GM's Plug-In Push

Don't tell General Motors (GM) Vice-President of Research and Development Larry Burns that the Chevy Volt plug-in gas electric hybrid vehicle it plans to launch is a marketing ploy to improve GM's brown image with consumers.

On the other hand, Burns admits that GM is spending SUV loads of money to make sure the Volt comes to market on time, and ahead of Toyota (TM), in 2010 in the hopes of changing the marketing nightmare the company faces. "No question, it is our intent to leapfrog Toyota in this technology," he says.

Coming from Behind
What marketing nightmare? GM has been unleashing the best vehicles it has ever produced. Quality is better than ever. Designs are being lauded. And critics are falling over themselves praising new versions of such previously dullard drives as the Chevy Malibu. Even a Buick, the Enclave SUV (BusinessWeek.com, 8/24/07), is drawing kudos, and GM can't make them fast enough to meet demand. But overall, GM sales are down almost 6% this year, compared with a drop of 2.5% for the industry through the first 10 months of the year.

Not only does GM's portfolio of brands have an awful time resonating on the East and West coasts, but research commissioned by the automaker spelled out in how little esteem cutting-edge customers hold GM. A survey cited by Burns showed that 70% of respondents think of GM as "part of the problem" when it comes to climate change and pollution, while 70% view Toyota as part of the solution. Moreover, consumers believe GM's brands have much lower quality scores than they really do, because of how poorly GM has marketed its brands over the years. "It's a huge hole to dig out of," says Burns.

But GM is showing signs of life in the arena of "green" image making that, if the company gets it right, could shed stardust on its whole brand portfolio. As GM and Toyota battle for superiority and market momentum with the next gas-saving technology—plug-in-hybrids—many analysts and engineers say GM may, for a change, have the advantage over Toyota. "GM has quietly closed the technology gap with Toyota and looks like it is pulling ahead in plug-ins," says Brett Smith, director of forecasting at the Center for Automotive Research (CAR) in Ann Arbor, Mich. (Read more about GM's successes in developing hybrid transmission technology.)

Changing Horses
Talk is cheap. But there is buzz in the industry's engineering and supplier community that GM's advantage is that it chose better battery technology than Toyota in the first place to develop its Chevy Volt plug-in car for sale by the end of 2010. Toyota has been focusing its battery development on cobalt oxide-based lithium-ion batteries, the same technology that's used in cell-phone and laptop batteries. But fires in laptop batteries earlier this year derailed optimism about their application in cars.

Meantime, GM has been pursuing a nano-phosphate-based battery with privately held battery technology company A123 Systems, in Watertown, Mass., whose technology is the kind used in lithium-ion batteries that drive cordless power tools. And it's this technology, which is not subject to fires and packs more power and battery life, that is emerging as the favored pathway for plug-ins. "There are a lot of problems with cobalt-oxide, including scaling it up for cars because of the cost and availability of cobalt," says Ann Marie Sastry, an engineering professor at the University of Michigan, Ann Arbor.

Toyota, too, has been working with nano-phosphate as a hedge, but on a slower track than its cobalt-oxide program, which was in a joint-development project with Panasonic (MC). And GM is working with cobalt-oxide on a slower track for the same reason. But GM's nano-phosphate development is, according to supplier company sources working with Toyota, at least a year ahead of Toyota's. "All hell has been breaking loose at Toyota on its plug-in program for the last three months as it changes horses," says one supplier company executive working with Toyota.

Consumer Readiness
Toyota and Honda (HMC) have been uncharacteristically open in their criticism of GM's plug-in push. At the Tokyo Motor Show, Honda CEO Takeo Fukui said his company won't pursue plug-ins at all, because he feels they don't deliver enough environmental benefits. Toyota's project general manager in its hybrid vehicle system-engineering division, Yoshitaka Asakura, said he isn't even sure consumers want a plug-in, and that while Toyota is developing a plug-in Prius as a trial balloon, it is looking more for ways to expand its existing hybrid systems.

Honda's bearishness on plug-ins doesn't cloud the potential of the technology. Honda, while leading all auto companies operating in the U.S. in fuel economy, has proved to be especially tone-deaf in understanding the U.S. market for its vehicles. It launched the Insight hybrid around the same time as Toyota's Prius, but its size and unappealing styling made it a dud. The Civic hybrid has been a steady seller, but it is dropping its Accord hybrid (BusinessWeek.com, 11/19/07), which didn't sell at all and offered little fuel economy benefit over the nonhybrid Accord. Toyota, whose executives say they don't believe GM can get a battery small enough to fit in a car and have a 40-mile range, meanwhile, is heavily invested in its hybrid system and has the advantage over its rivals in passenger car hybrids.

Indeed, some believe the "wow" factor of getting more than 100 mpg could help plug-ins eclipse the popularity of hybrids. GM says the Volt technology will allow consumers to go up to 40 miles on battery power, after which the gas engine kicks on to recharge the battery while the driver continues. If a driver makes several short trips on battery power, the battery can simply be plugged in overnight to recharge. Many drivers could go weeks without gassing up. And electricity at night is cheaper than daytime recharging. Dr. Gary Vas, director of the University of Michigan Memorial Phoenix Energy Institute and a nuclear energy professor who is leading a study of plug-in vehicles, says the early indication on a study he is leading on the marketability of plug-ins "shows that consumers are more than ready to embrace it."

Toyota executives have said they believe the right model for plug-ins will enable drivers to go perhaps as much as eight miles on a charge before the gasoline power kicks on. University of Michigan's Sastry says such a conclusion may be dictated by the technology they have chosen, rather than consumer research. "I don't have any doubts that consumers will react very strongly to a 40-mile gas-free range," says Sastry.

Marketing Benefit
Consumer acceptance of the technology will depend a great deal on the price of the car, which GM insiders say will likely be between $25,000 and $30,000, and the final design. GM says it will build the Volt on the same engineering platform as the new Malibu. But it is a system GM can expand to other vehicles just as Toyota rolled out its hybrid system to five other Toyota and Lexus models.

GM engineers say the Volt and electric car program have "an open purse," meaning that when they need more money, they get it. A123 Systems Chief Executive David Vieau says GM's schedule for 2010 is "a risk" as far as using the nano-phosphate battery, but he believes they'll make it. In any case, GM is working with multiple supplier companies to give it the best chance. "But it's pretty clear GM will have an early advantage" when they start delivering cars. Robert Lutz, GM's chief product executive, says GM testers will be driving a prototype by this April.

When Toyota launched its first hybrids, it lost money for a few years on each one until the cost of the technology came down as sales volume went up. But the halo effect of the hybrid more than made up for it. The same internal study at GM that indicates consumers see the automaker as "part of the problem" also showed that the image of the Prius led car buyers to believe that Toyota's trucks and SUVs were about 25% more fuel efficient than they really are. Says GM's Burns: "We didn't understand the marketing benefit to the whole company that a hybrid would have, but Toyota schooled us on that."

The question is, does the student have what it takes to outsmart the teacher?