Rising gas prices test GM

March 8, 2011

Rising gas prices test GM

Move toward fuel-efficient cars could pay

General Motors Co. CEO Dan Akerson is betting a little paranoia — and some good ol’ luck — might just pay dividends in his new gig.
Back in November, amid a road show to sell investors on new shares in GM, Akerson challenged his team for what he called his “$120 plan.” How would GM run, and profit, if oil is fetching 30 percent more per barrel than it did at Thanksgiving?
“I don’t think the industry learned a lot of lessons from 2008 — they will this time around,” Akerson said last week at the Geneva motor show, according a report in the Wall Street Journal. “It would not be a good thing to see $5-a-gallon gas right now.”
No, but crude is topping $105 a barrel, instability is roiling the Middle East, gas is roughly $3.50 a gallon and climbing, and there’s some credit due the boss for asking “what if” and “why not” far sooner than his predecessors would have. Still, it feels a little like déjà vu all over again, particularly at GM.
Except for three fundamentally different things from the fraught days of 2008: The new GM isn’t scheduled soon to launch gas-guzzling SUVs or a pickup, a PR nightmare at times like these. Second, GM’s balance sheet doesn’t look like the sovereign debt of a small European country. And GM is preparing to launch — or already has — small, fuel-efficient cars.
There are all sorts of ways to criticize the General and those small cars, as is customary (and expected?) around here. But the fact they actually contribute to the bottom line is reason enough to give the likes of the Chevrolet Cruze compact, its twin, the Buick Verano, the coming Chevy Sonic subcompact, and the Chevy Volt a chance to prove themselves in a market likely to face higher gas prices.
It doesn’t end there, either, as another pet Akerson initiative with enormous implications for his leadership, technical capability and decision-making inside the new GM could soon show — if it all ends well.
Keen to capitalize on the market cachet and fuel efficiency of the Volt, Akerson in December challenged the Volt team to investigate whether increasing production, re-engineering interior materials and exploring new battery technology could cut $10,000 in cost from a car that retails for $41,000 (not including $7,500 in tax incentives).
“And we’re there,” a source close to the matter said, adding that no final decisions have yet been made on whether to increase Volt production above an official 10,000 vehicles for this year and 45,000 for next year.
Meaning a go-decision could enable GM to cut the price of the Volt, book more profit or both, dramatically changing the value proposition for an extended-range electric car whose attraction likely would grow if gas stays north of $4 a gallon.
That could be huge. If gas prices find a new normal. If Akerson pulls the trigger to up production and re-engineer the Volt. If the GM team can deliver the car without compromising its technology, the quality of its interior or GM’s aim to paint its mass-market brand green.
Lots of ifs, but the answer to each of them would go a long way to defining who — and what kind of CEO — Akerson will be for GM, assuming he can stop the whirring door at the top of the RenCen long enough to settle down an organization unaccustomed to churn.
With gas going higher and the prospect that Middle East turmoil is likely to endure, the Volt and GM’s stable of small cars will stand as exemplars — for better or for worse — of just how new and smartly led GM truly is. They’ll also show whether the CEO is an astute risk-taker who pushes his team to press an advantage by managing toward the company’s assets and away from its liabilities.
That’s the job of every CEO, but actually doing it is what matters in a town that needs GM to win again, consistently.

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