How High Will It Go?
What to make of last week’s breathtaking rise in oil prices? Look no further than Rick Wagoner’s comments at the annual meeting last week where he announced the shuttering of four major plants as part of a huge move to realign passenger car capacity. That move will take out more than 700,000 units of truck production and will forever reshape the landscape of the North American market. To put it bluntly, the rise in oil is having a profound and permanent impact on the fundamentals of our business – and not just in North America. Adding insult to injury, while energy costs are draining the consumer side of our financial equation, the impact of skyrocketing commodity prices and the huge disparity between the Euro and most other currencies are seriously dragging down the production side of things here in Europe. The big questions are “how high will oil go?” and “how deep will the impact be on the industry?”
On question one, the honest answer is that nobody seems to know. While there is serious debate as to what the blame is (a weak dollar, global demand, speculators, etc.) the reality is that markets always correct. Whether this is a case where oil has simply been exceptionally low for the past decades and is now correcting up, or that speculators and hedge funds have swarmed like locusts out of equities and real estate to commodities, still remains to be seen. At some point, the true fundamentals of the market will take over. In any scenario, the days of $50 a barrel of oil are long gone.
On question two, I think the only honest answer is that the impact on the industry is going to be extremely tough, which is already becoming very apparent. For GM, even when you factor in the exceptional growth we are experiencing in Eastern Europe, Asia and Latin America, it’s clear that the business in the mature North American and certain European markets could be dragged down to lows we haven’t seen since the recessionary days of the early 80’s. In a commodity dependent business with fixed labor costs that is dependent on a buoyant consumer, there aren’t many options for immediate relief in such dramatic cyclical downturns.
So, what is there to do? Simply put, you forge ahead and make the changes necessary to be as strongly positioned as possible when things improve. GM is focusing billions of Euros on advanced propulsion technologies to get our vehicles as fuel-efficient as possible – advanced petrol engines, clean diesels, downsizing/turbo-charging, mild and strong hybrids, battery electric vehicles, bio-fuel powered vehicles and fuel cells are all going to be critical technologies in an energy constrained world. We’ll have one of the most diverse and capable lineups of advanced powertrains in the industry. We’re also sizing our business to get our cost structure as competitive as possible to ensure we are able to keep a strong employment base in all the regions we do business. This is not about fleeing high labor cost markets for lower cost markets. Rather, it’s about getting as highly an efficient and productive cost structure in the regional markets you do business as is possible. And most importantly, we need to keep our focus on executing the best products possible. One thing that is very different from other serious downturns in our history is that GM is not pulling money off the table for future product programs. In fact, our product engineering centers around the world are loaded up to the breaking point with future programs to keep us as competitive as possible.
While nobody wants to be dragged through economic turmoil and uncertainty, it always seems darkest before the dawn. The auto industry is emerging from a huge transition as it sheds the economic model of the post-war era to the new economy of globalization. While it’s going to be a nerve racking ride getting there, I’m convinced that GM is going to emerge a much leaner, but ultimately much better, company on the other side of this difficult period.
Carl-Peter
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- Posted in Carl-Peter Forster |
- Comments (13)
Comments (13)
Jean-Charles Jacquemin said:
Mr Forster,
Let me say that for an amateur observer of the auto industry that it is the first time that I read such frank and open statements from a high ranked executive like you from a big company.
As I am convinced that the European Union as well as the United States of America, must get rid of oil as soon as possible, that relieves me of knowing that on June, 3rd 2008, GM has decided to put the Volt in production and to go toward to production of smaller size vehicle than before.
I would be more relieved (and I think a lot of other citizens from both parts of the Atlantic Ocean would be too) if we had similar plans for the projected new vehicles. For instance the marketing of the new Opel/Vauxhall Insigna has just begun, and we are stuck with modern up-to-date ... engines (and only ICE engines), too sad.
Sorry to be negative on the final note, thanks for your attention.
Chris Preuss said:
Jean-Charles,
Carl-Peter is out and about, so let me take a moment to respond from GME. First, thanks for the kind words on the tone of the blog. One point I would like to take a bit of exception to is this idea that "conventional" engine technologies are somehow sub-par. Today's internal combustion engines produce almost a miraculously low level of the non CO2-based pollutants, deliver almost 100 percent reliability over hundreds of thousands of kilometers of driving in all manner of brutal external conditions. I appreciate your desire for more "advanced" choices, but we shouldn't sell the current progress short...the internal combustion engine delivers an amazing amount of value, power and efficiency. And that's part of the problem for the alternatives to get more space in the market. The fact is that a petrol engine...even with these high fuel prices...is extremely tough to beat. Hybrids add batteries, controllers, electric motors and a whole host of other complexities; battery electrics are substantially disadvantaged on costs and range to the internal combustion engine; and hydrogen fuel cells are still dependant on an infrastructure that doesn't yet exist, let alone the challenges posed by storing the energy. The bottom line is that it's going to take decades to make this transition to alternative technologies. And for anyone out there who doesn't believe that we want to get a more diverse footprint for fueling our vehicles, trust me, the damage to our business due to high fuel price volatility is undeniable. The only way to stabilize that situation is to diversify away from petroleum over the long-haul.
Chris Preuss
VP GME Communications
Jean-Charles Jacquemin said:
Mr Preuss,
Thank you for such a long comment and I must admit I generally agree with it.
However what I intended to say in my first comment is that even if I appreciate both the reliability and the performances of the current diesel engines in my cars (both Opel 1,7 CDTI and 1,3 CDTI), I will not be able to afford two cars in the future if gas prices continue to rise, this given the fact that my wife and myself earn upper level salaries and that the efficiency of ICEs is increasing.
So if we want to keep the car industry as a major player in the economic development of our countries, time has come that the consumers could hope to buy their next car(s) as a means to save money not to spend more on gas (with a raising uncertainty).
What I thus regret is that we do not have clear messages about what could reasonably happen in the next five years. Being a rational consumer (I think), I will certainly NOT buy a new car with only an ICE but keep my current cars as long as they can, waiting for structural innovations allowing me to forget my constant apprehension of the next rise in the price of gas.
And I know I am not the only one in my neighborhood to think like this, so the sales of new "conventional" cars may drop dramatically in the coming months and years if correct perspectives are not given to the consumers.
Sorry to have been long and thanks for your attention.
Louis Fourie said:
Mr. Forster,
Good to hear that you are exercising the Diplomat coupe from the Opel Museum. This tour would be a less challenging mount than the Opel Darracq you drove in the 2005 London to Brighton. How about listing the cars Opel has in its Museum for those of us who enjoy the old timers? One of these days this Canadian wants to get over to Rüsselsheim to visit Opel.
My interest is rather “intense” as I am close to finishing possibly the most detailed history of GM’s cars outside North America. If you would like a CD copy of the draft, let me know where to address it so that it reaches you.
Your blog will be watched with interest.
Louis Fourie
Joerg Resch said:
Dear Mr. Forster,
your statement is very interesting and it makes me understand better, who the driving forces are behind GM´s turn in strategy which is starting to show.
As an observer from the outside, just as a customer, I would like to propose, that GM focus their R&D budgets much more on revolutionary concepts, than on evolutionary ones. Yes, do some downsizing and hybrid things to survive the coming 3 years and to improve reputation. But don´t mix this with the real future of car companies. Push the Chevrolet Volt project instead, add resources to it, do everything to get this concept down to the road as soon as possible. GM has choosen the _only_ viable way to be in pole position for the upcoming change and to really earn from it. Why don´t you stuff the Volt concept into an Opel and a Saab, start showing it and let some journalists tike a ride? Why isn´t there a marketing driven website yet, giving it a face? The _immediate_ potential may be much higher than insiders would think.
Jean-Charles Jacquemin said:
Dear Mr Resh,
I completely agree with you and advise you (if you do not know it yet) to contribute to the Dr Lyle Dennis's blog : http://gm-volt.com
The more constructively we interact on this famous blog, the more we may - I am convinced of this - hope to contribute to a quicker move toward the introduction of the Volt and its cousins.
Regards,
JC
Nathan (aka HotCarNut) said:
Carl-Peter,
Thank you for the explanation regarding GM's recent strategic moves. The very difficult automobile climate has never faced such a "perfect storm" before in regards to high fuel prices, drastically reduced consumer spending, and a global credit crunch making it more difficult for any type of loan-based transaction.
Jean-Charles and Joerg Resch:
I would say a couple of things to you. First, GM was the first manufacturer to work on development of hydrogen fuel cells in a serious way. GM has spent billions of dollars (USD) over the last 10+ years to bring fuel cell vehicles to the point they are today. Not only has GM spent the money on R&D for the vehicles, but they have also spent the money on R&D on infrastructure needs including home-based units to produce hydrogen and power homes.
Secondly, I would tell you to seriously consider your preconceived notions about the benefits of a hydrogen or alternative fuel based transportation system. No method is perfect, and hydrogen is complicated by the fact that it is not found isolated in nature. It takes a great deal of energy to separate hydrogen from whatever other molecules it is attached to. This energy comes from electricity, which as we all know, is most certainly not pollution free. Electric vehicles face the same plight.
Best Regards,
Nathan Lawless
aka HotCarNut
jean-Charles Jacquemin said:
Dear Nathan,
Thanks, I suppose you also have read a lot on :
1° The H2 hype : see what is happening to the H2 highway in California ; in Belgium, they closed the sole H2 station ..
2° The massive governmental subventions to H2 fuel cells
3° that electricity is not the only means to generate H2 from another "product" see for instance the University of Purdue. Back in 2005 they announced :http://www.azonano.com/news.asp?newsID=1326
4° that electricity is not produced exclusively with fossil fuels. This year my local government is offering up to 2 times 3,750 € on two calendar (fiscal) years to any household which invests on solar panels. In my case I would cover about 75% of the electricity we consume annually.
So I am for E-powered cars, with a range extender composed of a fuel cell working with H2 produced on demand in in the car by other means than electricity.
This is not sci-fi, but I must admit we have to wait 10 to 15 years to see such a commercial product.
So to get rid of oil asap the best alternative we have are E-powered cars with ICE range extenders like the E-Flex concept of GM.
This is my humble opinion.Thanks for yous comment.
Best regards, JC
Jean-Charles Jacquemin said:
To Nathan,
I found this reference on gm-volt.com this morning, it is very interesting : its title : "Implementing the “Hydrogen Economy” with Synfuels", source :
http://www.tbp.org/pages/publications/Bent/Features/Su07Uhrig.pdf
I would be glad to read your comments.
Hope that helps.
JC
Joerg Resch said:
Jean-Charles, Nathan,
thanks for your comments. I must admit, that I´m totally convinced of the fact, that fuel cells will not make it, and that investments into this technology will not pay off.
I know, it would hurt to take a no-go decision against fuel cells technology after such heavy R&D investment, BMW and Mercedes are facing the same problem. It seems, that many of these projects are not being buried because there is a lot of EC funding involved. So, focusing on the Chevrolet Volt concept, would as well bring a significant competitive advantage.
Indeed, there is the fact, that electric energy usually is not clean. But, at least here in Germany, it is up to the consumer to choose a green electricity supplier. At home, I recently changed to Greenpeace Energy AG, who solely supply electricity from renewable sources.
And now, I´ll have a look at Dr. Lyle Dennis´s blog, thanks for the information.
Best Regards
Joerg Resch
Jean-Charles Jacquemin said:
Joerg,
It seems we have common interests.
I have also chosen a "green" provider of electricity : ESSENT Green, which sells wind and solar energy lo consumers in Belgium and Netherlands.
And I hope to install thin solar panels like those developed by Avasolar or Nanosolar in one or two years from now to be able to charge my Volt or my Opel Flextreme with solar electricity.
Best regards too.
JC
E Olson said:
I think that the Swedish component of the GM portfolio is probably the most advanced with respect to fossil fuels and sustainability. I am driving a 21 year old Saab as my daily commuter, with a turbo four-cylinder I regularly get over 30 mpg on a car with almost 170K miles. Saab has long been a leader in turbo technology and I cannot understand why more GM cars have not adopted this energy saving device.
The Swedish people, through their government and businesses, are committed to obtaining a fossil fuel free future. Saab and Volvo are among the companies helping to bring this about.You can learn more here:
http://en.wikipedia.org/wiki/Oil_phase-out_in_Sweden
Best of luck to GM!
Jean-Charles Jacquemin said:
Dear all,
We may have different opinions on the future of the use of H2 in the future. In my comment dated June 12th, I was forecasting in-site (that is in-car) production of H2.
At that time I was not aware of this research : if you are interested please give it a look :
http://techon.nikkeibp.co.jp/english/NEWS_EN/20080613/153276/
Hope that helps. JC