JEFFREY BROWN: Now, GM’s big gamble on electric cars.
NewsHour economics correspondent Paul Solman went to Detroit to take a look. It’s part of his ongoing reporting on Making Sense of financial news.
PAUL SOLMAN: One of the world’s premier car events, held every January in Detroit: the North American International Auto Show.
MAN: And the 2011 North American car of the year is the Chevrolet Volt.
(CHEERING AND APPLAUSE)
PAUL SOLMAN: Car of the year, hope of the decade — GM’s electric idea for resuscitating the company, reviving desolate Detroit.
GM vice chairman Thomas Stephens:
THOMAS STEPHENS, vice chairman, General Motors: Yes, it was a moon shot, but we landed it.
PAUL SOLMAN: And, according to GM, the Chevy Volt has company.
WOMAN: Please welcome U.S. marketing vice president John Schwegman.
(CHEERING AND APPLAUSE)
JOHN SCHWEGMAN, U.S. marketing vice president, Buick-GMC: Boy, what a difference a year makes. Sales were up in 2010 by 52 percent.
(CHEERING AND APPLAUSE)
Buick is now the fastest growing automotive brand in the U.S. That’s why were proud to introduce the all new 2012 Buick Verano.
PAUL SOLMAN: According to GM, Buick is booming. And even Cadillac is smoking the competition these days with regular gas-powered engines.
That would good news for you and me, since, as taxpayers, we still own a third of General Motors. That’s after the company helped pay off part of its bailout loan with a successful public stock offering last November.
But Buick and Cadillac are small players in the GM lineup. Seventy percent of the business is Chevy. And, so, the company is pinning its hopes for the future on the Chevy Volt.
GM President Mark Reuss:
MARK REUSS, president, General Motors North America: You know, emotionally, it’s very important for the industry. It’s important for the city. It’s made here in Hamtramck. And it really marks, you know, the leadership in technology again from the Detroit automakers.
PAUL SOLMAN: The newly crowned champ on the road, so quiet, pedestrians need a sound alert. And the Volt may even need to add noise to meet government mandates.
Engineer Micky Bly:
MICKY BLY, executive director, General Motors Electrical and Battery Engineering: Just like you have ring tones, people are even talking about have car tones.
PAUL SOLMAN: Or you could just have something like, hey, it’s an electric car coming; you all should watch out.
MICKY BLY: Or — or actually an engine running
PAUL SOLMAN: Oh, no. You would have a simulated engine running?
MICKY BLY: That’s one of the — one of the thoughts.
PAUL SOLMAN: Wow, you can really take this up. This thing goes fast. I mean, this is…
MICKY BLY: We designed this car to be fun and — and spirited, as well as efficient. And it’s a choice the driver gets to make. We actually have a little gauge there on the right-hand side.
PAUL SOLMAN: This kind of bouncing ball here?
MICKY BLY: Yes. If it’s right in the middle of that grid, you’re driving the most efficient possible. If you were to accelerate a little too fast, you will see, it goes up and says you’re being inefficient.
PAUL SOLMAN: Oh, it went to yellow.
Drive with maximum efficiency, and the Volt’s battery can take you 50 miles, after which a gas engine kicks in. A full charge takes eight hours on household current, costs about $1.50. At today’s gas prices, 50 miles for $1.50 is like getting 100 miles a gallon.
The Volts get priority parking at Detroit Hamtramck, the factory where they’re made. Inside, one in every five cars on the line is a Volt, long thought within the company to be GM’s secret formula for turning steel into gold.
TERI QUIGLEY, plant manager, General Motors Detroit-Hamtramck Assembly Center: For a long time, I wasn’t even allowed to say Volt.
PAUL SOLMAN: Manager Teri Quigley:
TERI QUIGLEY: We didn’t formally announce that the Volt was going to be built here at Detroit Hamtramck until December 7, 2009. So, I had to refer to it as my favorite four-letter word.
PAUL SOLMAN: Better than B.U.S.T., though, which pretty much described this factory back in the dog days of 2009, when it looked like GM needed a miracle.
TERI QUIGLEY: We had 19 down weeks. The worst thing you can do to an assembly line and the work force is to not have them build cars. There were about three people in the plant. It was myself, a personnel director, my manufacturing director, and my shop chairman. And that was it in this 3.6-million-square-foot manufacturing facility, doing nothing.
PAUL SOLMAN: Now there are more than 1,000 folks working here, with a production goal of 25,000 Volts this year.
But the editor in chief of TheTruthAboutCars.com, which gets two million page views a month, speaks for many in saying: The Volt is just too expensive for most of us.
EDWARD NIEDERMEYER, editor in chief, TheTruthAboutCars.com: Right now, at $40,000 per car, and at $3-per-gallon gas, there’s absolutely not a market to support that.
PAUL SOLMAN: Now, the government will give a $7,500 tax credit to consumers who buy a Volt, but that doesn’t help GM’s bottom line. And right now, most people think Volts don’t make money for the company.
EDWARD NIEDERMEYER: They cost about $40,000 to build, and they cost — and they cost about $40,000 to buy.
PAUL SOLMAN: Editor Ed Niedermeyer says GM could copy Toyota’s Prius strategy: Price at a loss to begin with, and build volume, so the unit cost eventually comes way down.
EDWARD NIEDERMEYER: They stuck to their guns. That vehicle wormed its way into the heart of America when — when gas prices came up, and now it is their third best-selling car in America, and it’s extremely profitable for them.
PAUL SOLMAN: But will GM cut price to build volume?
When we talked to Mark Reuss, it didn’t seem like it.
MARK REUSS: We are in the first generation of the technology, so, as time goes on, you’re going to see costs taken out of that. You know, we don’t want to do anything that takes us off focus of developing that car perfect for our customers.
PAUL SOLMAN: And that means you need enough revenue to keep doing it?
MARK REUSS: Yes.
PAUL SOLMAN: GM has had to raise revenues and has had to cut costs — to the bone — including the cost of labor.
At the plant that turns out the Chevy Sonic, the only subcompact made in America, 40 percent of the workers were forced to take a pay cut to $14 an hour, based on seniority. That’s down to what the so-called second-tier new workers make.
EDWARD NIEDERMEYER: I can only imagine what happens to both morale and quality at a plant where workers are forced into the second tier of wages, to take a 50 percent pay cut.
PAUL SOLMAN: Bryan Moore, who works at the Volt plant, at $27 an hour, agrees that a pay cut would be tough to swallow.
BRYAN MOORE, General Motors Detroit-Hamtramck Assembly Center: I’m pretty sure there’s a lot of people who — who are resentful because their whole — your whole way of life has to change completely.
PAUL SOLMAN: But Mark Reuss disagrees.
MARK REUSS: We have seen no tension. And the reason why I say that is because, last Thursday, I was in there with a microphone and a handheld camera interviewing all of our employees as to how it’s going, because, you know, the tooling systems are — are coming online. And, in fact, yesterday, we made our first car there.
PAUL SOLMAN: And what about the people who wonder why any autoworkers should still make $27 an hour?
How many applicants did you have for each job at $14 an hour?
MARK REUSS: I don’t know, but we had a lot.
PAUL SOLMAN: Plenty.
MARK REUSS: Yes.
PAUL SOLMAN: If you can fill a plant with people at $14 an hour, why don’t you?
MARK REUSS: We have to be competitive, but every worker in this company went through a tremendous amount of financial and mental sacrifices. We went through bankruptcy. A lot of people don’t like to hear this, but manufacturing provides a huge basis for the middle class. I want people to be able to send their — their kids to college. I want people to be able to afford, you know, a good living in the middle class in this country.
PAUL SOLMAN: And, look, says legendary auto executive Bob Lutz, now retired from GM, labor costs are now low enough that they have ceased to be a competitive factor.
BOB LUTZ, former chairman, General Motors North America: Right now, only about 11 percent of the cost of a car is labor. In fact, with the low dollar, if you look at it in the international context, the United States, believe it or not, is one of the least expensive industrial countries in which to build automobiles. We should be exporting a lot more. We are — we’re now a highly competitive source.
PAUL SOLMAN: Lutz, a major investor in a company making electric motorcycles in Michigan, is betting on Detroit’s renaissance, as are neighboring exhibitors at the auto show, here to demonstrate their vision of the future.
Jason Forcier runs A123, an MIT-spinoff battery maker.
JASON FORCIER, vice president, Automotive Solutions, A123 Systems: I think what’s going on right now is the revitalization of Michigan. We’re diversifying the economy from the auto industry to the next-generation technology for the auto industry, but for other industries as well.
PAUL SOLMAN: Why are you here, as opposed to Boston?
JASON FORCIER: There is no richer talent pool from an engineering perspective around automotive than right here in the state of Michigan. And it was a unique time, because many of them were unemployed.
PAUL SOLMAN: So, Forcier’s company starts workers at closer to the second-tier $14 an hour than the UAW wages of the past, with no pensioners to pay for either.
JASON FORCIER: Wages have come down, and that’s what’s made Michigan attractive, frankly, is that it’s not $30 an hour, plus full benefits and pension for life.
PAUL SOLMAN: John Thomas runs a firm that retrofits vehicles to run electric.
JOHN THOMAS, CEO, ALTe: We’re in Auburn Hills, Michigan. We leased a 200,000-square-foot assembly facility near the Chrysler Tech Center and the Palace.
PAUL SOLMAN: And what’s the advantage of being here?
JOHN THOMAS: It’s — it’s — all of the resources for automotive are absolutely here.
PAUL SOLMAN: So, then, last question for skeptic Ed Niedermeyer:
Are electric vehicles going to save General Motors and save Detroit?
EDWARD NIEDERMEYER: No. The projections are — at the most optimistic, it’s something like 10 percent of the market by 2020.
BOB LUTZ: But, on the other hand 10 percent of the global market is — would be between 6.5 million and seven million units.
PAUL SOLMAN: Suggesting electric vehicles could eventually go a long way toward revitalizing GM and the city it made famous.