General Motors’ 78-year-old product chief Bob Lutz (insert ‘car tsar’, ‘car guy’, ‘Maximum Bob’ cliché here) announced his retirement shortly after the 2010 Geneva motor show. CAR Online caught up with Maximum Bob to hear of his thoughts on the new GM, future products and exactly what happened behind the scenes during GM’s collapse into Chapter 11 bankruptcy.
CAR: GM’s been on quite a journey over the past 18 months. How has the mindset changed?
Bob Lutz: ‘We’ve had a lot of change and cycled through Rick Wagoner to Fritz Henderson to Ed Whitacre as CEO. It’s been a very rapid transition. The main difference is that General Motors used to be a very procedural company. It believed very deeply in processes and decisions moved from one committee to another. Whitacre keeps asking: “Why do we have to discuss this three times? Why can’t we decide this at one meeting?” And he doesn’t like every decision going to the board.
‘So once the capital budget is approved for the year, individual projects no longer have to come to the board. Previously, product decision were always taken by the board. Ed said to me: “I don’t need to be at these meetings, you guys know what to do.” So it’s now myself and Tom Stephens and people like that who decide. It’s a radical simplification of the way the company works. There’s a much higher level of accountability… he wants the people assigned to the tasks to be responsible for the outcome. If the results aren’t there, people will be thrown out. That was not the old GM culture.’
So you’re ok with the US government’s ownership of GM?
‘Yes and no. Nobody likes being a government-owned company. The American right-wing talkshow hosts portray it as the nationalisation of General Motors. In fact the Obama administration wanted to give us money in the form of debt, and it was the lone Republican on the taskforce – a former Marine officer called Harry Wilson, a free-market Republican – who said: “If you give money to [bankrupt] GM in debt, they’ll drown in interest payments. They’ll never be able to pay the principal back. It’ll be an enormous financial burden…”
‘He suggested giving us the aid in equity. That way we get the money but it doesn’t cost us anything. The administration said: “But we don’t want to own General Motors”, and Harry Wilson said: “You will, but only until GM does an IPO and swaps government equity for private equity.” So now the poor Obama administration gets blamed for a left-wing socialist takeover of GM, when it was in fact proposed by a free-market Republican.’
The US media described the new GM as American Leyland. They must have had a negative view?
‘That depends whether you’re reading the right-wing press or the New York Times and Washington Post. The average American is politically conservative. They did not vote for president Obama because of his left-wing political orientation – they voted for him for the charisma of the man. It would now seem that the Obama administration is a little bit to the left of where the American public want to be. That centrist tendency of the American public and distrust of big government caused a backlash against the New GM. People said, “I won’t buy a car from the American government.” I say to those people: “We don’t like being Government owned any more than you do. The quickest way to stop us being government owned is to get everyone to buy our cars.” It’s still a slight drag on our sales.
‘If you ask Americans if they would consider buying a GM car, they say “no”. And they say, “Historically the cars weren’t very good, they’re government owned, they’re a big corporation – and I hate them.” But then you ask if they’d consider buying a Chevrolet, Buick, Cadillac or GMC product. And they say: ‘Great! I love them! Just don’t talk to me about General Motors.” So we’ve stopped using the GM logo in any advertising. It’s all brand specific now.”
Talk us through the abandoned sell-off of Opel in summer 2009
‘When we got the US government money, we were told “Here’s your viability plan, here are your minimum cashflow targets and your schedule for repaying the government debt. Repaying the government short-term loans and replacing US and Canadian government equity with private equity are your two highest goals. That’s what you will focus on.” Those were the rules we were playing under.
‘So when we looked at the Opel-Mgana deal, that involved the miniumum financial effort on the part of GM. Fritz and I and the rest of the management team – with a great deal of reluctance – recommended the Magna solution as the one we were obliged to adopt in order to mininimse the risk of financial downside and maximise our chances of meeting obligations to the US government. None of us wanted to see Opel go away. It was a tactical decision versus a strategic one. It was our fiscal responsibility overriding what we emotionally wanted to do.
‘We were surprised to hear our board pull us up and say: “Is this what you really want to do?” Everything was going better than we had planned. The losses were reducing. The US eocnomy was turning around. We asked ourselves, “Will we be in a situation three years from now that we’ll divest Opel and say, ‘Gee, if only we hadn’t done that.’ So we said, “Yes, that is a possibility.” And they said: “On balance, we’d like to keep Opel.” That was fine with us. It was nice for the board to have made the decision. To have management to propose the fiscally prudent solution and then the board to say “no, we prefer the bold strategic solution” is a wonderful place to be.’
How are you going to relate to European Opels in the future? Will they be more independent?
‘The two are compatible with each other. From a manufacturing and interchangeabliity perspective, we are not going to move away from that. And we won’t abandon our global product development plans, either. But that still leaves a lot of room for a larger degree of manifest independence at Opel/Vauxhall.’
Talk us through the disposal of Saab
‘We couldn’t keep them. One of the conditions of the US government was to halve the number of brands we had. So we decided to cut Saturn, Saab and Hummer. Saab cost so much money every year, it was a luxury for us. But it’s a great relief that Saab has a future. The new 9-5 GM has left them is the nicest Saab for the past 30 years.It’s a fabulous car.’
Like the 9-5, were some of GM’s products held up by the bankruptcy?
‘The Cruze is coming to the States in July [2010]. It was delayed by Chapter 11 because we basically had to stop spending. It’s getting to the States about a year later than we wanted.’
Did that apply to other models? How many were held up?
The Camaro Convertible was delayed by about a year. There was a bunch of stuff really… The Buick Lacrosse was delayed somewhat. I think the one that we regretted the most was the Camaro Convertible and the Cruze. They were very important to the Chevrolet brand in the US. It’s hard for me to explain to American journalists why the car has been on sale for over a year in Europe whereas it’s still not on sale in America.’
Will small cars such as the Spark be crucial for GM’s recovery?
‘Depending on how the US fuel economy legislation goes, we might have to price our small cars in such a way that they will sell so we can make our fuel economy numbers. The same will definitely apply to hybrids. We will have to push them into the market whether people want them or not – and we’ll recoup the cost from other vehicles. That’s under the proviso that fuel costs remain as low as they are. If fuel prices rise to somewhere closer to European gasoline prices, then I think a vehicle like a Chevy Spark can be quite successful in the US on its own two feet. At a certain fuel price, there will be demand for a car like that. At $2.50 a gallon, people will continue buying full-size pick-up trucks. It’s that simple.’
So you are going to build more small cars?
‘Yes, for two reasons. One, we want small cars to demonstrate our commitment to making environmentally sensitive cars. And two, they’re a hedge against rapidly rising fuel prices. The last time US fuel prices went from $2 to $4.50, we were pretty much caught out. We had the Chevy Aveo and Cobalt, but Honda came in with the Fit and Toyota had the Yaris – and we were seen as the laggards who simply hadn’t considered the obvious sudden doubling of fuel prices. We weren’t percieved to be as smart as the Japanese.’
That suggests American buyers react incredibly quickly to changes in pump prices?
‘Think about this. When fuel prices double overnight, a typical American commuter who has a one-hour commute each way is going to be badly affected. Say a typical American uses 25 gallons a week. Multiply by three, that’s $75. A week. If fuel goes to $4.50, then their bill goes nearer $200. It starts to affect household spending… So people simply park their big SUVs and scramble to find used Honda Civics and things. The public panics. Then there’s media speculation that prices will climb to $6 a gallon, and $8 the year after that. But when prices recover to normal at $2.40, everyone relaxes and goes back to buying big stuff again.’
Will the US market recover this year?
‘We are comfortable that the US market will end up between 11.5 and 12 million units, which is up from 10m last year. We feel that February’s slow sales were reflected by a drop in demand for Toyotas. People are deferring a purchase. It’s also been an extremely severe February in the US weather-wise – it’s the first time we’ve had snowfall in every one of the 50 states. That’s never happened before.’
Did you Toyota incentives to tempt their owners to GM showrooms actually work?
‘It had almost no effect. A few years ago, there was an impenetrable membrane between import buyers and domestic buyers in the US. There was very little cross-consideration. When we launched a new car, we’d have 60% own-brand buyers returning, 27% from other American manufacturers and usually just around 3-4% of import swappers. One of the encouraging signs recently with cars like the Chevy Equinox is that import trades are suddenly into double digits – in some instances nearly 20%. General Motors’ conquest rates are way up, especially on Buick and GMC products.’
Did you benefit from Chrysler’s woes, when they crashed into bankruptcy?
‘I don’t know. They sell predominantly to fleets. They have some things that sell well in retail: the Jeeps, the minivans. They’ll get it back together, I’m sure. It’s a question of surviving until the cavalry arrive.’