GM’s Lutz: ‘Pieces in place’

SALT LAKE CITY -- With crippling quarterly losses grabbing the headlines, what’s going on in terms of product development and organizational changes at General Motors has gone largely unnoticed. But Bob Lutz, GM’s vice chairman of product development, says globalization is focused on turning out low-cost yet high-quality vehicles.

“Needless to say, 2005 has been and continues to be a challenge,” said Lutz speaking here at a GM Fleet & Commercial media event. “Yes, our [overall] market share is down, and yes, our stock price is down. On top of that, we’re facing tough global competition and escalating health-care costs, which puts us at a huge competitive disadvantage.”

On a net basis, GM lost $1.1 billion in the first quarter this year including restructuring and severance charges for job cuts in Europe and the U.S. Its North American operations actually lost $2 billion in the first quarter, but profits at the company’s GMAC financing arm helped offset that red ink. The net loss was the worst since GM lost $21 billion in the first quarter of 1992, largely due to accounting changes.

But now Lutz says “the pieces are in place” to create a more globally focused GM, instead of a collection of four regional operational companies (GM North America, GM Europe, GM South America, GM Asia). That global structure should drive greater efficiencies in manufacturing, design, engineering, and product planning, he said.

“With a global focus, we can build great cars and trucks that can be tailored to regional needs and tastes,” Lutz explained. “It also puts us on a better footing to compete globally with Toyota, Honda, and Nissan.”

To that end, he said GM is ramping up capital expenditures this year from $7 billion to $8 billion, with the vast majority of those funds devoted to product development. “Full-size SUVs, in particular, represent a huge percentage of our profit,” said Lutz. “That’s why we are pulling ahead with new designs [for SUVs and light trucks] but without compromising quality.”

In particular, Lutz pointed to the upcoming introduction of the Hummer H3, powered by a 220 hp five-cylinder engine that gets 20 mpg on the highway, and the Chevy HHR, a medium-sized SUV that’s planned to be priced below $20,000.

“You can’t choose between low cost or high quality anymore – you must be both,” he explained in regards to the vehicle pricing structure GM foresees for the future. ‘You have to be best in class for everything – the chassis, frame, suspension, engines, and interior – yet still be priced for value.”

He also highlighted GM’s development work on a hybrid propulsion system for full-sized SUVs. It combines two electric motors integrated into the transmission with a 5.3-liter V8 Vortec engine equipped with “displacement on demand,” allowing the engine to “turn off” cylinders in slow driving conditions to improve fuel economy.

This hybrid system, which boasts a fuel economy improvement of 25% compared to gasoline-only powered vehicles, should be commercially introduced on GM’s Yukon and Tahoe SUVs in 2007.

“Having a great big SUV with great fuel economy is a no-brainer,” Lutz told Fleet Owner. “At highway speed, a hybrid doesn’t help much in terms of fuel economy, but in urban driving it’s a big advantage. However, right now, since we need to charge more for a hybrid propulsion system, fuel savings have to be calculated against that.

But if fuel prices go up to $3 a gallon, hybrids really become a no-brainer. It really gives us options when it comes to addressing the fuel economy of large vehicles.”

That’s one reason Lutz believes GM’s current fiscal struggles are obscuring some of the real vehicle advancements the company plans to introduce over the next few years.

“We are on the road to a bright future, though we are hitting some serious speed bumps now,” he said. “But I believe we are going to handle these bumps just fine without losing too much traction on the strength of the products we have on the way.”

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