GM’s Lutz: Volt’s a Money Loser (and, Bob, answer a question, please)
“We won’t make a dime on this car for years, and the board is OK with that.”
That’s the prognosis for the Chevy Volt,
from none other than its godfather, GM vice-chairman Bob Lutz.
Addressing a group of Chevy Volt enthusiasts invited by General Motors to the New York Auto Show, Lutz told the group that the company expects to lose money on the Chevrolet Volt, that the company made a mistake by failing to bring a hybrid to market when it had the technology to do so, and that it won’t make that mistake again.
Lutz said that GM could have brought a hybrid to market a decade ago, but didn’t because it believed that it would have lost $250 million a year on a hybrid. He said that decision has cost the company billions in lost sales.
So, to make up for that, apparently GM is prepared to lose millions on the Volt.
At some point, however, General Motors must start making a profit.
(more after the jump)
Building cars with the expectation of losing money is not a strategy to accomplish that goal.
Losing money, however, is the one thing at which General Motors has consistently demonstrated real talent:
Last year, General Motors posted a loss of $39 billion dollars, the largest in the company’s history.
A significant part of that loss resulted from the expiration of tax credits accrued from losses in earlier years. Those credits were considered an asset because they could have been used to offset income taxes on profits, had GM had any profits. But, they didn’t, so the credits were wasted. Losing those credits was akin to winning the lottery and then losing the ticket before you claim the prize. Most people wouldn’t let that happen. GM management did.
Last year, GM also agreed to transfer at least $30 billion to the United Auto Workers as part of a new contract designed to shift some future health care liabilities to an independent fund managed by the union. That’s $30 billion the company won’t have to develop new cars. (The squandered tax credits would have paid the entire health care bill, with money left over; had, of course, GM managed to make a profit.)
Last week, GM’s common stock recorded its lowest price in modern history.
And, in light of all of this, Lutz is boasting that the car which is to establish GM’s reputation as a technological leader in the 21st century will be a money-loser, indefinitely, and that the board of directors at General Motors has no problem with this strategy.
If that’s true, then the GM board of directors isn’t paying attention.
Lutz’s self-effacing comment about missing an opportunity to be first with a hybrid is, at the very least, simplistic. More fundamentally, it’s probably outright deceptive.
And, it is absolutely no excuse for the Volt.
It is probably true that GM could have done a hybrid a decade ago. They did the EV1 and hybrid technology isn’t all that revolutionary, particularly in the nickel hydride battery form of the Prius.
It is also probably true that GM would have lost its shirt on the project, had it done it. That Toyota made money at it is no proof that GM could have profited: GM spent decades acquiescing to the United Auto Workers in a desperate effort to keep short-term losses to a minimum, whilst Toyota still doesn’t have a unionized assembly plant anywhere in North America. GM has also had a management mentality that has focused on not losing – a concept very different than winning – ever since it was repeatedly threatened with an anti-trust breakup by the federal government in the 1950’s and 1960’s. The crushingly foolish antitrust policies of the federal government have never been given proper credit for the destruction of the domestic auto industry, but GM was their biggest victim – unless, of course, you count American consumers and the UAW workers in that category.
Still, the world is what it is, and it’s time for GM to grow up and deal with it.
That means make a profit. That’s what businesses are supposed to do, even car companies.
Mr. Lutz was careful to pick his audience when making his remarks. He chose to make those statements to a flock of Volt acolytes. He didn’t elect to make those statements to a group of financial analysts, or even automotive journalists.
So, he knew that he’d get the headlines, without anyone in the audience with the wit or wisdom to ask him the right questions.
But, he’s a blogger. He chooses to use that as a forum, when he wants to. And not, when he doesn’t.
GM has spent billions and billions in the past year ostensibly reducing its North American cost structure – to the point that GM is considered to have a labor cost per vehicle equivalent to that of Toyota, world-wide.
Other carmakers are banking on outside battery manufacturers to solve the problems of extended range electric vehicles – and, it seems, even GM is outsourcing the technical problems associated with batteries required for such vehicles. Shifting the technological innovation to outside companies competing for the big contract with your company seems to be a way of avoiding much of the development costs associated with the technology.
GM has a history of making promises it doesn’t keep: the Corvair was going to repel the foreign car invasion, the Vega was going to be the revolutionary small car, the Cimarron was Cadillac’s answer to the BMW, etc. Your company lacks credibility when it says it’s got the answer.
General Motors has a reputation for being a day late and a dollar short, and at the volume it produces, that translates into being billions of dollars short.
If you can’t produce the Volt, on time and at $30,000 and make a profit on it,
Why should anybody believe General Motors has a future?