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GM Gets a Fresh Start — Will Green Innovation Rise From the Ashes?

Meet the New GM, a company that’s supposed to be more nimble, innovative, and a heck of a lot more profitable than the old General Motors (s GM). The new company launched this morning as much of the automaker’s assets transferred over to a company now controlled by the feds, which hold a 61 percent stake. In a statement today, CEO Fritz Henderson promised the start of “a new era,” saying, “Business as usual is over at GM.” But how much innovation can we really expect from a government-held (besides the U.S., the governments of Canada and the province of Ontario have also taken stakes) company fresh out of bankruptcy and playing catch-up on key technologies?2011 Chevrolet Volt Production Show Car

The road to building a really green, innovative business that can be proactive with its technology holds plenty of challenges for the downsized automaker. While the company’s total debt has been slashed by more than $40 billion during the restructuring process and the new GM has a much stronger balance sheet than the old corporation, it still carries a debt of about $11 billion. Investments in advanced alt-fuel vehicles like the extended-range electric Chevy Volt, which has reportedly cost the company more than a billion dollars to develop so far, won’t be easily made for years to come. Meanwhile, competitors from Silicon Valley to Japan, Europe and China are making big bets on hybrid and plug-in vehicles.

As Lux Research analyst Jacob Grose put it this morning, GM risks running out of capital “pretty soon if they don’t start selling vehicles.” I asked Grose if he thought GM could really afford to launch a vehicle like the $40,000 Volt — which is not expected to be profitable until at least the second generation — at a time when Henderson has said the company needs every model to “pay rent” (by contrast, the company has for years relied on large, higher-margin SUVs to cover losses on smaller and less successful vehicles). Grose said he sees an “inherent contradiction” between the company’s very ambitious and expensive push to launch the Volt in 2011 and its relatively shaky bottom line.

Over the long term, said Grose, GM might be better off financially if it pulled back on the Volt and instead tried to “take more incremental steps” into the green car market with less costly technologies while it works to retool the Volt with a smaller battery pack (generally the most expensive part of a plug-in vehicle) and a more competitive $20,000-$25,000 price range. This way, said Grose, the company might be able to launch a truly competitive vehicle in 2012, although it would take some short-term hits, both politically, since it put the Volt at the center of its viability plans, and also in terms of market share, since it would “risk not having anything on the market” when competitors are rolling out their first-gen plug-ins.

Financial resources may not be the biggest sticking point for GM as it tries to rebuild itself as a greener automaker. Changing the culture — one of the main goals mentioned in Henderson’s statement this morning — to cultivate more innovation, swift action and cutting-edge technology, could be more difficult. The idea that a company of GM’s size can go through “a chaotic bankruptcy and emerge with such a laser focus is a little hard to swallow,” said Grose.

Although GM has cleared some major tech hurdles with alt-fuel vehicles (according to Grose GM’s battery technology is already fairly competitive, and the company will likely be able to afford improvements in things like systems integration and the feel of its hybrid transmissions), it’s has fallen behind companies like Toyota (s TM) and Honda (s HMC) in the hybrid market over the last decade. As a result, Grose expects GM will have to work on winning over not only consumers, but also talent. He said that while advanced vehicle technology sat on the back burner at GM, the company “lost talented engineers to Toyota and Honda over the years, and they can’t just snap their fingers and get them back.”

The overall down economy will make it easier for the automaker to hire new blood than it would be in a fat job market, but that will only go so far toward bringing in top talent because at this point, said Grose, “any company that has good EV and hybrid engineers is not letting them go so easily.” In a best-case scenario, it will take a number of years to add new innovators to its ranks, and, “by that time, they’ll have fallen behind” companies like Nissan (s NSANY), which has just gotten a $1.6 billion boost from the federal government to accelerate its work on plug-in cars and batteries.

At this point, the new GM has already begun rethinking its historically costly distribution model. Henderson announced this morning that it’s testing a partnership with eBay (ebay) to let consumers bid online for vehicles at pre-determined prices. As Mike Harrigan of the battery tech startup Atieva (Harrigan is a former VP at Tesla, which has modeled its showrooms and distribution model after Apple (s APPL)) noted in an email this morning, “Dealerships make a lot of money on popular models through ‘additional dealer markup’ which they don’t share with automakers but insist on factory rebates for unpopular and/or overstocked models…Auto dealership owners are some of the most profitable businesses around while the automakers themselves are struggling to stay in business.” For Day 1, it’s not a bad start.

Chevy Volt photo credit General Motors

12 Responses to “GM Gets a Fresh Start — Will Green Innovation Rise From the Ashes?”

  1. That’s very interesting that they are testing out a model to bid on vehicles online through Ebay. I wonder how that idea will pan out. I don’t know how enthused I am about that it will saturate the ebay market that currently sells used vehicles.

  2. Simpson

    So down on GM…easy to kick someone when they are down. But let’s examine your reporting and your premise. What technology exactly are they behind on? No one has yet matched the onstar service, nor has anyone yet have the technology of the volt in active testing. V to V technology is another area in which GM is ahead and they just announced the most advanced battery lab in the U.S…becoming the first and only automaker with such a facility. Last year GM opened its own rollover crash test facility becoming the only automaker to have such a facility. How about hybrids? Sure the Prius is the winner and has great technology but the GM/BMW/Chrysler developed 2-mode hybrid engine has taken that technology to another level and provides additional fuel mileage and savings over the prius technology. And the new Chevy equinox small crossover suv (rav4, crv competitor) gets 32 mpg — more than the ford hybrid model of the same size and certainly more than the rav 4 and crv. Nice story but poorly researched premise.

  3. I’m less in agreement after watching Motorweek’s roadtest of the new Chevy Equinox. Though not a class of vehicle I’m at all interested in – soccer mom capacity and styling, cross-over ute – the critter starts at $22K and gets 32mpg hwy with a 3.4 litre V6.

    Without going into detailed comparison, you can sell boatloads of these before you sell hybrids costing 20% more.

    Just as my family – and my neighbors, all working families – would be more likely to buy a Toyota Yaris over a Prius, I think the Equinox is a very salable potato next to any of its competition, hybrid or otherwise.

    OK. That’s about as much Chevy as I can take. But, that’s me.