GM: Live Green or Die

(page 4 of 4)

Browse Issues

Browse the BusinessWeek Archive

Related Items

• The Heated Rivalry in Low-Carbon Cars
• Podcast: Behind the Cover

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

Story Tools

• post a comment
• e-mail this story
• print this story
• order a reprint
• suggest a story
• digg this
• save to del.icio.us

Lutz, meanwhile, is trying to make himself heard over the din of company traditionalists. He says his marketing staff is still showing him research that consumers want the gas-guzzling horsepower of a V-8 engine, or at least a powerful V-6. In late February, Lutz and his marketing people met to discuss a new Cadillac sedan due out in 2011. The marketers, Lutz says, insisted the car needed to be bigger and more powerful. "They said: That's what those buyers want.' I said: It is now, but it won't be in 2011.'" Lutz ordered the team to make the car smaller and demanded 37 miles per gallon. "You people don't understand," Lutz said. "Everything has changed."

Not all of Lutz's staff agree with his thinking. He wants to shrink cars like the midsize Cadillac, but some engineers and designers say doing so will make the cars less appealing to luxury buyers and families. A better strategy, says one senior product developer, is to keep those cars roomy while developing better subcompacts to compete with hot sellers like the Honda (HMC) Fit and Nissan (NSANY) Versa. "Bob thinks the world is being turned upside-down," says a product developer. "He wants to shrink everything. That Cadillac is so small he can't even get out of the back seat." (Lutz is 6 foot 3, but you get the idea.)

Getting the product mix right isn't the only worry weighing on Wagoner and Lutz. GM also has a long way to go before it can make its new technology cheaply enough. Toyota has cut the cost of its hybrid system to nearly $4,000 a car, says consulting firm 2953 Analytics. Lutz figures GM will be lucky to get the cost down to $10,000 per vehicle by 2010. Translation: GM will have to charge consumers a lot more for hybrids. "GM, like everyone else, is serious about this because they have to be," says a Honda executive. "But how many of their hybrids and how many Volts will they sell? Their technology is very expensive." Then there is the marketing challenge. Even Ford has been selling a hybrid SUV for several years. GM, best known for the Hummer, will have a hard time persuading consumers its cars are green.

On a more prosaic level, there is the execution issue. GM insiders fear they could repeat the mistakes of the 1980s, when new fuel-economy rules and a spike in oil prices forced Detroit to switch to cars with smaller engines. That was a wrenching departure for a company used to big V-8s. And the fumbling results helped precipitate GM's descent in the quality rankings, which only recently have begun to recover. "When those '80s cars stalled out, no one blamed the legislators," says a GM engineer. "We won't let that happen. But there's a fear that as we're racing with new technology, it won't work right." It's instructive that when GM launched two hybrid SUVs in January, it sent dealers just one of each. GM wanted to make sure there were no quality issues before ramping up production.

Can Rick Wagoner, after ceding the technology lead to Toyota, redeem his company? Multibillion-dollar losses have a way of focusing the mind. Insiders also say Wagoner may retire before he turns 60 five years hence. In other words, the man has a legacy to consider. "We believe we can be, and must be, a leader in this transformation of our industry," says Wagoner. "It's critical for our future."

Welch is BusinessWeek's Detroit bureau chief.

Business Exchange

Track and share business topics across the Web.