Cover Story May 15, 2008, 5:00PM EST

GM: Live Green or Die

The lumbering, money-losing giant finally sees that gas engines are a losing bet. But is it too late?

by David Welch

Kruse, new chief of hybrids and electric cars, has a decent budget and real power Bill Cramer

Going for small: "Bob [Lutz] thinks the world is being turned upside-down" Bill Cramer

null

http://images.businessweek.com/story/08/370/0515_mz_gm.jpg

"It's the biggest challenge...since the start of the industry," says Wagoner Bill Cramer

In April of 2005, General Motors (GM) Chairman and Chief Executive G. Richard Wagoner Jr. convened his management team for a monthly strategy session. Held in the boardroom at GM's Detroit headquarters, these meetings can last a day as 20 or so executives mull plans for new cars and product strategies. Meetings often kick off with a roundtable format, and attendees are encouraged to pose new ideas and stray from the agenda. That's when Vice-Chairman Robert A. Lutz spoke up. Lutz, whose gravelly pronouncements routinely enliven auto shows and generate headlines, has a certain genius for challenging conventional wisdom. Maybe, he told GM's brain trust, it was time to build another electric car—one that would use a giant version of the lithium ion batteries that power cell phones and laptops.

It was a provocative suggestion—and Lutz knew it. Two years earlier, General Motors had killed its experimental EV1 electric car and set off a public relations furor. The environmental lobby was deaf to GM's assertions that the EV1, leased to a limited number of people but not sold, would never have earned its maker any money. And the greens accused GM of pulling the plug to show policymakers that such techno wonders were bad business.

By the time Lutz revisited the issue in 2005, Toyota Motor's (TM) quirky Prius hybrid had turned the Japanese automaker into a poster boy for the environmental movement and cast a greenish halo over the entire company. By contrast, GM, at least in the popular imagination, had tunnel vision; it was still making gasoline hogs like the Hummer and fighting congressional efforts to boost fuel economy. GM executives were furious Toyota was winning green cred despite making its own fuel suckers. But no one at the meeting wanted to hear about electric cars. "We lost $1 billion on the last one. Do you want to lose $1 billion on the next one?'" Lutz recalls one executive saying. "It died right there."

Myopia. Fear. Inertia. All had a seat at the table in Detroit that day. And yet 20 months after the meeting, in January, 2007, Wagoner stood on a stage at the Detroit auto show and surprised the world with a vow to start developing a newfangled electric car called the Chevrolet Volt. It would plug into a regular outlet, leapfrog the competition, and could be ready in three years.

Why did Wagoner suddenly get religion? After years of avoiding the future, he finally understood oil prices were not going to return to earth, global warming was a de facto political reality, and Washington was serious about imposing tougher fuel economy rules on his industry. GM would have to live green or die.

Now Wagoner is racing the clock. Not only has he promised to get the Volt ready by 2010, but he also must transform GM's entire fleet to meet stringent new fuel economy rules that take effect in 2017. As many as three-quarters of the company's 50 models may need to be fitted with hybrid systems that combine an electric motor with a small gasoline engine. Many other existing models will be shrunk or fitted with some other kind of fuel-saving technology.

General Motors' green strategy is akin to a moon shot. It will cost billions to get the Volt ready by 2010 and fill out the fleet with hybrids, require GM's 22,000 engineers to stretch like never before, and involve the top-to-bottom transformation of a culture wedded to big cars and horsepower. Other automakers, of course, must also hew to the new realities. Most, including GM's two crosstown rivals, Ford and Chrysler, are rolling out hybrids, too. But the Volt is controversial in automotive circles because the technology is so new and unproven. And GM, bleeding cash and losing money in North America, is at a serious disadvantage compared with well- financed Toyota.

Inside the company, meanwhile, there is debate about how to make cars planet-friendly and desirable. And there is fear that Wagoner has handicapped GM by waiting too long. Three years ago, Toyota was the main threat.

Reader Discussion

 

BW Mall - Sponsored Links