Remember when Bob Lutz used to grab all the headlines with his colorful and controversial comments?
Bob Lutz is retired from GM now, but it looks like CEO Dan Akerson is willing to walk in his shoes.
Akerson was in Washington DC Friday where he gave a speech to the Economic Club. He was also scheduled to have a meeting with US government officials to discuss executive pay caps on companies that took bailouts.
He is particularly concerned that such caps may prevent the company from hiring and retaining top executive talent.
“We have to be competitive. We have to be able to attract and retain great people,” said Akerson. “We’ve been able to retain them but we’re starting to lose them and I think that’s an issue for our owners to recognize.”
Though the government’s ownership in GM was significant reduced by the recent IPO, it still is a 33% owner.
Akerson also believes GM is well positioned for profit and expansion in international markets in 2011, and is humbled by the bankruptcy process. “We survived a near-death experience and we deeply appreciate the support we got from the American people,” Akerson said.
The most controversial statement he made though took the unusual tact of a direct insult to a competing automaker.
“We commonly refer to the geek-mobile as the Prius,” he said. “I wouldn’t be caught dead in a Prius.”
Ward’s Auto publishes an annual list of what it considers to be the ten best engines of the year. The Chevy Volt once again grabs another prize of recognition with the Voltec propulsion system being named to this year’s list.
Criteria the editors use to judge the engines include noise, vibration, and harshness, fuel efficiency and the use of new technology. The Volt was named among the top ten out of a field of 38 entries for this year of vehicles with new or updated powertrains.
“Brave. Inspired. Brilliant,” said Drew Winter, Editor-in-Chief, Ward’s AutoWorld. ”We don’t often use these words in the same sentence as ‘propulsion system,’ but that’s the only way to describe the magic under the hood of the Chevy Volt. General Motors engineers have changed the course of history by creating an electric vehicle with true mass appeal.”
Even though it doesn’t have an engine, in a strict sense of the definition, the Nissan LEAF was named to the list as well. ”What’s remarkable about the Leaf is how much it feels like a conventional car, with four doors, five seats and accelerator and brake pedals that could have been borrowed from a Nissan Versa, or any other gas-driven subcompact,” wrote the Ward’s editors. “The Leaf is affordable – about $25,000 with a federal tax credit – and a thrill to drive.”
Additionally, yesterday GM released new financial information to its Chevrolet delaers outlining for the first time, the specifics of how Chevy Volt financing will be handled, and the options customers will have for managing the $7500 tax credit they would receive if they choose to buy:
Lease offer through US Bank
• $350 / month for 36 months with $2,500 Due at Signing
• National lease program through US Bank ONLY (not available in Alaska & Hawaii)
• Only available at 36 month term; 12,000 miles per year
• If you lease, you will not be directly eligible for the tax credit (since US Bank owns the vehicle).
Finance Alternatives through Ally
Ally is providing 3 finance alternatives to assist dealers/customers when a customer purchases a Volt:
• Option 1: “$7,500 Single Payment Program” which allows you to get the benefit of the tax credit at the time of purchase with a 0% interest loan.
• Option 2: “Spike Payment Program” which allows you to get the benefit of the tax credit at the time of purchase while offering equal monthly payments with an increased payment of up to $7,500 (due in June of the year following purchase) with no deviation in the payment schedule.
• Option 3: “Equal Monthly Payment Program” which offers equal monthly payments at standard rates up to 72 months.
The Chevrolet Volt is a heroic and landmark vehicle, and a grand achievement by General Motors. We here have been following the car’s development since its inception as a concept, and along the way have often wished GM would plan to sell many hundreds of thousands of them. The more Volts on the road, the less oil used.
Of course GM shouldn’t build more cars than can be sold, and more importantly for the newly profitable company, they shouldn’t build cars they cannot make money on.
According to multiple GM executives there is little or no profit being made on each Volt built at a present cost of around $40,000. Furthermore, the $700 million of development that went into the car has to be recouped.
GM does have a plan to make the Volt business case profitable, according to vehicle line executive Doug Parks. “In reality, it won’t be profitable at the beginning,” said Parks about the Volt.
The plan to profitability is to reduce cost on a yearly basis as opposed to waiting the full development cycle to a second generation, typically 5 or 6 years for most cars. “It is our hope, every year as we have opportunity to improve the performance and even take cost out, that at the end of the first lifecycle we make money,” he said.
Parks also disclosed GM is trying to improve efficiency with each yearly iteration too, but that itself wont help bring down costs, except if less lithium ion cells are needed to achieve the same range. “We’re developing technology that can lead to minor increases in performance but a big cost reduction,” he said.
“No big changes to range and/or performance, just ongoing tweaks and refinements in many different areas, including battery,” Parks told GM-Volt. ”We will have a strong focus to improve costs, but will make sure we at least maintain performance – or even improve it slightly if possible.”
Parks also reported that the entire 2011 build inventory has already been sold out. Those units, he said, “are gone.”
Despite this high demand and low volume, GM has no immediate production modifications. “There’s really no plan to change that slow ramp-up through next year,” he says. “Then, when we really open it up in ’12, we’ll build our planned volume and see what the market says. If we want to do a lot more, we’ll look at it.”
Back on its feet after its IPO, and GM is now beginning to put its money where it’s most needed. One place in particular the company thinks it needs to expand is in the production of small engines.
Earlier this week GM announced it would be investing an additional $162 million in three of its facilities; Flint engines, Bay City components, and Defiance castings. The lion’s share of $138.3 million will go to the Flint, Michigan engine operations plant where 135 jobs will be retained.
GM is investing all this money in the Flint facility because it is where the engine critical to three vehicles that are the core of GM’s future will be built. This engine is the 4-cylinder 1.4 L ecotec model that serves both as the generator for the Chevy Volt and in a turbo-charged form for the Chevrolet Cruze compact car.
With the announcement GM also disclosed this engine will serve in a future Chevrolet small car the company apparently hasn’t yet unveiled.
“This is the replacement for the Aveo,” GM spokesperson Pat Morrissey told GM-Volt. “It will be built at the Orion plant.”
Unnamed and unseen, we still don’t know when we will find out more about this car. It is not the Spark that one time GM had planned for US launch. ”We have not discussed reveal timing for this product,” said Morrissey.
GM’s investment in the engine is good news for fans of the Volt and other fuel efficient cars.
“This investment is essential in ensuring we can meet the expected high demand for the Chevrolet Volt, Chevrolet Cruze and a small car that will be produced at our Orion Township facility,” said Kathleen Dilworth, Flint Engine Operations plant manager. “These three facilities will continue to play a key role in GM’s resurgence and efforts to bring to market vehicles with segment-leading fuel economy.”
Engines for the Volts currently being built are being imported from Austria. By early 2011 GM expects to build 400 engines per day in Flint and that will increase to 800 engines per day by then end of that year. This new investment allows for the possibility of building 1200 engines per day in 2012.
The Volt is a remarkable award-winning car capable of traveling on gas or electricity that was hatched from a sketch in a mere 39 months.
All the while the car has been described as GM’s savior, or alternatively its Hail Mary pass. Designers and engineers had to get it right, the whole company’s future rode on in, and right they did.
In the beginning the Volt’s godfather, former GM vice chairman Bob Lutz told the world a bit prematurely that the Volt would sell for comfortably under $30,000. Indeed it was certainly the hope early on that such a price point could be achieved. But like all new technology, the Volt was to be costlier than hoped.
Many new and specialized components had to be built specifically for the Volt, and its heart and soul, the lithium-ion battery, topped the scales at a cost of around $8000 to $10,000, it is believed.
After years of waiting GM finally announced the price in late July; $41,000 before the tax credit. What they have never announced was how much the car actually costs them to build.
We do know from former CEO Ed Whitaker that there is a very small margin of profit for each car, but too slim to make a business case for the car in its early years.
In his new book called Overhaul, Steve Rattner who used to head the government’s auto task force, disclosed GMs cost to build the Volt. This is a closely guarded corporate secret that Rattner was privy to through his work to restructure GM though its bankruptcy.
Rattner is currently the subject of legal proceedings and despite the questionable ethics and behavior of doing so he wrote the following: “At least in the early years, each Volt would cost around $40,000 to manufacture (development costs not included).”
Rattner admitted in an interview with the New York Times that he “didn’t know the precise number,” but agreed that despite the costs, on developing the Volt GM was “right to do it,” to silence critics “who’ve said for many years that the company was behind the curve.”
GM spokesperson Rob Peterson would of course not confirm these values, though GM has a history of getting small or no margins on small cars. Even the famous high volume Chevrolet Cavalier was known to be sold at loss. “We haven’t released any numbers related to costs,” said Peterson. ”The importance of the Volt is more than a single profit-and-loss statement.” Indeed.
Rattner agrees the introduction of EVs are important, but doubts any automaker is in a position to profit on them in the early years. “E.V.’s are everybody’s latest fantasy,” he said. “No doubt they are important and they are real, but they won’t have an impact on profitability and sales for the foreseeable future.”
Rattner also thinks the idea of start-ups like Tesla rising up and competing successfully with major automakers is a bit far-fetched. “E.V. markets will be dominated by the existing companies,” he said. “They have the scaled operations and the dealer networks. The idea that a bunch of E.V. companies will come along and G.M. and Ford will go out of business is kind of crazy.”
For those of us who have closely followed the Chevrolet Volt since its debut at the 2007 NAIAS Auto Show, we have also been forced in a sense to follow General Motor’s financial ups and downs almost as intently. As the General goes, so went the Volt. No GM. No Volt.
It is no secret that many of us were firmly in the “GM is not going to make survive” camp, despite then CEO Rick Wagoner’s confidence in the company, but we all hoped somehow that the Volt project would come to fruition before the company perished. Unfortunately, when the housing market (and greater US economy) collapsed, the auto market went along with it, and sped up the bleeding on the American car institution’s balance sheet…and sure enough, our worst fears where confirmed as the company pled for loans to avoid bankruptcy over the holiday season of 2008, before eventually filing for bankruptcy in June of 2009.
However, what happened next was one of the most controversial, but also one of the most successful, incidents of government intervention into private business of all time. Despite many personal opinions (including my own) that the government should not interfere so significantly in the bankruptcy process, GM was cleared of their debt, given an infusion of working capital, and reborn anew.
Today marks GMs return to the open market. Once again the ticker symbol ‘GM’ will take its place on the New York Stock Exchange. And it is quite a return indeed…the largest IPO in US history, passing that of Visa’s $19.7 billion sale in March 2008.
The recently upped price of the IPO at $33/share, is still $10 light of the $43.67 average transaction price the government needs to break-even. It is thought that GM, under the government’s first hand picked CEO, Ed Whitacre, have intentionally priced the offering below expected market value to create a sense of continued success long after the IPO has come and gone.
However in so doing, the government has backed away from earlier plans to vacate the company as soon as possible, and looks to gain back initial losses when GM has fully realized its value at some point in the future. Reportedly, that delay did not sit well with promises that Mr. Whitacre had made, or had been promised, and that continued government involvement was one of the main reasons why he has stepped away from leading the company.
Still, GM has many reasons to be pleased with the way things have turned out since leaving bankruptcy in July of 2009. While market share has expectedly dropped with the closure of Pontiac and Saturn, GM has been able to retain an average transaction price north of $33,000 per vehicle in North America, with a much higher margin thanks to new efficiencies and an absence of crippling debt on the balance sheet. Things have also gone incredibly well of late in China, South America and many other regions of the world for GM.
GM just posted a Q3 profit of 2.1 billion dollars, bringing their yearly rake up to $4.77 billion, and is coming to market trading at 8 times this year’s earnings (based on the first 3 quarters income), roughly the same as estimates for Dearborn rivals Ford Motor Company.
Is everything perfect now? Not hardly. Daewoo, who actually makes a quarter of every GM product sold is functionally bankrupt without cash from the mothership. Opel was also a mess at the time of bankruptcy, and it (as well as Europe itself) has gotten much worse since…it looks like second to last former CEO Fritz Henderson was right to keep to the plan to sell if off, and the decision to retain Opel would seem to be the one major blemish on Mr. Whitacre’s record in his brief stint as CEO.
So should you invest in new GM now? Sure why not, it is now as healthy an automobile company as any right now, and should ride on market sentiment alone for a good stretch.
The better question is, “is it a good, stable, long term hold?”
The only facet of the government sponsored bankruptcy that is really troubling is the fact the GM under the Troubled Asset Relief Program, can carry forward losses racked up by company before bankruptcy to be used to offset future tax liabilities…$45 billion worth. Not only was this unnecessary (and against accounting principles), this gives GM incentive to overstate profit for its (and the government’s) own gain. We also have to see how Opel and Daewoo unwind themselves from their current situation. It will certainly take many billions of dollars to right those ships, and the financial accounting waters are far too murky to get an adequate feel for the situation still.
Overall however, General Motors and the US government have done an almost flawless job turning things around, and in marketing the new company. They both deserve all the credit in the world. Many jobs at the company (and at hundreds of suppliers) have been saved, as well as the American institution itself. GM’s recovery has really turned into a symbol of the hopes of the country it was founded in.
Will GM live up to the current hype behind it? Probably not. Will GM continue to be a profitable auto maker with a bright future for success? Most definitely. /and that is plenty good enough
