GM Cutting Product Development for Two Years

GM today downplayed a report in Automotive News, an industry publication, that it would be cutting off nearly all product development spending for the next two years in an effort to trim as much as $1.5 billion in spending. The company is reported to be on the precipice of a cash flow crisis that would have it running out of money sometime next year. General Motors is spending more than $1 billion per month more than it brings in, which means that the cuts would likely provide GM with, at most, an extra month and a half of liquidity. Desperate times indeed.

“The 2009 stuff that’s too late to cancel is coming out, then everything else gets pushed out anywhere between three months and up to a year…It’s not just capital budget; it’s also engineering, design… everything that would cause money to flow out in 2009.”

GM Source Familiar with Product Plans, Automotive News, Oct. 29, 2008

The GM source added that the company’s two highest profile projects—the Volt and the Camaro—will not be affected by the cuts. Right now, the biggest casualty looks to be the Chevy Cruze, which had been slated for release in the 2011 model year.

The Cruze has played second fiddle to the Volt in GM’s much publicized push toward fuel efficiency. The small car was expected to achieve a combined fuel economy beyond 40 miles per gallon, and come with a price tag that would be competitive in a market segment that the Volt, to be priced near $40,000, will not reach.

Several planned hybrids are also likely to be victims of the cuts. The Saturn Vue Plug-in—which had originally been planned for a 2009 release—has already been pushed back to late 2010. The product development cuts could mean a delay into 2011. GM’s full hybrid pickup trucks, the Chevrolet Silverado and GMC Sierra, are scheduled for release in late 2008 or early 2009. The fate of the hybrid pickups is unknown.

GM, which has so much of its reputation riding on the Chevy Volt plug-in hybrid, has spared it from production delays at this time. But the economics of the vehicle are becoming strained. Bob Lutz, GM’s product chief, expects the company to take a loss on every Volt it sells for at least a few years. How can a cash-poor GM continue to push the Volt towards the assembly line with the same evangelical fervor it has shown thus far, if there is no profitability expected for the model in the near future?

If the Volt does survive the current cuts, and any more around the corner, it will be to show the public that GM is maintaining a bold, daring, and expensive vision for the future of cars—even when the very future of the company itself in in peril. GM’s gamble on the Volt—the underlying technology, market acceptance, and the economics—were described by Lutz in the July 2008 issue of The Atlantic:

“[Normally] you define the whole future of the car on paper before you give the go-ahead to start spending some serious engineering and design money on it. And in this case it was completely backwards. We saw that we had a smash hit that hugely resonated with the public, and we just decided: let’s go to work. No business case, but let’s get this thing into production-ready form, and we’ll worry about the cost and investment and the profitability later.”

The time to worry is quickly approaching.

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  • DaveW

    Those guys just don’t get it! What they need is new product that buyers want and will pay for. The LAST thing they need to do is “cut off nearly all product development spending for the next two years”…

  • Bryce

    Probably shoulda kept the cruze development going, though, the cruze vehicle itself is already, they started selling them in Korea this month. The problem is the fancy 1.4L turbo engine hasn’t been developed yet, so that is what we are waiting for. Aveo should be fine, just was taken car of this year. Malibu is a hit, so they can milk another year or 2 out of that if they need to. Trucks were redesigned a year or 2 ago, so not necesary at the moment and especially in this market. Impala is in desperate need of a redesign, then again, those are a smaller market given our expensive fuel times. Chevy just got the Traverse too, which takes care of that segment. Cadillac can cruise on with the popular CTS and Buick can work with the Enclave. Saturn can ride its stuff for a while too. Really the biggest blow that I can think of was the Cruze. Honestly, if they could just keep that going, it would go a long way to getting them profitable again I would guess.

    Volt and Camaro have to be completed given the media they have recieved. If the Volt were killed, immagine all the ridicule that would come from folks on this site alone.

  • steved28

    This is just a GM scare tactic, priming the government for the next big bailout. Hey GM, how about cutting out some of the advertising budget? You can’t sit through one TV show, sporting event, web page etc. without seeing an ad for some GM product.

  • Reese

    OMG! If GM doesn’t change the designs of their cars then no one will buy them! Guess what? No one is buying them! That’s why they can’t afford to redesign! Heaven forbid they can’t change a chrome strip or lengthen a wheelbase. If you consider all the changes made to the Malibu over its 40-ish lifespan, we all should be buying one because it should be the perfect car. GM had over 40 years to get it right and why aren’t we buying?

    This whole design/redesign budget is a marketing scheme I never fully understood but the auto industry has made it work better than anyone else. You look at your neighbor’s car and see that he owns a two year old dated car because that was the last year to get pseudo-wood paneling on the side. You are shopping for the NEW model. So you buy the new model with the custom landau roof. Then after you buy you learn your new car has a model change in the next year. They are dropping the landau roof option and you will own a dated car! Boo-hoo! You are stuck with the stink’n old model that no one wants because it’s OLD and it has a landau roof!

    Let’s look at history. I remember a marketing/quality problem in the 1970’s and Japan was able to capitalize on the ailing US auto industry. Hm-m-m? I wonder who will be the next country knocking on the door; waiting for an opportunity to prove themselves in the US markets?

    I agree that the Volt concept car is very attractive and flashy but how about a car dummied-down for the multitudes. I don’t need every freak’in electronic gadget know to man built in to the Volt. Of course with this flashy model will be the constant yearly model changes UNLIKE the Prius. It’s a constant cycle of new flash this year and newer flash next year making last year’s flash unwanted. Cut the flash and produce efficiency.

    BTW – Can anyone tell me if there is a dis-connect in the Volt’s frame under carriage between the front assembly and the rear?

  • zm

    This is certainly not good news for GM but the comments here on GM’s design are too harsh and uninformed. Design and style are certainly in the eye of the beholder but you can’t say the new cts or the malibu or the enclave or the sky are ugly, poorly designed or engineered vehicles. And to say GM doesn’t build any cars people want to buy? Even in their consistent decline of marketshare last month their marketshare was almost 29% (it’s fluctuated between 21 and 29% this year depending on the month) meaning 1 in 3 cars purchased last month were made by GM. I agree that GM has tremendous problems, has made plenty of mistakes and may have dug a hole that is too deep to get out of and thus may get what they deserve. But when it comes to design and style over the last 3 years with Lutz clearing the bureacracy out of the way, Ed Wellburn has been able to hire a diverse and talented young team of designers whose skill is just now becoming evident. Cts, Aura, Malibu…all cars…all cars of the year from one group or another over the last 2 years. So while most of the harsh criticism is justified there should at least be an allowance for some credit in the design and style department.

  • Abraham

    It’s very interesting new! I’m crazy about hybrid car.
    I herard GM’s full hybrid pickup trucks, the Chevrolet Silverado and GMC Sierra, are scheduled for release in late 2008 or early 2009.
    I expect your new car.

  • David

    Oh so close… Too bad you guys won’t get it done. You’ve had decades to build these vehicles. Shame on you.

  • Paul Beerkens

    Did we not just give these guys 25 billion to help them develop high millage cars? I guess we will get out money back now that they have canceled all but one of these projects.

    This works out great for Bob “Global warming does not exist” Lutz. He is now able to cancel all the cars that were environmental friendly that had a change of turning a profit and leave only the volt.

    So in 2010 or 2011 they can go. Look we build this electrical car. Are we not a fantastic likable company. Unfortunately we are not going to put the Volt in mass production because we can not make a profit on it and we are broke. See we did not even have to kill this electrical car because we never sold (or leased) it to anyone.

    I really would like Volt to work but with the track record of GM the probability of this leading to an actual model that real people can buy is highly unlikely.

    Don’t worry Bob. I am sure that we can find a new planet before you are able to screw this one up completely.

  • Bryce

    Saying no one wants GM’s cars is a little silly, 2.2 million people bought their vehicles last quarter alone, and the purchasing prices of many of rediesigned vehicles, even with the employee pricing, is far above that of the previous models.

    o, and as far as I know, 10-30k units in the first year is mass production, more than Tesla could do in…..o….millenia.

  • Paul Beerkens

    Sorry Bryce,

    I was not aware the GM hat already made 10-30K Volts. I was only aware of the cars Tesla delivered to paying customers.

    I stand corrected.

  • Samie

    The Cruze dropped for a few years, clearly disappointing if you think about it. As steved28 points out this maybe a play for more loans to the Big 3. I’m not against a “bailout” as many here are but it’s irresponsible to just give them a blank check and not demand development of vehicles like the Cruze.

  • Will S

    Steved28 said:

    > This is just a GM scare tactic, priming the government for the next big bailout.


    Paul said:

    >Did we not just give these guys 25 billion to help them develop high millage cars? I guess we will get out money back now that they have canceled all but one of these projects.


    David said:

    > Too bad you guys won’t get it done. You’ve had decades to build these vehicles. Shame on you.

    +1, and they did design/prototype several, including the 200 mpg GM Lean Machine, the 88 mpg GM Ultralight, the EV-1 Hybrid, the 80 mpg GM Precept,…

  • Ross Nicholson

    Idiots need to go out of business. GM needs to cut out working on the volt work, too, and just start over as a much smaller company. First, go back and get an aerodynamic shape! Open wheelwells! Sheesh! Muscle car aerodynamics? I think not. Indeed, that’s laughable.
    Next, build profitable products. GM’s planning on losing money on a $40,000.00 car in mass production? That’s just incompetence. Fire everybody.

  • Bryce

    lol beerkens……

    Really though, where are all the Teslas the world was promised?

  • Will S

    Just think of how many Prius’ have been delivered.

  • RKRB

    –Forbes magazine recently put forth an interesting idea.
    GM is profitable in all major world markets EXCEPT North America. Outside North American, GM has an excellent reputation, fine popular products, a loyal customer base, and a good manufacturing and design program (even the Syrians and Iranians drive Suburban taxis). North American manufacturing and design threatens the viability of the entire company.

    Therefore, according to Forbes, the obvious solution would be for GM to cease nearly all manufacturing and design in the US and Canada (presumably, some Chevy and Cadillac models would survive, but most pickups, SUV’s, and other cars would go the way of the dinosaur and DeSoto). GM would sell in the US, but would design and assemble most vehicles overseas (sort of like, well, Toyota and Honda, which never had difficulty selling cars in the US even before making some of their cars here). Many Americans, including many bloggers here, hate US cars and prefer foreign. Would the corporate headquarters stay? Well, who knows (this probably depends on the labor, trade, and tax policy of the new administration, and if it isn’t favorable to GM shareholders, well … ).

    –The same would seem true of Ford.

    –Perhaps GM’s commendable loyalty to its US dealers and workers is the only thing keeping them here — it’s certainly not the loyalty of American buyers!

  • Bryce

    lol, good point. Honestly, I don’t care where the vehicle came from, if a factory goes over sees, it is just globalism. It means vehicles will be that much cheaper for you and me. : ) Besides, it makes a nice little middle class over seas to buy our vehicles, which, surprise surprise……they are, in exceptionally large numbers. : ) Now if Japan just lowered the barriers to trade over there, then we could finally make some inroads into that market. If we treated their cars the way they treat ours and others from other non Japanese automakers, Toyota, Honda, and Nissan would have never sold a single car here.

  • HybridGuy 1271

    Not that I love GM by any means (I own Hondas), but I did have some hope that the domestic auto industry would begin to pull out of their slump for the good of the economy as a whole, if nothing else. What was it, 35%+ of potential new car buyers will sacrifice horsepower for mileage according to recent Ford market research? Pausing, even “temporarily,” the development of high-mileage, high efficiency vehicles is a mistake that will ultimately cost GM market share and sales, especially with the new Prius, Insight and Ford hybrids hitting the market in the next year. Toyota and Honda could afford to take a loss initially on their hybrids when they were brought to this country at the turn of the century, GM does not have that luxury with the Volt. I sincerely hope this decision does not play out to be “penny wise and dollar foolish.”

  • HybridGuy 1271

    Did GM enter those markets later, i.e. after the 1970s-1980s, when quality had improved? (I honestly don’t know). Are the vehicles in those markets as advanced, from a technological and safety perspective and do the buyers in those markets have a differing perception of quality than U.S. buyers? Just a thought, I really don’t know the answers to these questions. Considering the reputation Ford has with it’s European vehicles and GM’s Cruze, though, I suspect that like Ford GM has the potential to create a Toyota or Honda-quality product, if they are so motivated.

  • Vc

    This is a good excuse for GM for not rolling out the green cars, which I considered as PR stunt anyway,

  • Bryce

    Foreign is exotic in a persons mind. That’s why.

  • RKRB

    Reply to HybridGuy1271:
    Ford has had a factory in Britain since around 1911 and in Germany since the mid-1920’s. Ford owns a controlling share in Mazda, and Ford and Mazda share design teams, so the compaints about Japan not accepting American cars is not quite solid — Ford and GM have decided if you can’t beat them, join them. Apparently Ford and GM have tried to build different cars for different driving conditions around the world, but that is now changing and future designs should be nearly the same (but not identical — Mazda and Ford often share the same basics but finish them differently).
    GM has owned Opel in Germany and Vauxhall in Britain for a long time. They also share ownership of many other car companies in Asia.
    Apparently the quality reputation which seemed to plague American cars in the past were more a function of the factories than the design, although no cars made in the ’60’s and ’70’s were as reliable (or as environmentally sound) as the ones made today. European and Asian cars had their share of quality problems in the past too (witness Mercedes recently, and witness the relativly high cost of ownership of most European cars) but for some reason they avoided the lemony tarnish that affected US-made cars of the same age.
    This is hard to generalize, but when I lived in Europe in the ’70’s, most of my German friends were much more concerned about the gas mileage than about durability or maintenance. Germany had a very strict inspection system for older cars (inspectors could keep a car off the road if it had rust on the muffler pipe or the bodywork, for example) so high maintenance costs just seemed to be a fact of life. If a part looked bad, it had to be replaced, even if the car could keep going. I just don’t know how they coped with the high cost of vehicle ownership!
    German designers generally had relatively high safety standards in the ’70’s, and, importantly, seemed to rely more on technology for safety rather than just cheaply building a stylish high-mass car, like the American designs seemed to do (maybe this entire philosophy is one reason why US cars ran into trouble, and this fetish with style over substance can help explain many of our political and social woes over the past 16 years).
    Both companies have component factories all over the world, and appear to be doing well in the growing Chinese market. They seem to be doing quite well in non-US markets in terms of reputation and sales. In America, Ford has been doing nicely in Powers surveys for quality, even in comparison with Japanese makes, and seem to be doing adequately with cost and dependability (lemons seem to be rare these days IMHO). Despite all the urban legends and hype you hear about anti-Americanism throughout the world, Americans seem to hate their own name brands more than foreigners do!
    Hope that helps.

  • AlanM

    Great Idea!!

    Skip a whole Model year- we don’t need more FASHION! Instead, invest those resources in R and D for a BETTER car!

    This is a No-Brainer, GM!