At Witz' End - Detroit 2010: Detroit recovers, Lutz pontificates

Attending the 2003 Detroit Auto Show, my first as a journalist in 15 years, I was stunned by the excitement and optimism of the people involved and the depth and breadth of the product on display. "This is the Golden Age of the Automobile," I thought.

That atmosphere prevailed until 2009, when the economy, the auto market and (many feared) the entire U.S. industry seemed to be crashing down around everyone's ears. The product was there, but the trappings were sparse and the aura decidedly glum. Now we've seen the 2010 Detroit show, which was subdued but cautiously optimistic. There was a strong emphasis on "green" – small-car introductions, hybrid and EV concepts, a plethora of neighborhood EVs on "Electric Avenue" and a lushly wooded drive course for volt-powered vehicles – plus the usual new family, luxury, utility and performance-car debuts.

The night before press days, ageless, outspoken, oft-controversial General Motors Vice Chairman Bob Lutz told a Society of Automotive Analysts meeting that GM is well on its way to recovery. While fleet sales were (intentionally) way down, December retail sales were up 13 percent with four brands vs. eight the year before, its fourth-quarter retail market share was up a full two points from the previous quarter, and its newest products - the Chevrolet Camaro and Equinox, Buick LaCrosse, GMC Terrain and Cadillac SRX - were, he said, "smash hits." Read more after the jump.
Beyond that, "Our balance sheet is in the best shape it's been in for quite some time.... Our incentive spending is down...and our residuals are up. These are all good signs.... At anything remotely resembling normal industry volumes, GM will be quite profitable." He added that the company's much lower fixed costs "will enable profitability even on U.S.-built small cars" and that the Japanese makers' roughly $4,000 per vehicle cost advantage due to undervaluation of the yen is all but gone. "Now they're crying because the yen/dollar balance is much less favorable to them. My eyes remain dry." That brought a hearty laugh.

Then came the opening press day and small group media interviews of selected GM execs. "Unless the price of gasoline goes up a lot," Lutz told the reporters in his session, "it's going to be very difficult making money on strongly hybridized cars, plug-in hybrids or vehicles like the Volt, because they contain a lot of cost and technology and will sell at relatively high prices.... At some point...we may have to force it. We'll have to build and sell strongly hybridized vehicles whether the public wants them or not, and we'll probably have to heavily discount them and raise the prices on everything else in order to drive the public in that direction."

In response to a question on whether rising fuel prices might kill overall sales, again: "If the rise in gasoline prices is gradual, I think all of us in the industry would frankly welcome that, because there is nothing more illogical than forcing fuel-saving technology when gasoline is cheap. What happened to us last time was the sudden fluctuation in oil prices. No car company can turn on a dime and immediately launch a new portfolio for $4.50 gasoline when three months earlier gas was at $2.10."

Would he like to see a gas tax to make that happen? "I am not going to advocate higher fuel prices...but I think the U.S. has a fundamental choice to make. We either continue with inexpensive motor fuel and have to find other ways to incent the customer to buy hybrids and electric vehicles.... [or] a gradual increase in fuel taxation of, say, $.25/year would have the benefit of giving both automobile companies and families who own cars a planning base.

"Right now there's no planning basis for anyone. Every time gas prices go down, everybody starts buying big stuff again, and the minute gas prices go up, the big stuff is unsalable and everybody wants small cars. It's like the collective memory is about three weeks long. We can't run a business that way.

"Fuel taxation is the third rail of politics. Yet somehow in Europe it's been taken out of the realm of politics in that everyone understands that it's a societal advantage to tax motor fuels for all kinds of reasons. It drives alternative forms of transportation, it makes it easier to sell fuel-saving technology, and it's a great source of revenue for the government."

How will GM get Americans to buy small cars at higher prices? "I think we'll be OK with the Cruze. It's a large compact, a size that Americans are becoming more comfortable with. [The next] Aveo will be a half-size up from the current one. I think you'll agree it's a nice size, and if we can sell it at a reasonable price, there should be a fairly good demand for that. Where it starts getting difficult in the U.S. is with vehicles the size of the Spark, which is why we have no plans to build that in the United States... But the Spark is an insurance policy, precisely because we don't know what fuel prices are going to do. If fuel suddenly goes to $5 a gallon in the U.S., then we'll probably sell nothing but Aveos and Sparks."

Finally, Lutz was asked whether the Volt could turn a profit. "That was the first question of the government task force," he replied with a grin. "They looked at the projected Volt profitability and said, 'Why are you even doing this?' Well, if we were doing it purely for profit, we wouldn't be doing it.

"The costs of gasoline-powered cars have been so optimized over the decades...if you started out today doing gas-powered cars, the cheapest one would cost $200K because you couldn't find anyone who does piston rings, or valve keepers, or hardened camshafts. All those things would be done in low-volume specialty machine shops and would cost a fortune!

"This is early, learning technology, not mature technology, so at the beginning, it's very expensive. The first two or three years will be a struggle until we can get those costs down. But as it matures, as the technology becomes generalized, as the [suppliers] start producing millions [of parts] instead of thousands, they will come down. But you have to start sometime."


Award-winning automotive writer Gary Witzenburg has been writing about automobiles, auto people and the auto industry for 21 years. A former auto engineer, race driver and advanced technology vehicle development manager, his work has appeared in a wide variety of national magazines including The Robb Report, Playboy, Popular Mechanics, Car and Driver, Road & Track, Motor Trend, Autoweek and Automobile Quarterly and has authored eight automotive books. He is currently contributing regularly to Kelley Blue Book (www.kbb.com), AutoMedia.com, Ward's Auto World and Motor Trend's Truck Trend and is a North American Car and Truck of the Year juror.