dollars in wages and benefits for workers who were doing nothing became embedded in GM's structural costs.
Mr. Casesa described that labour agreement as “the point of no return.”
GM recovered from a near-collapse of 1992 after a board revolt that forced out Mr. Smith's successor, Robert Stempel, and a surge in popularity of profitable pickup trucks and SUVs for much of the rest of that decade. Market share continued to erode, however, even as GM racked up tidy profits in the 1990s. The problem of having too many brands for a company with market share of less than 30 per cent was dealt with by closing the Oldsmobile division, but even that was negated by the purchase of Hummer. Under chairman Rick Wagoner in this decade, GM chipped away at the problems, but there were too many that needed solving simultaneously – and not enough time.
The worse things got at GM, the more important the Volt became. That's why GM is so determined to get the vehicle and the technology right. So the Volt team applied the lessons of the EV1 – about range, comfort and batteries.
That meant the car had to be lighter. It had to be an affordable car that someone would buy as their primary vehicle, rather than a toy. So it had to be a four-seater with ample trunk space. And it had to travel as far on a single charge as most drivers go in a typical day (64 kilometres).
Those requirements dictated the technology. The team rejected the nickel metal hydride battery, used in both the Prius and the EV1, in favour of the lighter and more powerful lithium ion battery, used in the iPod, mobile phones and many laptop computers.
To boost the range, GM added a back-up 1.4-litre cylinder engine, whose sole purpose is to recharge the battery with the help of a generator. Unlike the current generation of hybrids, which run on a combination of gas and electric power, the Volt always runs off its electric engine.
Almost as importantly, the Volt team decided that the vehicle would have to be flexible to accommodate different model types, fuels and battery sizes. The company envisages the Volt being a global brand, with a technology that can easily be applied to other vehicles.
“We don't say Volt is the end-game,” Mr. Posawatz said. “The Volt is an answer that offers up a lot of choices. There will be opportunity to burn petroleum for a long time. Volt takes advantage of that. There will be more and more batteries in cars and more plug-ins.
“Will they displace every application? Probably not for a long time.”
The final piece of the puzzle for the Volt team was to develop a car that company management would embrace and finance, even during a deep recession, and now a possible bankruptcy.
“Within the organization, we were viewed as some crazy outliers with an idea when we first surfaced,” Mr. Posawatz said. “The team had to come up with a car that would be consolidating, that rallies everybody … It took us some time internally.”
Not a money maker
The larger question now is whether the Volt can save GM. Even insiders readily admit the vehicle won't make any money initially, and may even lose money. GM has already invested $1-billion in the project, and the car won't be in showrooms until late 2010.
The Volt has a huge fan in U.S. President Barack Obama, who is eager to push domestic production of electric vehicles. But even his administration, which will own a major stake in the overhauled GM, isn't yet convinced it can be a money winner. In its assessment of the company's restructuring plan, the Treasury Department concluded in February that the Volt “holds promise” but will need to slash manufacturing costs substantially to become “commercially viable.”
GM insists that as volume goes up, the cost of its key components, such as batteries and charger, will fall dramatically. And later models will cost significantly less than the initial $40,000. There are also advantages to being green. Federal tax rebates will take $7,500 off the sticker price, and several states may add incentives to spur sales.
That leaves a lot of uncertainty. GM doesn't have a stellar track record of producing reliable, cutting-edge vehicles. A key worry among experts is that the Volt's main feature – its massive lithium ion battery – could prove unreliable. Lithium ion batteries are prone to overheating and explosion, and perform poorly in extremes of cold and heat, a problem GM insists it has overcome.
“The brilliant achievement of the Prius is that from the very beginning Toyota has never had a significant recall,” pointed out James Womack, chairman and founder of the Lean Enterprise Institute in Cambridge, Mass. “The fundamental technology has worked flawlessly from day one. GM's record of being able to do that is not great. Check the history of the last 50 years. When they've tried to make great leaps, it's proved to be a pretty tough pull.”
The Volt is really a diversion, allowing GM to continue to produce higher-margin, but less fuel-efficient trucks and SUVs, according to Mr. Womack. By boasting impressive fuel economy ratings, the Volt would improve the overall efficiency of GM's fleet. “The Volt will never make any money, but that's okay as long as it makes the world safe for Silverados,” Mr. Womack said. GM could afford to lose several thousand dollars on every Volt it sells as long as it can still sell more of its other vehicles, he said. “It's crazy, but that's what's really going on here.”
None of that fazes Mr. Posawatz – not the critics, not the looming bankruptcy and not the long arm of its would-be government owners. Amid all the turmoil, he said the Volt remains “completely green-lighted,” and the project will continue to grow even as the rest of GM shrinks.
“We've come to an understanding,” Mr. Posawatz said, “that working with Washington is part of life.” |
