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Presidential Auto Task Force Concluded Plug-In GM Volt Likely “Too Expensive To Be Commercially Successful in the Short-Term”

31 March 2009

Following the short address on Monday during which President Barack Obama outlined the next steps for GM and Chrysler (earlier post), the White House posted summaries of the Presidential Auto Task Force’s assessment of the business plans provided by the two struggling automakers, which led to the terms that are currently unfolding.

Among the highlights of the brief summaries was the conclusion that while the Chevy Volt extended range electric vehicle holds promise, “it will likely be too expensive to be commercially successful in the short-term.

The GM Viability Determination notes that the company is in the early stages of an operational turnaround in which it has made material progress in a number of areas, including purchasing, product design, manufacturing, brand rationalization and its dealer network.

Despite these steps, a great deal more progress needs to be made, and GM’s plan contemplates initiatives that will take many years to complete. In the end, GM’s plan is based on a number of assumptions that will be very challenging to meet without a more dramatic restructuring in which many of its planned changes are accelerated.

In short, while the Company has made meaningful progress in its turnaround plan over the last few years, the progress has been far too slow, allowing the Company to continue to lag the best-in-class competitors. As a result, the President’s Designee has found that General Motors’ plan is not viable as it is currently structured. However, because of GM’s scale, franchise and progress to date, we believe that there could be a viable business within GM if the Company and its stakeholders engage in a substantially more aggressive restructuring plan.

The assessment concluded that GM’s plan is based on fairly optimistic assumptions that will be challenging in the absence of a more aggressive restructuring. On the product side, the summary asserted that:

  • GM earns a disproportionate share of its profits from high-margin trucks and SUVs and is thus vulnerable to energy cost-driven shifts in consumer demand. For example, of its top 20 profit contributors in 2008, nine were cars.

  • GM is at least one generation behind Toyota on advanced, “green” powertrain development. In an attempt to leapfrog Toyota, GM has devoted significant resources to the Chevy Volt. While the Volt holds promise, it is currently projected to be much more expensive than its gasoline-fueled peers and will likely need substantial reductions in manufacturing cost in order to become commercially viable.

    (The Volt is an extended range electric vehicle—i.e., plug-in series hybrid—featuring a 16 kWh battery pack and a 40-mile all-electric range.)

  • Absent the successful introduction of a number of new-generation nameplates, as described in the Company’s plan, GM’s product portfolio is more vulnerable to CAFE standard increases than the portfolios of many of its competitors (although GM is in compliance today with current standards).

Even under the Company’s optimistic assumptions, the Company remains breakeven, at best, on a free cash flow basis throughout the projection period, thus failing the fundamental test of viability.

The Chrysler Viability Determination concluded that while the plan reflects some progress that has been made under current management, that progress will ultimately be insufficient due to several structural issues that Chrysler, as a standalone entity, is highly unlikely to overcome.

In particular, Chrysler’s limited scale in an increasingly capital-intensive global business, the inferior quality of its existing product portfolio and its heavy truck mix leave the Company poorly positioned. Chrysler’s plan to address these issues is based on overly optimistic assumptions that are inconsistent with its current products and its resources.

The assessment noted that Chrysler’s smaller scale limits its product development budget overall, and particularly limits the amount it can spend developing each platform. Chrysler currently dedicates only 50% as many engineers to each platform, on average, as GM does. The report also notes that Chrysler’s products have also historically underperformed in terms of quality, which remains a significant challenge.

On the product side, the report concludes that:

  • Chrysler does not have a product pipeline to cover the smaller car segments which are projected to grow in share of the overall car market. Chrysler’s shares of the small and medium car markets are 3% and 7%, respectively (while each category represents 21% and 25% of the market, respectively), and has been declining in each segment.

  • In the near term, Chrysler is planning to lift profitability by focusing on its more profitable truck and SUV segments. Given the potential variability in fuel prices, Chrysler’s volume assumptions for these cars may be at risk.

  • Chrysler’s product strength is in the pickup, SUV, and minivan segments—all of which are relatively low in fuel efficiency. On a standalone basis, Chrysler will struggle to comply with increasing fuel efficiency standards, and it may even have to restrict the sale of certain models to make sure it is in accordance with proposed standards.

  • While Chrysler is investing in newer powertrain development, as are all the OEMs, its limited resources lead it to project spending just over 3% of revenue on R&D over the next five years, versus 4-5% for General Motors, Toyota and Honda.

  • Chrysler’s standalone plan does not provide for a substantial entrance into the small car segments – an area that will be increasingly important to automotive manufacturer profitability if potential gasoline price hikes meaningfully increase demand for smaller, more fuel-efficient cars and as CAFE standards demand a higher mix of small cars.

While the Company has made meaningful changes to its cost structure in the last few years, the combination of a fundamentally disadvantaged operating structure and a limited set of desirable products make standalone viability for the business highly challenging. As a result, the President’s Designee has found that Chrysler’s plan is not viable as currently structured. However, a partnership with another automotive company, such as Fiat or another prospective partner, which addresses many of these issues could lead to a path to viability for Chrysler.

March 31, 2009 in Plug-ins, Policy, Vehicle Manufacturers | Permalink | Comments (27) | TrackBack (0)

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With the new Honda at $20K and the Prius at $26K (or so and soon to be reduced to compete with the Honda), how in the world does GM expect to sell a Volt at $40K or more or Ford the Fusion at $30K? At least the Tesla at $50K offers something new.

The economy is supposedly "global," why can't we compete globally? (We can certainly cause global meltdown!)

What the Presidential Auto Task Force’s assessment ignores is the likelihood of $4/gal gas when the economy picks up. At that point, the VOLT starts looking like a bargain, considering it will be saving you the equivalent of a monthly car payment.

I just hope this doesn't kill off the VOLT. Makes me wonder what side they're on.

And how is restructuring " supposed to cure this?

I'll just wait for the movie
"How Onama killed the Volt"

Under restructuring they might first offer a $45,000 plug-in Cadillac and actually sell some. Nobody is gonna buy a $40,000 plug-in econobox, not even with gas at $5 a gallon. The Volt exists as it is because Rick Wagoner unconsciously believed that fuel economy is only for eco-weenies and other losers. Kill the Volt? Jesus Christ couldn't keep it alive.

GM dug themselves into this hole, and are coming back time and again for use to throw money at them. They are stuck in BAUland and need to do much more to right their ship, without asking us for corporate welfare.

lease the battery or the whole car. Total cost per mile driven will be < ICE car with fuel and maintenance

People said the same thing about the internal combustion powered car. It took an innovator, Henry Ford, to demonstrate that mass production could make the car affordable.

GM is making the correct move with the VOLT. They now have an electric car platform but we knew all along that batteries are not the answer. Lead acids with 3-4 KwH of storage are good enough if the proper generator is installed.

A 30KW cogeneration Reinhardt Turbine costs only $300 and achieves 60%+ efficiency. Take the $35k of batteries out of the Volt and now you have a $10k car that gets over 100 mpg. The most successful ev1 had a 30KW Williams Turbine in the boot, the only problem was the turbine cost $1 million. Now the generator problem is solved.

Luckily, GM has their Fuel-Cell program to fall back on.
I can't wait till the GM Hy-Wire is in showrooms.

GM_Hy-wire.jpg

What is interesting is that in the short run, turbodiesel power is the way to go.

Thanks to the work Ricardo done in the UK, we can now build turbodiesel engines that meet even the really strict CARB SULEV (EPA Tier 2 Bin 3) standard without needing urea gas injection into the exhaust stream, a huge breakthrough for such engines. Imagine GM putting the 1.9CTDi 16V engine with Ricardo emission control components rated at around 135 bhp (SAE 08/04 net) into the new Chevrolet Cruze--can you say fuel economy in the middle to high 40's for EPA highway rating based on the 2008 test? :-)

"With the new Honda at $20K and the Prius at $26K... how in the world does GM expect to sell a Volt at $40K or more or Ford the Fusion at $30K? At least the Tesla at $50K offers something new.
The economy is supposedly "global," why can't we compete globally?"

Well, first off, I would buy one. Just for the record. Secondly, I'm sure someone (or many someones) questioned the logic of the Toyota Highlander Hybrid. Who would pay $40,000 for an SUV which only gets DOUBLE the mileage of other SUVs?
We can use this logic for the VOLT too. Who would pay $40,000 for a car who may only get DOUBLE the mileage of other cars. This is where the VOLT shines: While it may only get double the mileage of conventional cars, it MAY use no petroleum at all! Try to drive around a turbodiesel or a parallel hybrid using no fuel whatsomever.

"Chrysler currently dedicates only 50% as many engineers to each platform, on average, as GM does."
This in itself is not necessarily bad.
If they were making awesome cars, that could be touted as an advantage.

If you are one generation behind in technology from your competitors, you are toast. You have to pick up the pieces and start over. Be a niche player until you figure it out, but you only have one product cycle to figure it out.

If GM was an example of american manufacturing pride, then we really stunk. Job banks, overlapping product lines, weak innovation, high costs, etc. The charade is up.

Now we have two groups trying to run this company that don't know what they are doing - government and the old management staff.

Hopefully, we'll get lucky and some clear thinking leaders from inside GM will emerge and get their chance to be stars.

Maybe some clear thinking leaders will emerge among the managers of the pieces after GM breaks up in bankruptcy.

I think that the assessment on the Volt is a realistic one. This analysis has to do with economic viability and the Volt will not be wildly popular at the price they will have to charge, especially in this economy and the one projected for several years.

I believe that if they offered a model that got 30 mile range for $35k or 20 miles for $30k, they might sell more, but not enough to get out of the hole.

The problem with BEVs is the 'overhead.' The heavier they are, and the less aerodynamic they are, the more weight in batteries you have to add to get useable range/speed. This is true for all cars but it really shows in BEVs.

The problem with the Volt is it's just too much like a conventional compact sedan and doesn't take advantage of the lateral thinking BEVs allow.

Chrysler and GM should have been allowed to fail. In bankrupcy, the US government should have bought them for a total of no more than 2 billion US dollars as a set. The union contracts would all be null and void, with contracts renegotiated. The existing debts should have been renegotiated at the T-bill rate. As federal employees, the cost of health coverage for the employees would drop. Retirement payouts would be renegotiated downward and executive pay and perks slashed. Products would be produced according to national priorities, such as reducing the flight of capital to pay for oil. American would flock to the rapidly re-engineered products as a patriotic act. At the end of the administration's 8 year run, the combined company should be sold to the public.

What does this have to do with the volt? The point is that it is far too expensive for its economy car looks.
It's also too small for American tastes in its supposed $40K price range. Directly subsidizing the purchase price is idiotic. Lowering the cost of production is the only sensible way to go. The only way to significantly do that is for the government to produce the lithium batteries itself. This is the only subsidy which makes any sense, as the government can standardize the size and capacity of the batteries, and rationalize the packaging for the entire industry.

A cheaper, non-lithium battery should be an option for the Volt from the get-go, maybe with a 10-15 mile all electric range. Then it might sell well without subsidies.

The U.S. government does not want to run a company. If they did, they could start with defense contractors. We might get some real good deals if we owned one or more of the companies that make weapons systems.

The government usually does what the private sector can not or will not do, but needs to be done. GM got caught in a bad credit market. Ford just hocked everything they could to borrow as much as they could before the financial collapse, because they had to.

Its simple realy. How old are baby boomers? They balloned the car market and now they implode it. Because the generation behind them is tiny. Same reason the housing market blew up.

lol at dursun

I agree most of the comments on this topic, and just wanted to add, even gas at 5 dollars a gallon a used hybrid seems more economical than a brand new shiny Volt.

When fuel hits $5/gallon (which it probably will in the next year or two), you won't be able to find a used hybrid.  The question is, is it better to build standard hybrids or Volts?

On the price of the Volt - if you were to add enough batteries to the $26k Prius to get the 40 mile all electric range and/or speed of the Volt, how much would it cost?

Wouldn't the price be pretty much the same?

You'd have to up-rate the motors too; the Prius is not capable of continuous electric operation at higher speeds.

The battery question is a good one.  If you need 200 Wh/mi and a 40 mi AER with 20% reserve, you need a 10 kWh battery.  I'm seeing LiFePO4 running around $600/kWh retail, but that's for cells that charge at only 1 C; hybrid-class performance costs more.  Figure minimum $5k for the battery even at wholesale.

The Gov. is spot on regarding the unprofitability of the Volt, as I've raised this concern 2 years ago.

One way to make the Volt cheaper would be to use a 4-kwh battery or less, and to make it parallel hybrid design, with the engine contribute some of its torque to the drive train via a small-size and low-torque and low-cost mechanical CVT (Continously-Variable Transmission).

CVT is known to be less capable at high torque application, and has higher friction than contemporary automatic transmission, but, thanks to the generous torque of the electric motor, a much smaller CVT can be used that can still maintain cost-effectiveness, durability, and low friction due to its small size.

This will make the Volt competitive with the new Honda Insight hybrid.

@ Wintermane,

Actually, the current 15-30 year olds are a bigger demographic wave than the baby boomers. It was being called the echo of the boom, but when you're bigger than the original, you're more than an echo.

The bigger problem for the North American Auto Industry is that there aren't that many people who want a car who don't have one in North America. It's not a growth market, it's a break-fix replace market.

It is an "I am in debt up to my eyebrows" market. Wages have not kept place the last 30 years and since 1981, the rich have gotten richer while everyone else is getting further in debt.

Cognitive Dissonance: a conflict or anxiety resulting from inconsistencies between one's beliefs and one's actions or other beliefs

So... liberals. Which do you choose? Your dream car, or your messiah?

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