Dinner With GM’s Bob Lutz Exposes GM’s Bold and Innovative Strategic Shift


General Motors’ Vice Chairman Bob Lutz might have a reputation for pushing the production of performance cars, but high fuel costs and tough new CAFE regulations have him leading GM towards a leadership position in the hybrid revolution with 100-plus-mpg cars.

I’m not one to turn down a meal at a fine restaurant, especially when it’s on the dime of a corporation trying to spin its latest message or show new products. When I received an invitation to have dinner with General Motors Vice-Chairman Bob Lutz at Seattle’s famous Edgewater Hotel, I couldn’t confirm my attendance quickly enough.

If Lutz isn’t the most powerful and important person in the auto industry, then he’s a close second. Even though he is below GM CEO Rick Wagoner on the corporate org chart, Lutz has more influence over product direction. And because of his extensive experience in the automotive industry, journalists often look his way for answers before turning to Ghosn, Mulally or Zetsche.

And let’s face it – anyone who can take credit for green-lighting cars such as the BMW 2002 Turbo, Dodge Viper and upcoming Corvette ZR1 is someone I need to meet with over dinner.

Lutz has been in the Northwest selling the media on the future of GM. In a world that has been critical of GM’s financial woes and reliance on sales of trucks and SUVs going into an era of costly fuel, it hasn’t been an easy task. Passage of the 35-mpg CAFE standard in Congress has just made his job even harder.

Joining me for the dinner discussion are five other selected journalists. Three are from Cardomain.com, while the other two are environmental bloggers from the Northwest. Also in attendance are other GM heavyweights — who even without the presence of Lutz would make for a great evening of car-related banter. On my left is Dee Allen, the good-humored Staff Director Global Product & Brand Communications Integration. Across from me is technical/engineering guru Mark Labaere. Sitting beside me on the right is Dave Barthmuss, GM’s impressive Group Manager for the Western Region, Environment & Energy Communications. Dave is best known for being painted as a villain in his role overseeing the EV1 project in “Who Killed The Electric Car”, a film that I liken to “Tucker: A Man and His Dream” in ratio of facts to creative license for the sake of storyline.

The tall, commanding Lutz walks into the room. He overhears my comment to Dee Allen about declining the opportunity to drive a 1964 Lotus Elan to the meeting for fear that the few ominous clouds would require me to spend too much time fumbling with the Erector-Set top in the middle of a sudden downpour. He comes back with a story about the miserable tops on the pre-production Viper RT/10, as well as how one blew off at 175 mph during media testing on the Autobahn. You have to love any top executive who is as at home doing car small talk as when standing at a podium.

As we sit down, Lutz dives right into the major topic of his West Coast swing: GM’s commitment to making its Chevy Volt plug-in hybrid the standard of the world. Unlike Toyota’s Prius, the Volt will have the capacity to run on battery-only mode for around 40 miles. Considering the typical commuting pattern, Lutz believes that this can translate into real-world 100 to 200 mpg fuel consumption.

Driving the decision are federal regulations. In Lutz’s opinion (as well as mine and any other sane person in the world), combining 35-mpg CAFE standards with the added weight that comes with airbags, electronics and sheet-metal required to meet federal crash and safety requirements translates to a limited future of traditional gas and diesel-powered vehicles.

Like many journalists, I was outright skeptical when the Volt concept was first unveiled. It required lithium ion battery technology that didn’t exist at the moment. It also sounded more like somewhere between a marketing gimmick and a test of concept play (ala the EV1) rather than a technology on which many GM products would soon be based. The need to hit 35-mpg CAFE standards and fuel hitting near five dollars per gallon have changed opinions.

On the important topic of battery technology, Lutz immediately exhibits his indispensible value to GM. For those who forgot what he did after leaving Chrysler, Lutz was the CEO of Exide Battery. Yes folks, this is one of the few executives in the auto world who actually understands the production of batteries cradle-to-grave, as well as the business side of storing and delivering power – such as that it takes four minutes of man-hours to make a modern battery unit.

While Lutz believes that cellulosic ethanol provides a great potential for being a part of energy independence in the future, there’s no doubt that Chevy – and soon GM as a whole will be relying on the Volt’s next-gen hybrid technology. When I ask if and when the technology might make it into a Cadillac (to fight the Lexus hybrids and BMW 7-Series hydrogen cell vehicle), Lutz is quick not to say “no” or “yes”. Instead, like a good salesman, Lutz questions if I think a hybrid Cadillac should be in the works. I respond that as a former marketing guy, I’d want to see the segment research statistics.

“If you’re a marketing guy, you should know that you should make decisions with your gut, not statistics.” Lutz replies.

“With all due respect, even the best guts can lead them towards a bad decision” I say with a smile, eluding to a few of Lutz’s past plays that didn’t work out as planned – such as the recent Holden/Pontiac GTO disappointment.

Lutz comes back with a zinger — asking me how many baseball Hall of Famers have 1.000 batting averages…and then again asks what my gut tells me.

Obviously, I think it’s “a no-brainer”. Applying the Volt technology to an upscale, luxurious Cadillac (or Buick, for that matter) would have minimal cost, yet pay huge dividends in expanding into a segment where additional people would be willing to spend money for both the value and image of owning a green car. Being green is fashionable, and those with money are willing to spend more on fashion. From Lutz’s facial expression to my answer, I would guess that GM is already hard at work preparing to produce hybrid front-wheel-drive Caddies.

Lutz is a realist, though, and knows that the transition to electrical cars will not be without challenges. When I question about the trouble Chevy has traditionally shown servicing Corvettes (especially since the gizmo-laden 1984 model) in relation to the more high-tech Volt, Lutz admits that training and reducing the role of traditional dealer service for the non-standard technology are hurdles.

There is absolutely no doubt that the whole GM contingent strongly opposes the 35-mpg CAFE standard, which is the driving force to the Volt. (They cite the $6,000 of extra cost it will apply to cars – similar to the figures when the federal government has mandated safety and emissions requirements in the past.) GM and the other auto manufacturers have a history of predicting doom and gloom with each large federal and state regulatory step – and historically these regulations have actually helped, not hurt GM. The list of foreign manufacturers that left the market in 1968, 1975 and other years of tightening emissions and safety standards is long.

This increased 35-mpg standard has forced their hands to taking what looks like GM’s first leadership position in years. When the Volt comes out in 2010 — Lutz projects cars will start hitting dealerships in November, it will certainly have beaten all of the other next-gen hybrids to market. In other words — what is seen by everyone in the auto industry as a great pain might actually be a true gift to GM.

Lutz talks about his decades-long support of increasing the federal gas tax as the fairest way of reducing gas consumption. He feels this can funds the renewal of dilapidated interstates and state highways, (as well as possibly helping to cover better national health insurance, another large cost on GM’s shoulders). Yet while a gas tax is better policy, substituting a large tax for the 35-mpg CAFE legislation could have never forced the hands of the major automakers to produce discontinuous innovations.

The question comes up if the American automotive manufacturers are currently selling gas guzzlers, because that is what makes the most money. Lutz is quick to point out that GM has been selling what customers have wanted.

“All the marketing and advertising in the world won’t make someone buy something they don’t want. People have wanted big SUVs and trucks.”

With high gas prices this has all changed. Thanks to Congress, even if people want big rigs in America, no manufacturer will be able to sell them in great numbers without offsetting it with the sale of ultra-efficient cars. The GM crew is obviously not happy about this part!

Maybe Lutz should see the federal regulations like I do: a vote of confidence that when pushed into a corner, that the brilliant engineering minds working for the automotive manufacturers can create a solution.

And if what Lutz says is true, the future of GM and auto consumers worldwide is quite sunny. By as early as 2010, cars will be available that will deliver 200-mpg averages, will be serviceable at any local dealership, and carry the quality and style of GM brands. Even better, these front-wheel-drive cars will enable small-volume rear-wheel-drive performance cars like the Corvette and Sky to continue.

So for the first time in a long time – GM seems to be taking the lemons of high gas prices, slumping sales and stringent regulation and using very strong and bold leadership to make some pretty sweet lemonade for auto consumers around the globe.

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5 Responses to Dinner With GM’s Bob Lutz Exposes GM’s Bold and Innovative Strategic Shift

  1. “By as early as 2010, cars will be available that will deliver 200-mpg averages, are serviceable at any local dealership, and carry the quality and style of GM brands.”

    Somehow I find that quote absolutely hilarious. Complete absurdity at so many levels. I don’t mean to be picking on you Sam, but I’ll bet you a sushi dinner none of that comes to fruition.

    –chuck
    http://chuck.goolsbee.org

  2. You’re on, Chuck! 😉

    Please keep in mind that I’m not one to be “drinking the Kool-Aid”, especially when the company doing the pouring is one of the Big Three. I have been critical — actually, make that hyper-critical of GM in the not-so-distant past. So when I make the comment, I’m doing it armed with some important information and a pretty good gut feeling.

    First, the 200-mpg comment. What we’re talking about here is a functional 200-mpg, not an actual. This means that when one averages-out the number of miles and the number of gallons on a typical commuting pattern, it will be between 100 and 200 mpg — with 200 mpg being the upper range of reality. Since the car will be able to go 40 miles without using a drop of gas, this will significantly up the value — especially when it comes to an EPA CAFE standard test loop!

    Bob Lutz mentioned that “servicing” means that most parts related to the electrical system will simply be replaced, rather than truly serviced. Of course, this isn’t much different than most bits on modern cars. No doubt that service will be a problem — as I said directly to Bob, I can personally attest to the horrible service quality offered by Chevrolet dealerships across the board, especially concerning high-tech cars like the C5 Corvette! What we’re talking about here is contrast to other high-mileage electric cars and plug-ins, like the Tesla, where service is only available in a handful of cities. With the Volt, at least one mechanic — err, make that “technician” from each major dealer will get trained to work on them.

    As for quality and style of GM brands, this simply means that the Volt will be better than the low-volume producers of quirky eco-cars right now. Style, obviously is one of those “eye of the beholders” things, but it was more intended to indicate that the car’s looks would be a part of a larger brand image and the quality would be consistent with other cars in the lineup, which is to say “not great”, but “better than low volume producers, as well as VW, Land Rover and Volvo!”

    And never apologize for picking on me, Chuck. If you don’t, then you’re leaving all the heavy lifting for my wife, kids, parents, brother, and friends!

    By the way, I like dragon rolls, rainbow rolls and squid…so be prepared!

  3. Dee Allen says:

    “Heavyweight!” I protest. Height 5’11”, weight 168lbs. But now to a point you made about CAFE and fuel taxes. The former are the equivilent of fighting obesity by making it illegal to manufacture anything but small size clothes. Pricing (taxing) fuel to its economic value enables consumer choices to be reconsidered. According to the New York Times (06.20.08), June fuel prices in the U.S. were averaging $4.00 gal, $0.49 of that was taxes. In Germany, adjusted for exchange rates and U.S. gallons, the price was $8.98, of which $5.34 was taxes. Obviously, over a period of years, that kind of taxation has resulted in a vehicle fleet very different from that in the U.S. — and the same effect can be found in many other countries around the world. It wasn’t done in a month or a year, so as it was phased in, people had a chance to make informed decisions about their purchases. Had our politicians had the gumption to raise the gasoline tax slowly over the past 20 to 30 years and wean consumers from higher consumption vehicles by their own economic choice rather than directed government fiat, every manufacturer’s portfolio would look very different. Posit: The market itsn’t shifting because of CAFE standards or CO2 standards or because (by-and-large) people want to save the planet. The market is shifting because the price of gasoline is now $4+.

    Dee

  4. Dee is right on the money…And how often do I agree with a communications/PR person in the automotive industry? Seeing a woman at the wheel of a Lamborghini Countach is far more common.

    Increasing the gas tax over a long period of time would have certainly been better public policy. Unfortunately, it would have taken political courage unseen since the 1960s, as well as agreement between Congress and the President. No doubt that Nixon and Ford would have pushed-back hard on scheduled tax raises, while Reagan and Lil’ Bush would have vetoed any bill with such a measure. Carter didn’t have the strength or ability to do so, considering the OPEC issues during his term. The Republican-controlled Congress under Clinton would have never allowed such policy strictly on principle. Only G.H.W Bush had the Congressional diversity (with many mavericks on both sides of the aisle), the low gas prices and the economic policy flexibility to even consider such a strategy. Unfortunately the side effect of sponsoring, co-sponsoring and/or supporting such policy was (and still is) political suicide.

    Whether or not gas taxes would have been the better solution, I still agree that the fuel prices are what will make the market accept products like the Volt (as well as any competitive products.) If there were just 35 mpg CAFE standards in a world of $1.45 per gallon gas, the market would still want to make the Ford F-150 America’s best-selling vehicle…but the company couldn’t afford to do it, because Ford would have to offset this with 50 and 60 mpg cars to meet CAFE. Similar would be GM’s outlook with Tahoes, Suburbans, Silverados, and other big toys.

    I still maintain, though, that while bad policy (and not to mention a pretty crappy thing to do to an entire industry on such a short timeline), forcing the entire industry’s hand will turn out to be a huge competitive advantage for GM. Assuming that the Volt technology is anywhere near what Bob Lutz and Dee say it is (and these are two guys known in the industry for shooting straight), then GM could leapfrog Toyota back into the top spot in a short amount of time. Toyota is too invested in its current hybrid methodology, while Ford, Chrysler, Nissan, Hyundai, and others are way too behind in the development to be leaders. I would assume these companies will license technology from GM or Toyota to stay alive.

    Gas taxes would have given us a fleet of cars similar to modern Europe, which is to say smaller cars with continuous innovations like lighter materials and direct injection. CAFE standards were (and continue to be) one of the only ways to force large corporations to rapidly get behind discontinuous innovations like a plug-in hybrid or hydrogen cell vehicle. Since H-power isn’t much less of a dream than it was thirty years ago, I’m betting that GM’s Volt technology will change the way America buys and drives cars.

    I can’t blame Dee and the team at GM for not wanting to be heavily regulated with seemingly impossible standards. This is a turning point in automotive history, however, which will result in actually helping the Volt in being placed along the self-starting 1912 Cadillac as the most important automotive breakthroughs.

    I thank Dee for writing in…he’s a heavyweight in my book, even if the weight of his humor and industry influence do not show-up on the floor scale!

  5. Still waiting for that sushi dinner.

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