Detroit's Big Three car firms face electric challenges

Chevrolet Volt The electric Volt is driving General Motors from the past into the future

Arriving at the Detroit Yacht Club on Belle Isle feels like completing a journey back in time.

The club house, with its large, formal rooms and oak panelled corridors, offers a reminder of a time when Detroit was an economic powerhouse, built around a buoyant motor industry.

Those days are long gone, however, with Detroit and Michigan only now recovering after years of suffering a single-state recession.

But people here have not lost hope, and many pin theirs on the revival of the city's Big Three automotive companies, General Motors (GM), Ford and Chrysler.

Silently accelerating down the yacht club's snowy drive in a Chevrolet Volt, complete with bright, flashing instrument panels, offers yet another form of time travel; this time into the future.

The Volt, an electric car with a petrol engine that extends its range, is GM's hi-tech solution to a widely accepted need for the motor industry to change its ways.

Start Quote

When will we hit two million vehicles worldwide?...I think it's more likely to be five years."”

End Quote Dan Akerson Chief executive, GM

The government has ordered carmakers here to cut emissions from the vehicles they make, and to reduce fuel consumption to help scale back the country's dependence on imported oil.

The industry itself, meanwhile, is keen to meet anticipated growth demand for more fuel efficient vehicles as global oil prices hover near $100 a barrel and the cost of petrol heads towards $4 or more a gallon.

'Technological revolution'

Belle Isle is all but 10 minutes away from GM's headquarters in downtown Detroit, where chief executive Dan Akerson is waiting in the restaurant on the 72nd floor of an adjacent hotel.

Looking relaxed, almost ponderous, Mr Akerson is quite prepared to discuss the future of electric motoring.

He even acknowledges that the battery technology used in the Volt could soon be surpassed.

Dan Akerson GM chief Akerson says a technological revolution is underway

"Lithium-ion batteries may not be the ultimate solution," he says.

"There's going to be a jump, I think, to solid state batteries."

But of one thing he is certain: "There's a technological revolution going on," he says.

In two or three years, electric motoring will have become mainstream, Mr Akerson predicts.

Then, a couple of years later, their sales should have reached lofty levels.

"When will we hit two million vehicles worldwide?" Mr Akerson asks rhetorically. "I don't think it's going to be in the next three years, I think it's more likely to be five years."

Room for expansion

At GM's 365-acre Detroit-Hamtramck assembly plant, they have been making the Volt since November last year.

But the pace is slow.

Only one in five cars rolling off the 24 miles of conveyor belt here is a Volt. And even production of the Buick Lucerne and the Cadillac DTS is at low levels these days.

Only about 51,000 cars were made here last year, and in 2009 they produced less than 36,000.

"We're significantly under-utilised," says plant manager Teri Quigley.

Ms Quigley wants to raise production levels at the plant to between 250,000 and 300,000 cars per year by 2013.

Strong sales of the Volt would go a long way to help her achieve this goal.

Teri Quigley Detroit-Hamtramck plant manager Teri Quigley wants to gear up production of the Volt

It would also, perhaps more importantly, help raise the market share of electric and petrol-electric cars at a time of soaring car sales across the board.

In the US, vehicle sales are expected to rise from 11.6 million this year to about 12.8 million next year and about 15 million the year after, according to the consultancy PricewaterhouseCoopers and others.

Global sales could rise even quicker from last year's total of 73 million, to between 75 and 85 million, predicts Ford Motor's chief economist Ellen Hughes-Cromwick.

With sales surging ahead at such a pace, it is clear that electric car production must be geared up dramatically just to keep up.

"I agree," Mr Akerson says.

"That's why we have to make 150,000-200,000 Volts per year as soon as possible."

Sceptical consumers?

But first, carmakers want to see customers buying their electric cars.

Buoyed by the Volt's reception at the Detroit motor show, where it was voted car of the year this week, GM's chief finance officer Chris Lidell insists the vehicle was developed and is being produced in response to demand from drivers.

Start Quote

GM's not tooled up to do too many Volts. I think they're doing it as a marketing exercise, and to test the water”

End Quote Jim O'Donnell Chief executive, BMW, North America. "

And he vigorously rejects any assertion that the company is taking a lead in the electric motoring area to please a subsidy-rich US government.

There is nevertheless plenty of head-shaking at the show, both amongst rivals and analysts.

"GM's not tooled up to do too many Volts," insists Jim O'Donnell, chief executive of BMW of North America. "I think they're doing it as a marketing exercise, and to test the waters."

IHS Automotive analyst Rebecca Lindland, meanwhile, warns that "the biggest risk is that we repeat the mistakes of the 1970s".

Back then, "fuel economy standards" led the industry to build cars few people wanted, only to bypass the regulations by building luxurious 4x4 gas guzzlers that were still permitted to have large V8 engines.

But others are much more positive about the outlook for hybrids and electric motoring.

Jeff Schuster at the automotive forecasting centre JD Power predicts that these so-called "alternative powertrain" vehicles will see their share of new car sales in the US rise from about 3% last year to 10.5% in 2020.

Better engines required

If JD Power is right, it will take just a decade before hybrids and electric cars account for more than one in 10 cars sold.

If it was to happen, that would in itself be pretty impressive.

Marchionne Chrysler chief Marchionne says profits from 4x4 sales are vital

But it would offer little comfort to the hundreds of millions of people still driving petrol and diesel powered cars.

"The domination is still going to be the internal combustion engine going forward," Mr Schuster points out.

So it is clear to most executives at the Detroit show that electrification offers no panacea.

"I still believe that in spite of all the media noise around electrics, we'll still need to improve the internal combustion engine," reasons Sergio Marchionne, chief executive of Chrysler and Fiat.

At Ford's historic Rouge plant, near Dearborn on the outskirts of the city, this is clearly understood.

The factory covers an area the size of the City of London, the UK's financial district known as "The Square Mile".

This is where Ford makes almost almost half of the more than 500,000 F150 pickup trucks it churns out each year.

"The F150 was the number one vehicle in the world for 34 straight years," Ford's chief executive Alan Mulally grins.

That may not be immediately obvious to visitors to San Francisco or Los Angeles, explains Henry Ford Museum guide Cynthia Jones during a tour of the plant.

"But if you're in Texas you get it," she says.

Better 'trucks'
Alan Mulally Ford's Mulally agrees that more fuel efficient trucks must be produced in order to hold on to customers

So-called 4x4 "trucks" still make up more than half the new vehicles sold in the US.

And given that this is a highly profitable market for the industry, nobody is prepared to give it up.

"This is going to remain a big part of the profit picture for Chrysler going forward," says Mr Marchionne.

The truck segment is under pressure, however, at least when it comes to the largest gas guzzlers.

"I think truck sales will be defined by the price of oil, the price of gasoline," GM's Mr Akerson says.

Henry Ford Museum guide Cynthia Jones Cynthia Jones says pickup trucks remain very popular

"If there's a spike in the price of gasoline, I think it will affect the heavy end of the market."

Ford's Mr Mulally agrees that more fuel efficient trucks must be produced in order to hold on to these customers.

"The customers who buy all the vehicles - doesn't matter what size - they want quality, they want the best fuel efficiency and they want the best design," he says.

All the Big Three are ready to do what it takes, however, so trucks of the future will certainly be less thirsty than those of the past.

"I don't think we're sufficiently truck focused," says Mr Marchionnne, while Mr Akerson insists it is too early to judge their efforts.

"We're just one year out of bankruptcy," he says. "Give us time."

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