GM's Electric Future
Last Thursday I was a guest of GM at the HRL Laboratories in Malibu. HRL = Hughes Research Labs, a research and development think tank and applied laboratory in the lovely hills of Malibu Canyon just a couple miles from the Pacific Coast. As the name implies, HRL was originally part of billionaire Howard Hughes' empire. The Malibu campus was opened in
1960 and in that same year, it was the site of the first-ever laser demonstration.
That was then, this is now. HRL is co-owned by GM and Boeing. HRL conducts direct and collaborative research and subcontracted services for its owners as well as outside services and contracts for selected commercial, institutional and governmental programs. It's like a smaller version of the JPL/Cal Tech campus with lots of bona fide rocket scientist in residence. The JPL/Cal Tech-Pasadena campus is nice; but Malibu kicks ass any day of the week. However, I just wouldn't want the commute to Malibu as the only way in or out of HRL is Malibu Canyon with PCH to the west and the 101 Freeway to the east.
The event at HRL featured Troy Clarke, President of GM North America. The main purpose of Mr. Clarke's presentation was to give us a glimpse of GM's "green" future and to get some buzz going about the technologies and products in GM's pipeline.
I was glad to hear GM admit the importance of the California market and even admit that it has a serious problem here. As any shrink will tell you, the first step in recovery is to admit you have a problem. Most of the information was a rehash of already available information -- stuff like the Chevy Volt, hybrid drivetrains for GM's big SUVs and a plug-in Vue Hybrid. But there was other information, specifically related to the California market, that you don't find in the trades or a GM corporate press release.
California is the largest car market in the US. GM knows that California is a major influence in environmental regulatory issues and thirteen other states follow California's footsteps in these areas. California may set the rules for the nation before the EPA can set its own national tailpipe emissions policy.
How serious is GM's problem in California? Let's just say the patient is in critical condition. In most states, GM commands a 22-23% market share. However, in 2006, GM (all divisions) held only a 16.8% market share in California. And as GM knows, as California goes, so does the rest of the country. We set the sales and style trends right here in Los Angeles.
GM's 2006 California market share number isn't broken down between cars and trucks/SUVs. And it's not broken down by California sales regions. Those statistics would be most interesting to me. So I asked Mr. Clarke about GM's plans to combat the apparent disinterest in GM's passenger cars in Los Angeles. I pointed out that Los Angeles is a completely different world from Detroit. You simply don't see very many GM passenger cars that are privately owned in Los Angeles. Most new GM cars we see are rentals!
Mr. Clark acknowledged that GM has a real problem connecting with customers in LA and he tossed out some very interesting, off the cuff, statistics. He said that in 2006, in Los Angeles, GM dealers sold only 8,000 passenger cars while Toyota dealers were able to sell 11,000 Priuses. Yes, that's all divisions of GM and all models versus just one model from Toyota. I was stunned -- and it takes a lot to stun me these days.
Not all LA news is bad for GM. GM sells lots of pickup trucks and big SUVs here. There is no question that big trucks like the Cadillac Escalade, Chevy Tahoe and GMC Yukon XL are hits in Los Angeles. For some reason, big black Escalades have become a "car of choice" for many livery services. I'd rather take an Audi A8L to the airport; but the luggage capacity of the gigantic Escalade trumps the A8L for people with lots of luggage and/or with large families in tow. By empirical evidence -- my eyes, basically -- the GMT 900-based trucks and SUVs sell very well in Los Angeles. And I predict that the upcoming hybrid versions of these SUVS, starting this fall with the Tahoe/Yukon rear drive models, will be very popular because "green" bragging rights sell well in LA.
For 2007, GM hopes to make a significant improvement in its LA market share with new products like the 2007 Saturn Aura sedan, 2008 Cadillac CTS (coming in a few weeks) and the 2008 Malibu (coming this October or November). So far, Aura sales have been disappointing despite its North American Car of the Year crown (from the Detroit Auto Show) and the new Saturn ad campaign that asks you to buy it not because it's American but because it's a superior product.
To prove how good the Aura is to customers, Saturn dealers have a Toyota Camry and a Honda Accord on their lots for you to test drive and compare to the Aura. While this is a good idea, I'm not sure you can get Toyota or Honda customers into a Saturn dealer to even look at the Aura. The Aura has been on the market for more than six months and I have a hard time remembering if I've ever seen one on the road that isn't a rental.
A friend of mine is shopping for a new car. He was kind of interested in the Saturn Vue Hybrid; but the 2007 Vue is almost gone from dealer lots as the all-new 2008 Vue just arrived. He also didn't know where he could find a Saturn dealer in LA -- the closest one to us is in North Hills -- no insignificant obstacle to even looking at the car let alone buying and servicing it. The hybrid version of the new Vue won't be here for months.
He wanted a hybrid Civic. He's had very good luck with Honda products in the past. But the Civic doesn't have leather seats or a fold-down back seat. What did he end up buying? I got the phone call Tuesday morning -- he is going with the Prius because it has all the electronic goodies including Bluetooth, back up camera, navigation and leather seats. It also is more versatile because it has a hatchback. It helps that Toyota is putting some marketing rebates on the Prius as he's able to get the top-shelf Prius, out the door, for less than $29,000.
Oh yeah, I should mention that he's the same age as me(47), he grew up in the Detroit area (a rich suburb) and his father, a life-long GM design executive, always had a shiny new GM vehicle in the driveway. He has GM in his blood; but this California-transplant wants a high-mileage hybrid and Toyota just bagged another convert. One more shot of the Toyota Kool Aid marketing works its magic.
On Monday, I had an appointment with my dermatologist for some skin work. The RN tech that I see is also a transplant from Michigan. He still drives the GM vehicle he brought with him from Michigan. As usual, when I'm in the room, the talk turned to cars. He's ready for a new car. What does he want? He wants a Prius. He really wants a plug-in electric-gas hybrid; but there isn't one on the market and even if he had one, he doesn't know how he'd be able to plug it into the subterranean garage of his apartment building.
For him, the Prius gets the best fuel economy and he too drank the Toyota Kool Aid about saving the planet with a hybrid. I told him about the Saturn Aura hybrid -- he didn't even know it existed. But the Aura doesn't have the green creds of the Prius and its fuel economy (28 city/35 highway) doesn't come close to the Prius. He likes the look of the Prius -- you know -- the Prius screams hybrid and it makes that green statement everywhere you go. He kind of liked the Smart ForTwo; but he was concerned about its size and safety. So it's back to the Prius for him and another convert for Toyota. Hallelujah, did you say the Kool Aid was grape flavored?
How does any car company combat this kind of mindset? The short answer is that it's all about the product. If GM had a hybrid gas-electric or electric car on the market NOW that rivaled 
the Prius for mileage, price and looks (if you like that "hybrid" look now defined by the Toyota Prius), it would have a chance of winning back California buyers. The Chevy Volt, as presented in concept form last year, would be an instant hit in LA.
I described the Chevy Volt Eflex (electric-flexible vehicle) concept to him. He said he loved the idea of it and that he'd consider buying one if it was on the market. However, by the time the Volt comes to market, he'll be happy with his Prius and Toyota will have a third-generation Prius on the market with plug-in capacity and an extended range to rival the Volt.
It will be three years (if we are lucky) before GM has the Volt in Chevy showrooms with nothing like it in the interim to stem the tidal wave of California "green" buyers who see Toyota (and to a lesser extent, Honda and Nissan) as the saviors of our environment. It will take a monumental marketing effort to get California buyers to even consider the Aura/Malibu hybrids when the Camry Hybrid has such a commanding lead in the mid-size hybrid sedan marketplace. It's also hard to overcome that huge Toyota green umbrella that covers anything Toyota stuffs the Hybrid-Synergy Drive system into.
There is also a palpable shift in consumer tastes in California that isn't being addressed by any of the Big 3 domestic manufactures. [Now that Chrysler is divorced from Daimler, I'll start calling them the Big 3 again rather than the Big 2½.] The trend is to smaller more fuel efficient cars for the mass market. Short of the Chevy Aveo and Cobalt -- cars we considered rentals, not something you buy -- GM doesn't offer a small car to challenge the Honda Civic, Toyota Corolla or Nissan Altima. The Korean Twins, Hyundai and Kia, are all over this low-end small, inexpensive car market and are doing very well with new, better and safer products hitting the US market every year.
For the luxury car market, fuel efficiency is addressed by technologies like direct gas injection, turbo chargers, lightweight alloys and composite materials and, finally, a return of clean diesel engine technology. Lexus is using the corporate Hybrid-Synergy Drive system to give it "green" credentials. BMW, Mercedes, Porsche, VW and Audi are all working on some form of hybrid drivetrains/transmissions that will all help increase fuel economy on their luxury offerings.
As far as I know, GM and Ford don't have any plans for diesel engines in the US even though they both have great diesel technology in Europe and other major markets. Chrysler is getting some donated diesel technology from its former parent Daimler. We'll see how long that partnership lasts.
The Germans are coming with Bluetech or add-blue technology to clean diesel particulate emissions. Honda says it will have a super-high mileage clean diesel engine in a couple years that will be available in its mass market Civic and Accord sedans. I hope the US Big 3 doesn't fall behind in clean (or bio) diesel engine/fuel choices in the passenger car market.
According to what I learned at the GM event in Malibu, GM is placing its bets on an electric car future, with hybrids, plug-in hybrids, EFlex vehicles and flex fuels (think E85 ethanol and bio-diesel) as interim solutions to energy independence. Hydrogen will be the fuel that powers automobiles of the future -- 20 to 50 years out.
Hydrogen is the long-term fuel of choice to power vehicles. GM, Ford and Honda all have working fuel cell vehicles on the road today. In these vehicles, hydrogen is converted into electricity via fuel cell technology. Fuel cell powered cars use electric motors and a CVT rather than conventional engines and transmissions to drive the car. The result is not exactly an enthusiast's dream. It may be a while before you find BMW or Porsche using this kind of propulsion system.
BMW has a 7-Series hydrogen/gasoline flex fuel vehicle on the roads of California right now. However, BMW uses hydrogen as a combustible fuel instead of gasoline or diesel. BMW
's engine operates in a more conventional manner to provide to the driver an "ultimate driving experience" with all the mechanical thrills associated with a BMW. The Hydrogen 7 doesn't have a battery pack or a fuel cell -- but it does have a liquid hydrogen tank. As with a fuel cell vehicle, the only tailpipe emission is water. The problem, of course, is finding a hydrogen filling station. As Alan reported in Issue 180, [http://www.acarisnotarefrigerator.com/Article_Alan_180_20070607.htm] Governor Arnold Schwarzenegger is working on getting a small network of hydrogen fueling stations in California.
As Mr. Troy points out, there is no distribution system in the US for hydrogen while there is already a very efficient distribution network for electricity. Even when it comes to E85, any gas station can use one of its tanks to distribute E85 without any significant conversion cost -- so E85 distribution is merely a matter of making enough fuel to supply a state like California. Of course, you also have to get the big oil companies to buy into the delivery of E85 to their franchised stations. Time will tell how well that works!
GM thinks that hydrogen-powered fuel cells and electric motors will ultimately supplant conventional engines, transmissions and fuels. I hope there will be room for the BMW/German vision of hydrogen combustion as I have to believe the BMW version will be the driver's choice for fun and zero emissions.
I'm happy to report that GM is putting its technology on the road today to showcase what can be done with enough research and development money as well as a national energy independence policy strategy that emphasizes emerging technologies. This fall GM is putting on the road 100 Chevrolet Equinox SUVs running on hydrogen fuel-cell technology. The Chevy Equinox uses GM's fourth-generation fuel-cell propulsion system and they will be placed in the hands of real-world consumers.
The Equinox test fleet will be driven daily in California, New York and Washington, D.C.
I'm sure the lucky people have already been chosen to drive these vehicles, but if not, I'll be happy to sign up to drive one and become a visible example of a GM "all-green" car in LA -- something GM desperately needs.
There is one more thing GM should understand about market share and winning over customers from the likes of Toyota, Honda and BMW. The dealer interface and experience is very important. This isn't news. My conversation with GM's Regional Sales & Service Marketing Manager/Western Region, Dale Sullivan, confirms that corporate is very aware of the problem: Over the past three decades, GM's LA-area dealership network has shrunk from huge sales declines and the remaining dealers often look dated and/or neglected. How do you "encourage" independent franchised dealers to update, modernize, replace and remodel?
People want to buy a car from a store that looks modern and, for lack of a better word, "happening". If you feel depressed walking into a Cadillac dealer, you may be less inclined to buy the product. You also want to believe you're buying first-rate product. If the dealership doesn't look first-rate then the overall presentation of the vehicles suffers. GM may need to help dealers modernize, remodel and revamp showrooms to attract more customers. I know this is a delicate subject as you can't force dealers to invest if they don't think there is a return; but of course you won't get the return if you don't invest. It's that old Catch-22.
GM has a long uphill climb to regain market share in California. That climb is even harder in Los Angeles when you're up against an almost total loss of the passenger car market to the Japanese, Germans and Koreans. Three generations of immigrants and locals alike have grown up on the imports. It may take some heavy jolts of electricity to pry our hands off a BMW or Toyota. If GM's future is electric -- then there better be plenty of Volts to jolt consumers back to a GM brand.
