General Motors is a complicated beast. It has operations all over the world using various currencies. It has joint ventures. It has hard-to-understand pension accounting and a financing division.
But you don't have to be a professional analyst to understand why it's in the mess it's in today. You only have to be literate enough to have read the popular press over the past few years to learn what the Car Czar had to say about the future of the automobile.
The Czar is Bob Lutz, vice-chairman and head of global product development. Mr. Lutz's résumé is long. He worked across the pond for Ford, BMW and other firms, not all auto makers. And he has a long list of achievements, not all successful.
He returned to GM in 2002. Part of his mandate was to streamline development and production, which he did. The pickup trucks and other gas guzzlers rolled off the production line with great efficiency after he took over.
GM's Bob Lutz
General Motors
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But he dropped the ball in a big way elsewhere. In 2003, he derided the Toyota Prius as a public relations stunt. That same year, he introduced car buyers to the V-16 Cadillac Sixteen concept car, sporting a 14-litre engine (a typical four-cylinder engine is about two litres.) GM also introduced the new Camaro at around that time, and other muscle cars, all under the watchful eye of the Czar (who also gave us the Dodge Viper in a previous life.)
Over the next few years, he ridiculed the hybrid movements, saying it was kowtowing to the shrill screams of a handful of a nutty environmentalists living in California communes, or something like that.
Hybrids, he said, at least the ones being produced, made no sense and didn't earn their extra cost back.
Flash forward. In August, Toyota's sales in Canada were up 29 per cent. GM's were down 17 per cent. Prius sales were up 141 per cent. Around the world, sales of Toyota's hybrid cars were up 37 per cent last year. The only thing that seems to hold back Prius sales is a lack of supply.
If that's a publicity stunt, how do you like the stunt?
This isn't to say that Mr. Lutz was completely wrong. His criticism of hybrids was that it didn't make sense to take already fuel-efficient cars and make them more efficient at a very high price. He argued that profit margins on such cars were too low to absorb technological improvements.
That's probably true. Some of the most innovative new ideas for cutting emissions and gas consumption come from luxury makes like BMW and even Porsche. It's easier for them to pass on the higher costs.
But still, even if the Prius was a publicity stunt, even if the return to both auto maker and consumer isn't great, what's wrong with that? Car making is about market share and economies of scale. It's also about the halo effect, getting consumers into the showroom to look at a Prius or hybrid. Maybe they buy it, maybe not, but if not, they're likely to buy something else. It's not just hybrid sales that are powering Toyota.
It's not that the Japanese car maker hasn't had its missteps, mind you. It spent $1-billion (U.S.) on a big plant to make its big Tundra pickup trucks. Just as it swung into full production, the market for big pickups withered.
In fairness to Mr. Lutz, when he called the Prius a publicity stunt, he conceded that he wished he had something akin to draw attention.
And he is spearheading production of the Volt, GM's promising electric car, having found environmental religion last year.
But the fact remains that he missed the marketing potential of the environment even as crude prices marched relentlessly higher. You didn't need to read a balance sheet or a profit and loss statement to predict what damage that would do.
As for embracing environmentalism, you have to wonder how sincere he is. Earlier this year, he called global warming a crock of “shit” (he said he was a skeptic, not a denier). GM CEO Rick Wagoner had to publicly repudiate his Car Czar, pointing out that it's not contestable that average temperatures are going up and that car makers have no choice but to act.
You have to admire Mr. Lutz for being a rare voice of frankness in the suffocating clouds of political correctness. And despite all the bad news, GM does have some wind in its sales, including a new labour contract that's supposed to align its costs with Toyota's. And there's the Volt, which some auto experts say is a true breakthrough. And Mr. Lutz is credited with making GM more efficient.
But the Volt is still a big “if,” and much is riding on it. Until Mr. Lutz proves he can market the Volt and understand consumers, the analysis seems pretty straightforward: avoid the stock.
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