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Volt Man

General Motors’ turnaround hit a major pothole when it recently posted a $3.25 billion loss in the first quarter of …

General Motors’ turnaround hit a major pothole when it recently posted a $3.25 billion loss in the first quarter of 2008, reversing a modest $62 million profit during the same period last year. By contrast, Ford showed a surprise first-quarter profit of $100 million. The troubles continue in its highly visible North American market. GM’s results from international operations-particularly Asia and Latin America-were surprisingly strong.(Russia has become GM’s second-largest market in Europe.) Pretax profits nearly doubled to $1 billion. Investors are becoming increasingly concerned about the bleeding in North America. Most of the problems stem from a rapid decline of its most profitable products-trucks and SUVs.

At the New York Auto Show, Chief Executive caught up with GM vice chairman for global product development Bob Lutz, a veteran car guy who earlier in his career worked for Chrysler and BMW. The Zurich-born former Marine fighter pilot is legendary for speaking his mind, and has some of the most entertaining opinions of anyone in the industry. “Global warming is a “total crock of ****,” he was quoted telling a group of journalists at a meeting in Virginia. Then he added: “I’m a skeptic, not a denier. Having said that, my opinion doesn’t matter.” Regarding the battery-driven Volt: “I’m motivated more by the desire to replace imported oil than by the CO2 [argument].”

Holding forth during a Volt Nation town hall meeting at the show (which can be seen on YouTube) Lutz told anyone who would listen that GM’s current management has learned that “boldness in creativity wins; cautiousness loses.” Championing the extended-range electric vehicle Volt, which is expected to be out in two years, Lutz predicts GM will be pumping out a new hybrid/electric every four months once the Volt gets rolling.

Among his personal vehicles are a restored 1952 Aston Martin DB2 Vantage; a 1941 Chrysler convertible; a 1971 Monteverdi High Speed, which was a Swiss-built, Ferrariesque, high-performance coupe; a 1962 Buick Skylark convertible; a 1952 Citroën, six-cylinder front-wheel-drive car, which was the biggest front-wheel-drive car in the world at that time; 1934 Riley MPH semiautomatic, aluminum bodied sports car that the Riley company built to compete in Le Mans; and a Steyr-Pinzgauer, a former Swiss military vehicle that he regards as the world’s most competent all wheel-drive vehicle. And don’t forget the Alpha jet fighter and two decommissioned MIG fighter jets. The man never has to go without transport.

Given all the bad news that surrounds the industry and GM in particular, you say the company is on the “cusp of a huge change.” Explain.

Everybody’s aware of the external environment, which could well be better. But people don’t see what’s happening inside General Motors-the way we have reconfigured the product development machine on a global basis. Today it is geared up to crank out hit car after hit car. We’ve got the system to where it’s almost incapable of producing a mediocre vehicle anymore.

Look at all of the stuff we’ve done recently, beginning with the [GMT-900] pickups and the [GMT-900] full size sport utilities, which everybody agrees are best in class. And this is followed by the Saturn Aura, the Saturn Sky, the Pontiac Solstice GXT, the Buick Enclave and Acadia, the Chevy Malibu, and now the Pontiac G8 and Cadillac CTS. It seems everything is getting car of the year award. And I might say it’s all selling very well.

When do we see this change having a material effect on GM’s North American business?

While the cars are doing well, we have extreme softness in big trucks, big sport utilities and big pickups. I wish I could say that profitability from car sales offsets a reduction in truck sales. It doesn’t. North America is a tough environment. However, nobody denies that we have the best trucks. It’s just that people aren’t buying trucks, and our incentives on trucks are less than other people’s.

The problem that we had to solve in North America is that many people were saying, “Yeah, GM builds great trucks and if I were in the market for a full-size utility, I’d probably buy a Tahoe. But if I’m in the car market, I don’t see a single GM car I’d buy.” That’s radically changed. People are buying Chevy Malibus over Japanese makes. The Cadillac CTS is completely sold out at very high [average transaction prices]. Buick Enclave is radically sold out. In this relatively weak market, all of our new stuff is still selling beyond our production capacity. And that is a radical change. We haven’t seen that at GM since the 1960s.

What about the change in thinking within the company itself? You’ve worked at a number of different car companies. How is the environment inside any different from what we’ve been led to believe?

The old General Motors that you press guys all remember-slow, lethargic, conservative, over-organized within a massively dispersed divisional structure-that disappeared under Jack Smith and has been further downsized by Rick Waggoner, Fritz Henderson and myself. We now have, in GM, exactly the same structure that we had at Chrysler or that I remember from BMW, which is one engineering department operating globally, one styling department globally, one procurement department globally, one manufacturing department globally. All cars are engineered the same way, tested the same way, engineered to the same standards, and are exportable or producible anywhere in the world. For example, this car [points to a Pontiac G8], started out as an Australian car.

Another thing that has changed radically in the company is the focus on priorities. At one time various things were weighted equally: corporate culture, diversity, good governance, manufacturing efficiency. Among all these little boxes that you checked off, somewhere was a box labeled product excellence. The problem was that GM’s focus was on too many things with not enough focus on what makes the business run in the first place, which is the product. Back in the ’60s, all anybody talked about at General Motors was the product.

The finance guys ran along behind complaining about the waste, but meanwhile raking in the money. During the time I was away, GM became so process focused and incremental in [its] approach that everybody forgot that if you don’t have a killer car none of the other stuff matters. Having low-cost suppliers, low-cost manufacturing, a wonderfully diverse workforce, and a kind and gentle internal culture where everybody gets along with each other doesn’t matter if the cars aren’t selling. I said, “What if we spend $1,000 per car to make them best in class? Maybe we don’t have to give away $2,000 to get people to buy them.”

About Jennifer Pellet

As editor-at-large at Chief Executive magazine, Jennifer Pellet writes feature stories and CEO roundtable coverage and also edits various sections of the publication.