GM's Bob Lutz Does About-Face on Hybrids

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A Quiz for GM
Bob Lutz's Comments Are an About-Face
On the Importance of Hybrid Vehicles

April 11, 2005

General Motors isn't the powerhouse it used to be in the American car market, as its recent financial and sales troubles attest. But what the senior executives of the world's biggest car maker think about where the industry is headed still merits attention.

At a recent conference in New York City hosted by Morgan Stanley auto analyst Stephen Girsky, GM's vice chairman for product development, Bob Lutz, offered some candid comments on industry trends and vehicle technology. Mr. Girsky set up a quiz-show format in which he tossed out the name of a feature and Mr. Lutz weighed in on whether consumers considered it important or not. Mr. Lutz's presentation was accessible by a conference call.

Mr. Lutz's responses indicate that GM has done an intellectual 180 on the issue of hybrid gas-electric vehicles. Not long ago, GM executives expressed little enthusiasm for hybrid vehicles, and pooh-poohed the Toyota Prius as a money loser that made little contribution to saving fuel and distracted the industry from efforts to build cars powered by hydrogen fuel cells.
[Bob Lutz]

Mr. Lutz, who last week took control of GM's vehicle development and engineering strategy world-wide, now acknowledges that "Toyota scored a major coup with hybrids even though they didn't have a business case." Having hybrid vehicles, he said, is now a symbol of whether a car maker is technologically capable and environmentally aware. GM recently announced efforts to mass-produce hybrid gas-electric SUVs by 2007. As for commercially viable fuel-cell cars? Maybe by 2010, Mr. Lutz says.

Mr. Lutz's embrace of hybrids comes late, but better late than never, from a GM shareholder point of view. In March, as gasoline prices jumped above $2 a gallon, Toyota more than doubled Prius sales to 10,236 vehicles -- even though dealers had just 13 days' supply of the hybrid cars on the ground by month's end, which is effectively no inventory at all.

The Prius outsold, in no particular order, the big Chevy Suburban sport utility vehicle, the Ford Expedition large SUV, and Toyota's own big Sequoia SUV, whose sales fell 12.5% last month. All those vehicles easily outsold the Prius a year ago. Domestic large SUVs, as a group, were stacked up on dealer lots at the end of March, with 120 days' supply, according to Autodata Corp.

The Prius also outsold other hybrid cars, but lower-volume rivals did well relative to their previous sales. Honda says it sold 2,896 of its hybrid Honda Civics, the third-best month ever for that model, while consumers bought 1,862 hybrid Honda Accords -- the best month yet for that model. Ford said its hybrid SUV, the Ford Escape, had its best month yet with sales of 1,569 vehicles.

Taken together, sales of these hybrid vehicles totaled 16,563 vehicles in March -- more than Ford's Lincoln brand or Nissan's Infiniti brand.

On other matters, Mr. Lutz, a devotee of fast cars, says horsepower is important. No shock there. But he's changed his tune on anti-lock brakes, which he once proposed removing from the standard equipment list of certain GM cars. Now, he says, anti-lock brakes are important, because they make it possible to have vehicle-stability control, which GM has said it will install on all its U.S. vehicles by the end of 2010.

On the other hand, don't look for heated steering wheels to become standard equipment on GM cars anytime soon.

Here's part of Mr. Lutz's exchange with Mr. Girsky, based on a recording of the conference call:

Mr. Girsky: Horsepower?

Mr. Lutz: Important.

Q: ABS [anti-lock brakes]?

A: (Pause) Was unimportant. Now it becomes important as we standardize vehicle stability systems, because you can't have [vehicle-stability systems] without ABS.

Q: Stability control?

A: Very important.

Q: Airbags?

A: Very important.

Q: The more the merrier?

A: I think there's a logical conclusion. I told our guys at some point we are going to design one huge inflatable thing that fills the whole [car] … so where if you hit a lamp post you find yourself pressed against the seat as if you were lying under the belly of a beached whale.

Q: Satellite radio?

A: Very important.

Q: Navigation [systems]?

A: Growing. [In] premium cars it's almost a necessity now. If you don't have it, the customer wants to know why.

Q: Heated steering wheels?

A: Not important. I think it's nice, but it's not a huge-selling feature. If you have heated seats, then it is.

Q: Auto dimming mirrors?

A: Normal expectation? No.

Q: All-wheel drive?

A: You can still live without it, but [it's] growing.

Q: Hybrid?

A: Growing. And whether the market becomes giant, or flattens out at 300,000 units a year -- which in the context of the American market is a pittance -- it has become symbolic of: "Is this company technologically capable? Is this company environmentally aware?" And it's a sort of go/no-go gauge. If you have hybrids you're OK, and if you don't you're not. I'd say Toyota scored a major coup with hybrids even though they didn't have a business case.

Q: They still may not have a business case.

A: Doesn't matter. Again, we have this artificial separation in our minds between what we spend on consumer influence in advertising and what we spend on the product. And sometimes the most effective form of consumer influence is to do things like the hybrid.

Q: Remote start?

A: Surprised me, but it's a big feature on the [Pontiac] G6 and [Chevrolet] Malibu.

Q: Diesel?

A: Almost sine qua non in Europe and almost irrelevant in the United States for passenger cars.

Q. Fuel cells?

A: (Pause) Going to be very important, but we hope to have some on the road by 2010.