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The Effect of GM’s Bankruptcy on the Volt

GM BankruptcyQuestions loom over the fate of the Chevy Volt as General Motors prepares to file for bankruptcy tomorrow, June 1st 2009.    Based on GM’s worldwide assets of $91 billion and liabilities of $176 billion, the bankruptcy would be  the third largest in U.S. history, behind Lehman Brothers and Worldcom.

There have been several prominent speculations over whether GM will abandon its plug-in program.   Keith Johnson, writing for the Wall Street Journal, has come out saying he believes the Volt will be an unpopular choice for consumers and the new government ownership.   He argues that with taxpayers now about to own 70% of the company, management will be trimming costs and focusing on models that are affordable and have a high certainty to sell well.   They can either cut the Volt line, or continue it in the hope that “either costs come down or consumers suddenly change their habits and run out to buy a $40,000 compact sedan.”

On the other side, Michael G. Richard writing for Treehugger.com,  believes in a more long-term approach.   Comparing the Volt to the Prius (back when oil was $20-$30/barrel), he argues that GM management will look towards a future where electric cars are in high-demand and oil prices are closer to the peak they hit in 2008.   Without introducing the Volt, they will not be able to learn about electric vehicle-technology and will thus “miss the boat” when its competitors are releasing 2nd and 3rd generation plug-in vehicles.

Is There an Internal Debate?

Chevy VoltGM spokesman Tom Stephens proclaimed  earlier in the week that the Chevrolet Volt program has not been altered due to GM’s current financial woes.  According to Stephens, plans are still on track to bring  it to market by late 2010 — Additionally, they are even deciding on which other brand should get a vehicle based on the Volt’s Voltec technology.

Besides the optimistic statements from management,  Compact Power, GM’s battery supplier, recently offered their perspective that the Volt is GM’s highest priority program.  For now, at least, there does not seem to be any loss of commitment to the EV program.

Uncertain Future

There are dynamic forces at work affecting the supply and demand side of the electric vehicle equation.  The global recession has made consumers less apt to spend on a car with a $40,000 price tag that offers some green prestige.  Lower oil prices make the switch even less appealling.  On the other hand however, government subsidies and infrastructure spending by companies such as Better Place are providing  incentives that are hard to ignore.  If companies can plan for a future where charging stations are adequately dispersed, battery technology is improving, and competitors are cranking out newer and better models, it will be unwise to completely buck the trend.   Statements from the Saudi Arabian Oil Minister predicting  nearly $200/barrel oil within 2 years further that view.

Uncertainty

With the flux in consumer spending habits and public/private expenditures, there is probably no real consensus within GM whether the Volt will be a success.  This is precisly why I believe they will continue the program.    Their survival will depend on diversification and an ability to respond to the market.   Keeping all their eggs in the combustion-engine basket could deliver a knockout blow should oil spike back up or a revolution in electric battery technology tags them as “behind the curve”.   As Mr. Richard argues, they need to have their first generation plug-in vehicle hit the market, not because it will be an instant success, but so they have the expertise and infrastructure in place to produce a best-seller years down the line.

Update (6/1/2009): Michael Moore, who has often spoken about GM and its problems, has blogged about his thoughts on the GM Bankruptcy affair.   Moore  offers his advice on how to save the entire  industrial complex built around automakers,  largely by advocating the development of an electric vehicle and light rail infrastructure.

Usually outspoken on issues of corporate incompetence, Moore takes on a more conciliatory and  foreward-looking tone.  It is an interesting read for anyone familiar with his historically “controversial” calls for action.

About Rick

Technology enthusiast, music maestro, wannabe programmer, adrenalin junkie.

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