Does GM need saving?

By Dino P Delellis

Amongst GM employees, aside from the fear of getting a pink paper next week ( or the week after ) speculation is high as to whether the concept vehicle, being called the Volt, is going to be as revolutionary as the hype suggests.

GM, Ford and Chrysler arrayed a huge number of lawyers and much cherished Washington lobbyists to go after California after it decided to introduce a zero emissions rule on part of all car fleets. While GM was fighting California, it was also building an electric car, 10 years ago called the EV1. The state lost, GM breathed a sigh of relief and promptly destroyed all EV1's and sold the patents.

Yep, sold the patents to a MIT. Just kidding. If the patents had been sold to MIT, the car would have been rebuilt and the Toyota Prius hybrid would never have been created. Whoever bought the patents wasn't interested in building an electric car. There is enough anecdotal evidence to suggest the battery patents were purchased by Texaco who has done tremendous work with them since ( NOT ).

Balancing the books, one might claim. Lots of Research and Development costs, nothing to show for it, so sell the technology. It wasn't an objective decision. After an acrimonious battle with the state of California, GM management couldn't get rid of the technology fast enough. A billion dollars later, GM executives didn't stop to think that perhaps core elements could play a critical roll in future transportation technology. They had to wait for the Japanese to prove that similar technology could and would be a huge element in the future of transportation.

So much for the history lesson, this week, we are back at square one watching a video interview with GM's Chief Designer as he discusses the new GM Chevy Volt.

The Volt is probably GM's last, best hope for the future and certainly its most significant upcoming vehicle. Saddled with dwindling market share, credit-strapped consumers, and a lingering reputation as a purveyor of gas-thirsty vehicles, GM executives need the Volt to become an iconic product, like Apple's (AAPL) 1998 iMac or even Chrysler's 1980s K-car before. The Volt has to affirm the company's ability to innovate and, eventually, create a financial foothold from which the battered automaker can begin to turn itself around.

GM's response to public outcry shortly after co-jointly winning the lawsuit against California on the grounds that only the federal government had the right to determine zero emission, was to go on a publicity campaign extolling the virtues of their own version of Zero emissions - Hydrogen gas by 2010. Which probably prompted BMW to wake up and create a wonderful Hydrogen Gas vehicle which is already 4-5 years old and in its fourth or fifth refinement. So zip forward to 2008 and GM has backtracked on its Hydrogen promises and is now attempting to leap frog the Toyota Prius with technology that will get a commuter 40 miles of gas free driving on a nightly electrical charge.

Because most daily commuters in the U.S. don't travel that far, GM says many drivers will not have to use any fuel at all, simply recharging the vehicle via a regular outlet at home overnight. GM is still wrangling with the Environmental Protection Agency over the vehicle's efficiency, but executives say the final number should be north of 100 mpg for both types of power.

Despite the GM bashing that many of us might engage in, on occasion, we all truly want a Volt or something like it. Traveling and seeing new places isn't just a wish for the elite. But with gas prices threatening to go higher and the slightest threat of war poised to carry them beyond even the previous high of $147 per barrel, having a vehicle with the potential of the Volt is simply everyone's dream.

So will or can the dream car Volt save the General?

I suppose it might be presumptuous but perhaps we should first ask - Does the General really need saving?

In May 2005, Business week estimated GM's Cash Reserves to be 45 Billion. However, for the first 6 months of 2008 the BostonHerald estimates that both Ford and GM burned through an average of a Billion dollars a month each, with accelerating burn rates towards the end of the year as sales in highly profitable vehicles like SUVs were down an improbable 18%.

According to an article in Detroit News Oct 14th 2008

GM had access to about $21 billion cash, $5 billion in available credit lines and is raising $5 billion through asset sales and borrowing.

Those cost-cutting moves intensified Monday when GM announced it was closing plants in Grand Rapids and Janesville, Wis. The moves affect about 2,500 hourly workers at plants that produce sport-utility vehicles and parts for pickups and SUVs.

Since 2005, the General's cash reserves have been reduced from 45 Billion to a mere 25 Billion and with the tightening credit crunch and federal government moving slowly on aiding the BIG3, the rumour doing the rounds is that GM is eyeing the cash reserves of Chrysler ( estimated 11 Billion ) to help it through 2009 when the arrival of the Chevy Volt and Cruz, the following quarter are expected to help turn things around.

In an interview given to Business week in the last week of Oct 2008, GM says its expecting to sell about 10,000 Chevy Volts at between 30-40,000 USD each in 2010. So, that's about 3-4 Billion dollars in gross sales with a net of about a 800 Million dollars annually at an estimated 20% profit per vehicle ( my own estimate not theirs )

So, is this innovative car of the 2010 year - Volt just a little, just too late?

I leave that answer up to you, but if I had to make a serious bet with odds, I know which way I would be betting. - 23162

About the Author:

Dino Delellis writes on a number of interesting topics. To see more of the Dino personal journals hop on over to Dino P. Delellis and catch his strange views on the globe at large.