GM Pledges to Become 'Industry Leader' in Fuel Efficiency, But IPO Still Leaves Many Questions Unanswered

Don’t call it a comeback. As General Motors moves forward with plans to recapture its status as a publicly traded company, one question seems to dominate coverage in the financial press: Why now?

Despite two consecutive profitable quarters, consumer confidence continues to drag and most analysts are pessimistic about the short-term outlook for both domestic and international auto sales across the industry. Meanwhile, GM’s market share has continued to shrink. As Dennis Virag, president of Automotive Consulting Group put it on Bloomberg Television today, there is a strong suspicion that the company’s decision to move forward with an IPO at this stage is “more political than practical.”

Still, GM’s S-1 filing with the SEC does provide us with some valuable insight into how it plans to turn things around in the coming years—even if it sends some confusing signals about what role the company’s newfound commitment to fuel economy will play in that process.

Now or Later?

On Tuesday, we summarized General Motors’s fuel economy strategy as follows: “Mild Hybrids, Then Full Hybrids, Then EVs, In That Order.” And while there’s certainly no question that winning the long-term market strategy battle is essential to success in the automotive industry, one questions just how far behind GM actually is in the efficiency race. What should be perfectly clear from reading GM’s S-1 filing though, is that the company would very much prefer that gas prices remain low for the time being.

The carmaker is still heavily dependent on truck and SUV sales, and according to Consumer Reports, only one of the company’s nine best vehicles gets more than 25 mpg in fuel economy. As GM itself put it in today’s filing, “Any future increases in the price of oil in the U.S. or in our other markets or any sustained shortage of oil… could reduce our market share in affected markets, decrease profitability, and have a material adverse effect on our business.”

That may sound like a blanket statement that would ring true for any carmaker, but it’s not. Toyota’s market share grew precipitously during the gas spike of 2008, and several other companies have radically shifted their business models to benefit from future price increases and the coming hikes in federally mandated CAFE standards.

Plotting a Different Course

As most carmakers ready a host of dedicated hybrid, TDI and even fully electric vehicles to compete in the coming years, GM is only now preparing to re-enter the hybrid sector with a series of mild hybrids that it plans to begin rolling out next year. While taking a more measured approach could ultimately be more beneficial in the short term if gas prices remain low, it only places more pressure on GM to deliver in a big way when it unleashes its more ambitious fuel-saving offerings in the future.

“We plan to invest heavily between 2011 and 2012 to support the expansion of our electrified vehicle offerings and in-house development and manufacturing capabilities of the enabling technologies-advanced batteries, electric motors and power control systems,” said the company in its filing. But we’ve already heard so much about the investment that GM has put into these technologies over the years—with only a famously-killed EV1, a scrapped lineup of mild hybrids, and a much-touted but still untested Chevy Volt to show for it.

Among the more promising cars on the horizon for GM are its forthcoming mild hybrids—which the company expects to produce 100,000 of next year—and several small cars like the Chevy Cruze. Those vehicles should offer fuel economy gains at a minimal price premium for consumers, which could turn out to be a lucrative strategy in emerging international markets like China and India, and help the company among urban consumers in the United States and Europe who have increasingly shunned large gas-guzzlers in favor of more practical, affordable offerings.

Few question whether General Motors’ lineup, outlook or corporate culture have improved since the company was forced to “get the message” several years ago. What remains in doubt is whether the economic climate—and oil price index—will be hospitable enough to sustain growth in the near term, and whether the carmaker has the right vehicles in the pipeline to compete further on down the road.

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  • Collin Burnell

    I have to admit… I hate the words “Market Share”, particularly when used on U.S. Automakers who once had a large percentage of the American market and have had those percentages steadily decline… It’s a no win argument. I believe selling more units at lower profits for the purpose of gaining or sustaining market share is just plain dumb.

  • Samie

    Is this the classic story of putting all your eggs into one basket? SUV’s and trucks will remain money makers for all of the industry but one thing is certain, you must offer a diverse range of products within your lineup of vehicles to meet today’s consumer. Also markets can change so auto manufactures need to account for faster adjustments in their production lines and GM must be able do this in a matter of weeks not months.

    Usually declines in auto market share takes years if not decades to happen. Example, my dad buys only GM or Ford products (generational difference and nostalgia I guess…) and there are many like him that will continue to do so. Where GM is in trouble is with younger car buyers who don’t have an elegance to one brand (ie Buick) or “domestic” over “foreign” car companies. Over time car manufactures like Hyundai and Nissan (in the southeast U.S.) continue to gain market share were others like GM & Chrysler continue to decline (domestically).

    It is not all gloom and doom for GM. As said before by many others, the Chevy Cruze will be an important part of GM’s recovery. Also lets not forget about the underrated Chevy Malibu or for Fiat/Chrysler the strongly competitive 2011 Jeep lineup. For GM, they must fill in the gaps and make their line-up more diverse and have appeal or potential appeal to a mass market. This means carefully looking at their two-mode system. If the premium for the mild hybrid system is too high for the selling point of better fuel mileage or there is little promise for future improvements and reductions in cost, skip it. Also find ways to reduce kinks in the production of the Volt and stop trying to put marketing and politicking before the actual product. Also sell good PR to turn around the bad public image among some of the newer generations of consumers.

    If I were to buy shares in the “new” GM I would only do so for their market gains oversees ie China. GM will never be the domestic GM of old but one hopes they can innovate and be a leader again domestically. No one knows what the real culture at GM’s Detroit Headquarters is but one gets the feeling that there are mixed signals of new and old. If GM reverts back to its old default ways, I doubt many republicans or democrats will be willing to bail them out again & that should give GM enough encouragement (once they buy out the rest of the governments share) to not repeat the same mistakes of old.

  • calvin

    The “domestic GM of old” was the company that took 20 years to adopt safety glass for car windows and windshields and insisted on releasing dangerous vehicles and cars without seat-belts because “safety doesn’t sell.” They’re also the company that, when news of the dangers of their vehicles broke, threatened and tried to dig up dirt on the author rather than fix the problems in their products that were killing thousands of people each year.

    The domestic GM of old hired marketing “genius” Clotaire Rapaille to decipher the psychological code of SUVs in order to appeal to the consumer’s primitive/irrational subconscious. And it was based on Rapaille’s advice that SUVs became bigger and bigger–because Rapaille found that people associated SUVs with safety (despite the fatalities caused by roll-overs) and they associated safety with size. So based on marketing rather than engineering and safety research, GM put bigger and heavier cars on the road that would result in much more violent accidents.

    Not that Ford was any better, but any company that requires federal legislation to force them to install seat-belts and stop selling death traps should not be reminisced upon fondly as some golden era of the American auto industry.

  • Samie

    Collin Burnell can you clarify what you mean?

    Example if I were Toyota I would want to sell more Sequoia’s than Prius’s because of the profit margins (setting aside premium packages/trim and major differences in vehicle usages). What if Toyota skipped out on a Yaris & only sold vehicles starting with the Corolla or Matrix becasue of too small of a profit margin coming from these entry level vehicles? In theroy, if someone buys a Corolla and likes it, the next time they buy a vehicle they may upgrade to a Camry or Camry to a Lexus. You need starter vehicles or cars that consumers can move from to an “upgrade” if you want to potentially grow profit margins but as I said above this is difficult now with younger generations of consumers. Also, when the last gas spike happened, Chrysler got rid of their starter car Dodge Neon. They left themselves exposed as consumers shifted to more fuel efficient vehicles but they did not have this option for consumers.

    Where I think you are right is in the case of GM selling crappy low quality entry-level vehicles at no profit (many cases these cars had parts flying of of them within just a few years), while focusing on trucks and SUVs at lower volumes but higher profits margins. Until recently, GM focused too much into their truck and SUV divisions and I argue that GM forgot to build a full product line of quality vehicles that competed against new comers like Hyundai or the more established Toyota Motor Co.

  • JamesDavis

    GM, your cars are still ugly! Do you still wonder why no one is buying them?

  • veek

    It’s hard to imagine GM as the “leader” in fuel economy.

    Sadly, for the past 60 years, GM seems to have excelled in relatively roomy but supersized, cheap, glitzy, indifferently-assembled vehicles. GM’s attempts at small vehicles seem remarkably uninspiring (i.e. Vega, Citation, Saturn, EV-1, Geo, Cobalt, Chevette, Cimarron, Vauxhall (in Europe)).