HOW & WHY GM & THE EV SPLIT AND GOT BACK TOGETHER

In the 1890s, Henry Ford believed so intensely in the future of the internal combustion engine he built a prototype in his garage to get funding to start his auto company. He didn’t have market studies, he had commitment. It worked out. There was probably somebody around at the same time who believed in a better horse buggy but that guy didn’t go down in history.

The folks who run GM were building SUVs and following in the footprints of the guy who believed in the better horse buggy until, suddenly last summer, Bob Lutz went into the garage and, with the backing of CEO Rick Wagoner and a few realistic members of the GM board, started building the Chevy Volt, a potentially game-changing plug-in hybrid electric vehicle (PHEV).

GM had seen its falling market share, a rising demand for improved vehicle mileage and the success of Toyota’s Prius and knew it was time to act.

Richard Wagoner Jr., CEO, GM: "We may not get the calls right. But we have to start making some calls."

Lutz had suggested the EV 2 years before, in 2005. BusinessWeek, on GM’s 2005 decision: “Myopia. Fear. Inertia. All had a seat at the table in Detroit…”

Electric Vehicle (EV) enthusiasts include GM near the top of the list of suspects for Who Killed the Electric Car? while GM says the battery technology in the late 1990s made the EV1 a sure market loser. EV1 advocates say the car would have been a success with good marketing.

The Volt will have a state-of-the-art lithium ion battery. The company has already started marketing the car. Seems they learned lessons the last time around. Will GM win this aggressive bet? 2 questions: (1) How good will the battery turn out to be? (2) How good will the marketing be?

Many industry insiders are adamant that the new, fuel-efficient, plug-in vehicles will not sell.

Here's Bob Lutz, GM Vice Chairman in charge of the Volt and the company’s green shift, replying to a marketing assertion that buyers want a big powerful gas-guzzling engine in their Cadillacs: "They said: That's what those buyers want.' I said: It is now, but it won't be in 2011.'…You people don't understand…Everything has changed."

Holman W. Jenkins Jr., auto industry columnist, Wall Street Journal: "We just can't decide whether GM is a genius or a dolt for developing the Volt…"

Henry Ford’s wife wondered the same thing about him – but so did the wife of the build-a-better-buggy guy. Ain’t it interesting to have a front row seat on history?

Wagoner: "It's the biggest challenge we've seen since the start of the industry…It affects everything we think about."

click to enlarge

GM: Live Green or Die; The lumering, money-losing giant finally sees that gas engines are a losing bet. But is it too late?
David Welch, May 15, 2008 (BusinessWeek)

WHO
General Motors (GM) (Richard Wagoner Jr., CEO; Robert A. Lutz, Vice-Chair; Douglas Drauch, head, GM advanced battery lab)

GM is putting a big bet down on the PHEV. (click to enlarge)

WHAT
GM intends to bring the Chevrolet Volt plug-in hybrid electric vehicle (PHEV) to market in 2010 and is shifting the bulk of its fleet to hybrid technology. Can they win back enough car buyers to earn enough green to get out of the red and into the black.

WHEN
- GM was involved in an EV, the EV1, from 1991 but it was scraped as not economically feasible in 2002.
- Lutz suggested going back to the EV in April 2005 but the proposal was rejected.
- The Volt is promised for 2010.
- GM and other U.S. automakers must meet more stringent fleet fuel requirements beginning in 2017.

Market studies suggest the bet will pay off. (click to enlarge)

WHERE
- GM is based in Detroit, where the renewal of the auto industry could mean the renewal of a rusting city and state.
- GM faces competition for the PHEV, EV and hybrid marketshare from Toyota, Honda, Nissan and Ford as well as a variety of Silicon Valley-funded startups like Tesla, Fisher Karrman and Th!nk.

WHY
- It is expected to cost billions for GM to turn out the Volt by 2010.
- GM’s 22,000 engineers are pressing to meet the 2010 asnd 2017 deadlines.
- GM has in the last 2 years seriously considered every alternative fuel vehicle including ethanol, clean diesels, hybrids electric cars and hydrogen fuel cells.
- The original name for the Volt was the iCar.
- GM’s green move is expected to cost $6,000/vehicle. Last year’s R&D expenditure jumped from $6.6 billion to $8.1 billion and his year it is adding a billion dollars a month into its R&D budget.

click for Plug-in Partners

QUOTES
- 2005 response of GM executive to the suggestion of returning to the EV: "We lost $1 billion on the last one. Do you want to lose $1 billion on the next one?'"
- GM executive describing Wagoner’s thinking: "We talk about being a technology leader…But these days technology means fuel economy."
- Lutz, on the decision to build the Volt: "We were agonizing over what to do to counter the tidal wave of positive PR for Toyota…"
- Douglas Drauch, head, GM advanced battery lab: "For five years, I came in and played with batteries…[Now] we're the ones with bull's-eyes painted on the backs of our heads."
- Wagoner: "We believe we can be, and must be, a leader in this transformation of our industry…It's critical for our future."