(Source:  Forbes)

GM. Those two letters call up a lot of emotion these days. People ask, “What went wrong?” “How could a company that large, that successful, go bankrupt?” The less polite say: “General Motors’ leadership is corrupt.” “They ignored customers.” “The union killed them.” “Government interference.” “Idiots.”

We used to expect size to benefit a company. Being large and established meant you were supposed to have market clout, and you could protect your profits. According to Michael Porter, Harvard Business School professor and author, being biggest meant you had created entry barriers that kept your turf safe. With economies of scale in manufacturing, procurement, distribution, marketing, sales, financing and research and development, you could get so giant no competitor could effectively attack your products or prices. And for many, many years, nobody was bigger than General Motors ( GMGMQ.PK– news – people ).

The myth of the invulnerability of the large company is dead. We all know that by now. But other than depressing us, what does it mean? What have we learned from these failures that can help us be more successful in the future?

Many theories of business–from the work of Fredrick Winslow Taylor, who introduced modern management practices a century ago, to that of writers like Jim Collins today–have posited that success comes largely from figuring out what business you want to be in and then focusing on it intently. Pay attention to the resources on which you rely, invest to gain advantages of scale, operate with a tight focus on your goals and you should succeed.

This approach is based on an industrial-age understanding of oligopoly, where over time a pool of competitors shrinks to just the most efficient handful that can all be profitable in the long term. In other words, as Jim Collins has argued, if you set yourself a big, audacious goal and focus on tight management, you should expect to grow large and profitable in the end.

It’s good that GM’s situation raises people’s blood pressure. The company’s trip through bankruptcy is a highly visible sign of how markets have changed. To pull out of this recession, we need to make sure other companies don’t follow GM’s route. Leaders need to stop focusing on traditional market leadership, size and scale. They must abandon that approach to success. Now, more than ever, they have to identify market shifts and reposition their organizations to play in growing markets.

Profit comes from leading customers into new markets, not from optimizing your position in historical ones. To pick a winner, look for companies that shift with markets rather than trying to wield clout. To create a winner, build such a company.

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(Sources: Autoblog Green , Green Car Congress, NY Times Wheels, Green Car Reports)

The internet as well as the automotive world has been abuzz with a lot of discussions since this morning after General Motors CEO Fritz Henderson revealed what the company’s mysterious ‘230’ ad campaign was about.  It turned out to be the official mileage rating for GM’s upcoming 2011 Chevrolet Volt extended-range electric car.

GM must be basking in the new found glory (though it sounds more temporary as the intelligent folks around the web are starting to dig out the details behind this 230mpg claim). GM’s Twitter account was proudly re-tweeting a post that goes like this: 230 mpg city, great. More than 100 mpg combined, even better. Not being stranded after 300+ miles, priceless.   Mind you!  This is just a sample of what’s been such a flood of good PR for GM. after this 230 unveiling.

For many smart folks, a number like that seems outlandish, absurd. How can the US Environmental Protection Agency possibly measure fuel consumption that low? The answer, it turns out, is all in the assumptions.

Our friends at Autoblog says “Without access to the actual method that the EPA is tentatively going to apply to plug-in vehicles (we have requests for clarification out to the EPA), all that GM’s Dave Darovitz would tell us is that the number is “based on city cycles and we’re not really talking in detail yet.” Instead, the press release says that: Under the new methodology being developed, EPA weights plug-in electric vehicles as traveling more city miles than highway miles on only electricity. The EPA methodology uses kilowatt hours per 100 miles traveled to define the electrical efficiency of plug-ins. Applying EPA’s methodology, GM expects the Volt to consume as little as 25 kilowatt hours per 100 miles in city driving. At the U.S. average cost of electricity (approximately 11 cents per kWh), a typical Volt driver would pay about $2.75 for electricity to travel 100 miles, or less than 3 cents per mile.

Which leads to the big question: What assumptions should the EPA make in its emissions and gas-mileage tests about how the Volt is used (also known as the car’s “duty cycle”)?

For decades, gasoline cars (and ) have been testing using two cycles: city and highway. That gives us the two quoted EPA mileage ratings, and the EPA also calculates a “blended” number for overall usage. The distance driven doesn’t really matter.

But for the Volt, mileage assumptions become much more political.  If the EPA tests a Volt over a cycle of less than 40 miles, it will never burn any gasoline, and it’ll get that “infinite” mileage. The daily distance matters much more for the Volt than for a gas engined car.

The answer appears to be the EPA has adopted a cycle described by GM-Volt.com, among others, that assumes the Volt is driven until the battery is discharged–and then slightly more on gasoline power.

A similar test routine proposed by Mike Duoba at Argonne National Laboratories repeatedly drives the car on four EPA highway test cycles until the battery is discharged, then drives one city cycle–totaling 51 miles. (The EPA city cycle is roughly 11 miles, the highway cycle about 10 miles.)

If the engine runs for 11 miles at 50 mpg, that will use 0.22 gallons of gasoline. But that amount is used over a total travel distance of 51 miles, which works out to 232 mpg. Sounds like 230 mpg to us!

Jim Motavalli wrote on his Wheels column on  New York Times : The problem with claiming 230 miles a gallon was that to get at numbers like that you can’t simply measure its fuel consumption. The plug-in hybrid’s small gas engine is there to provide power for the electric motors, not drive the wheels, and the first 40 miles are on the batteries alone.

G.M. can plug its numbers into the E.P.A. city driving cycle and get stellar results, but, as they say, actual results — and planetary impact — will vary quite a bit. How and where you drive the Volt will matter quite a bit, too. “If you’re heavy footed, you’re not going to get 230 miles per gallon,” said Roland Hwang, transportation program director at the Natural Resources Defense Council.

In a detailed article published by Green Car Congress one can learn how this fuel economy rating is measured.  While the fuel economy (FE) for combustible fueled vehicles (such as gasoline, diesel, compressed natural gas, or an ethanol blend) can easily be expressed in mpg, and fuel economy for an all-electric vehicle can be expressed in miles per gallon of gasoline equivalent (mpge), the arrival of new technologies that can operate in all-electric mode, a conventional hybrid mode, or some combination of the two complicates the situation.

The EPA is revisiting the FE label provisions as they apply to those types of vehicles, and is working with automakers, the SAE, the State of California, the Department of Energy and others to address these issues. The EPA anticipates issuing guidance and/or a rule this year.

According to US Department of Transportation data, nearly eight of 10 Americans commute fewer than 40 miles a day. A Volt driver’s actual gas-free mileage will vary depending on how far he or she travels and other factors, such as how much cargo or how many passengers they carry and how much the air conditioner or other accessories are used. Tony Posawatz, Vehicle Line Director for the Volt, said that the Volt is delivering 40 miles all electric in both city and highway cycles.

However, Posawatz notes that since the Volt results are based on a single charge per day—and that given the recharge time of 6-8 hours on a standard 110V outlet or half that on a 240V charger, the Volt has the potential to deliver better than 230 mpg performance if it can charge multiple times per day.

Click here to read the entire article.

(Source: Washington Post, Jalopnik, Autoblog)

Car can extend its range to more than 300 miles with its flex fuel-powered engine-generator.

Image Courtesy: Autoblog

In case you missed it this morning, General Motors CEO Fritz Henderson made some big news just one month after the “new” GM emerged from bankruptcy protection.

General Motors announced today that its forthcoming electric vehicle, the Chevrolet Volt, will achieve city fuel economy of 230 miles per gallon, under testing that used draft federal fuel economy methodology standards for plug-in cars.

The Volt will become the first mass-produced vehicle to obtain a triple-digit MPG rating, the company said.

“The Volt is becoming very real, very fast,” chief executive Fritz Henderson said. “The price of oil is going to go up.”

According to Frank Weber, vehicle chief engineer for the Volt, the number is based on combined electric only driving and charge sustaining mode with the engine running. He declined to get specific about the proportions, but did say that the urban cycle would be predominantly EV only. The EPA has been studying real world vehicle usage and is developing the formulas to try and provide a representative number of what most customers could expect to achieve. In addition to the composite number, the new EPA stickers will likely also get numbers for mileage in charge sustaining mode and electric efficiency in EV mode.

Initial prices for the car may be as much as $40,000, analysts said.

But company officials said the car’s price is expected to come down over time. They note, moreover, that gas prices will rise again, making fuel-efficient cars more valuable.

The Volt, which is scheduled to start production late next year, is expected to travel up to 40 miles on electricity from a single battery charge. The company says the car can extend its range to more han 300 miles with its flex fuel-powered engine-generator.

Assuming the average cost of electricity is approximately 11 cents per kilowatt-hour in the United States, a typical Volt driver would pay about $2.75 for electricity to travel 100 miles, or less than 3 cents per mile.

This story’s still developing, but if our sources are correct, it would blow the Toyota Prius out of the water. Heck, it’d blow every other vehicle currently on the market out of the water with the exception of the Tesla roadster — and that’s no four-door mid-size sedan. So for GM this represents a huge marketing coup — the ability to claim the most fuel efficient vehicle in the world and a big blow to detractors who claim the big, sweaty ‘merican manufacturer can’t build quality products.

Click here to read the entire article.

(Source:  Foreign Policy Magazine)

Cartoon Courtesy: Slate Magazine

Outside a small group of nihilists and committed free marketeers who’d have let General Motors go under, no matter the price, few question the necessity of the Obama administration’s plan for the once great American company’s reorganization in bankruptcy. But as a U.S. taxpayer, and therefore one of GM’s brand-new owners, I have my doubts about our ability to manage this new property. Yes, GM’s previous owners proved unable to run a competitive car company in a global marketplace, but is the U.S. government really the best one to transform it? Already, the particulars of the Chapter 11 arrangement lead me to fear that the same sort of internal politics, unthinking nationalism, and generalized aversion to engineering risk that have hobbled GM for decades will continue to haunt its new incarnation.

One place where you won’t hear for-attribution criticism of the “new” General Motors these days is GM headquarters. Perforce they are obligated to display their gratitude with the unfailing enthusiasm that a $50 billion-plus investment in a failing business minimally entitles its benefactors to expect in return. Although the collegial tone of the new rapprochement comes 50 years late, it is heartening nonetheless to see American industry finally welcome Washington’s involvement in matters like safety, fuel economy, and emissions regulation.

Even Robert “Maximum Bob” Lutz, GM’s outgoing product czar and vice chairman, and a fierce critic of government meddling from the “give me back my bullets” wing of Detroit’s old school, has experienced an astonishing change of heart, at the ripe age of 77. Speaking to a gathering of journalists in Motor City the other week, Lutz unhinged every jaw in the house when he shared his thoughts on how the White House automotive task force ought to become a permanent fixture. Of the unprecedented government-industry collaboration the Chrysler and GM bankruptcies begat, Lutz, an ex-Marine attack pilot and near-libertarian known for making his daily commute in a decommissioned Czech jet fighter, quipped: “Jeez, it only took 30 years for somebody to finally figure [government-industry partnership] out.”

Er, right. Thirty years and a couple of epochal bankruptcies.

Questions about the government’s intentions for the new GM Lite already abound. Notably, what will and what should the company’s policies be, now that it is controlled (in theory) by and for the benefit of U.S. taxpayers, who own 60 percent of its shares?

Will GM be underwritten so as to lead the market in the direction of fuel saving and new technologies? Or will it trim its sails and attempt to get by on its sometimes-profitable religion of pickup trucks and SUVs, perhaps ones that get slightly better mileage? GM is still tooled up to build them.

Ever since the 1920s, when GM’s Alfred P. Sloan introduced the precepts of what came to be known as Sloanism — a car for every purse and purpose — a good day at a car dealership was one when you sold someone “more car than they need.” Automobile marketing often appeals to man’s baser emotions. Greed, lust, and envy come to mind, as do excessive horsepower and other costly and unnecessary options that have been larded on to new cars to boost profits for longer than any of us have been alive. So, you can’t help wondering, has the U.S. government entered the business of encouraging people to live out their most insane automotive dreams? Will it labor to create demand for automobiles when and where there is no need, as generations of car companies have done before it?

And where do GM’s new taxpayer/shareholders stand on the matter of outsourcing work to Mexico or South Korea or China or anywhere else, as the old GM did whenever it got the chance? Will Chevy production lines in places like Toluca and Silao, Mexico, come home to the USA? The old GM went in for cheap overseas labor. Has the government now entered the business of using taxpayer money to export jobs? Is this the change we need?

Myriad practical and philosophical quandaries aside, one vital series of questions about the “new” GM — which brands will be kept, sold, or terminated — has already been answered. Chevrolet, Buick, Cadillac, GMC, Australia’s Holden, and South Korea’s Daewoo are to be spared. To be sold: Saturn, Hummer, and Sweden’s Saab are available outright, and operating control of GM’s German division, Opel, is to be sacrificed in a deal brokered by the German government outside U.S. bankruptcy proceedings. For the scrap heap: Pontiac, the venerable division that once claimed to “build excitement.” In limbo: Opel’s English sister brand, Vauxhall.

Click here to read the entire article.

(Source: Streetsblog & Wall Street Journal)

The Obama administration is working on a plan to fill the shortfall in the nation’s highway trust fund by August without adding to the federal deficit, Transportation Secretary Ray LaHood told Congress yesterday.

The highway trust fund, which relies mostly on gas-tax revenue, will need up to $7 billion in additional money by the end of summer to ensure states continue receiving payments, LaHood told the transportation subcommittee of the House Appropriations Committee. The fund also will need up to $10 billion in the 12 months after September to ensure its solvency, LaHood said.

“We believe very strongly that any trust fund fix must be paid for,” LaHood told members of the House Appropriations Committee’s transportation panel. “We also believe that any trust fund fix must be tied to reform of the current highway program to make it more performance-based and accountable, such as improving safety or improving the livability of our communities — two priorities for me.”

The administration’s quest to offset its trust fund fix, which will cost as much as $7 billion, could prove fruitless.  Rep. John Olver (D-MA), chairman of the panel that greeted LaHood today, put it simply when asked if the necessary spending cuts could be found. “That’d be very tough,” he said, noting that his own annual transportation spending is unlikely to become law before the highway trust fund runs out of cash.  Replenishing the trust fund with a cost offset, as LaHood suggests, requires a serious conversation about finding new long-term revenue sources for not just highways but all modes of transportation.

But he said the President Barack Obama administration has ruled out raising the gas tax to provide additional funding, saying an economic recession isn’t the time to make such a move.  “We are not going to raise the gasoline tax. I’ll just say that emphatically,” LaHood said.

Click here to read the entire article.

(Source: AP via Yahoo)

General Motors Corp., just days after the bankrupt carmaker sold its Hummer brand, said Friday that it has reached a deal to unload Saturn to racing legend and auto dealer Roger Penske.

 General Motors Corp. has a tentative deal to sell its Saturn brand to former race car driver and dealership group owner Roger Penske, both companies said Friday.

Penske has signed a memorandum of understanding that would give his dealership chain, Penske Automotive Group, Saturn’s 350 dealerships, the companies said. Penske said that he expects to offer all the dealers new franchise agreements and will retain all 13,000 Saturn employees for the immediate term.

“I would expect that the model that we’re putting together, the distribution model, will be profitable day one,” Penske said in an interview with The Associated Press. “We’ll have less costs. We’ll not be in the manufacturing side.”

Neither Penske nor GM would say how much Penske is paying for the brand. Penske said he expects the deal to close in the third quarter.

Penske Automotive Group also distributes Daimler AG’s Smart subcompacts in the U.S., but Smart has its own dealership network and Saturn dealers will continue to exclusively distribute Saturn vehicles, Penske said.

Initially, GM will continue to produce on a contract basis the Saturn Aura sedan as well as the Vue and Outlook SUVs, the companies said. But Penske said he is in talks with manufacturers around the world about building Saturn cars in the future.

GM Chairman Roger Smith first unveiled the Saturn brand in November 1983, describing it as a revolutionary new way to build and sell small cars in America. But the project was slow to develop and the brand did not officially launch until 1990. It featured the iconic tag-line “a different kind of car company.”

GM’s hope was that Saturn would attract younger buyers with smaller, hipper cars to better compete with Japanese imports. It built a new plant in Spring Hill, Tenn., devoted to Saturn production. The factory had more flexible work rules than traditional GM plants for the employees who built the cars.

Image Courtesy: Penske Automotive Group

Despite a cult-like following that drew thousands to annual reunions in Spring Hill, the brand never made money for GM. The factory stopped making Saturns in 2007 and currently builds only the Chevrolet Traverse.

As GM focused more on high-profit pickup trucks and sport utility vehicles, Saturn began to languish in the late 1990s. Then in 2006, car buyers began to find Saturn’s new models more appealing. But after a good year in 2007, sales dropped 22 percent last year as the U.S. car market withered.

Penske Automotive also distributes Daimler AG’s Smart subcompacts in the U.S., but Smart has its own dealership network and Saturn dealers will continue to exclusively distribute Saturn vehicles, Penske said.

Carl F. Galeana, who owns two Saturn dealerships north of Detroit, said Friday he was thrilled that Penske would be the Saturn buyer.

“Roger Penske is an icon in the business world,” Galeana said. “I’ve worked with him personally. Nobody works harder than Roger Penske.”

Galeana said the fact that Penske is interested in Saturn means the brand has value.

“It allows Saturn to get back to its original roots, which is to be an independent car company,” he said.

Shares of Penske Automotive rose 52 cents, or 3.6 percent, to $15.13 in midday trading on news of the sale. The stock has enjoyed a brisk rally this year, more than tripling from an annual low of $4.82 in March.

During a press briefing earlier this week, GM Chief Executive Frederick Henderson said Saab has attracted three bidders, but he declined to reveal names.  The renowned Hummer brand was sold to a Chinese heavy machinery company a couple of days ago and this transaction will conclude upon clearance from three different Chinese government agencies .

Click here to read the entire article.

(Source: CNNMoney.com)

President Obama to address nation.

General Motors, the nation’s largest automaker and for decades an icon of American manufacturing, stood Sunday on the brink of bankruptcy and a de facto government takeover.

Image Courtesy: CNN Money

A bankruptcy petition will be filed on Monday at 8 a.m., according to a source with direct knowledge of the bankruptcy proceedings.

Investors who own 54% of $27 billion in GM bonds have agreed to not fight plans for a quick bankruptcy process, GM said on Sunday.

The deal with bondholders could make it easier for GM to restructure by neutralizing some of the opposition to a bankruptcy filing. But it does not wipe away the need for the company to seek court protection for making drastic reductions in dealer, labor and other costs.

President Obama will address the nation shortly before noon on Monday to discuss the bankruptcy, two officials close to the situation told CNN. Obama will explain the rationale for the filing and his hopes that this is the best route for a turnaround.

It is expected that GM will detail some 20,000 job cuts and the closure of about a dozen plants by the end of 2010. The company has already said it will slash 40% of its network of 6,000 retail dealerships by next year and drop four of its brands — Hummer, Saab, Saturn and Pontiac.

The impact of GM’s bankruptcy, which follows a Chapter 11 filing by Chrysler on April 30, will ripple across the nation to dealers, suppliers and other businesses large and small that work in the sector.

The company, once the country’s largest private sector employer, has only a fraction of its former staff. Its 80,000 hourly and salaried U.S. employees are half the number it had as recently as 2001.

Nearly 500,000 U.S. retirees, as well as more than 150,000 of their family members, depend on GM health insurance and pension plans. Retirees will see cuts in their health care coverage, although the company’s underfunded pension plans are not expected to be affected by a bankruptcy filing.

In addition, some 300,000 employees at GM dealerships will be affected, as well as hundreds of thousands of workers at auto parts makers and other GM suppliers whose jobs depend on the company’s survival.

The future

A Chapter 11 bankruptcy filing would aim to help GM emerge with only its more profitable plants, brands, dealerships and contracts. GM’s unprofitable plants, contracts and other liabilities that the company can no longer afford would be left behind.

The government has already given GM $19.4 billion to fund operations and cover losses this year, and total help is expected to exceed $50 billion.

GM will pay back $8 billion of that sum. The government will also receive $2.5 billion in preferred shares of GM that pay a dividend and are more similar to a loan than stock.

But more than $40 billion of federal help to GM will be converted into the 72.5% stake in the new company. Taxpayers would make back the money loaned to GM if shares of the new GM increase dramatically in value following an exit from bankruptcy.

GM is expected to have about $17 billion in debt following bankruptcy, significantly less than the $54.4 billion it owed as of March 31.

(Source: Wall Street Journal)

General Motors Corp. is expected this week to accelerate talks with the United Auto Workers union and move toward closing about 2,600 dealerships.

 The giant auto maker also is likely this month to approach banks holding secured debt, hoping to work out terms to ease the company’s debt burden.

Reaching agreement on these fronts is critical if GM is to restructure outside of bankruptcy court.

The company has new leverage as it re-engages in talks, thanks to the bankruptcy filing last week by Chrysler LLC. But differences between the two auto makers mean that leverage can take GM only so far.

“The move with Chrysler signals to the GM creditors that bankruptcy is a viable option,” said Lewis Rosenbloom, a bankruptcy lawyer with Dewey & LeBoeuf. Mr. Rosenbloom’s firm does extensive work for GM and Chrysler. “The government is not just going to throw money at this without getting a consensual accord, so I think this is a harbinger of things to come.”

The Treasury Department has given GM until June to work out a restructuring plan and has indicated it may push the company into bankruptcy if the necessary deals don’t materialize.

GM’s hopes of staying out of court hinge on its ability to convince thousands of unsecured bondholders, owed $27 billion, to accept a small equity stake in the company in exchange for forgiving most of the debt. Several bondholders have said the equity exchange will fail if the terms aren’t sweetened.

(Source: Washington Post)

Chrysler, one of the three pillars of the American auto industry, will file for bankruptcy today after last-minute negotiations between the government and the automaker’s creditors broke down last night, an Obama administration official said.