The fate of General Motors, and perhaps the U.S. auto industry more broadly, will ultimately hinge on its success in the transition to the post-petroleum era, a process in its very early stages. Is there a new GM emerging from the ashes of the old, and will it survive beyond the public dole? It is not just about smaller cars that get better gas mileage; it is about positioning the U.S. auto industry for the future.


Betting on the Volt

The U.S. taxpayer, who now owns a controlling interest in GM, has a serious stake in these questions. GM’s futuristic plug-in hybrid electric Volt projects a sense of renewal. However, a recent lengthy analysis in the Washington Post (6-7-09) suggested that however intent GM may be in transforming its image, it is plagued by ambivalence about shaping the car of the future. Look no further than its new Camaro, an all-American muscle car that would be quite at home in the 1960s which, although it only averages 22 miles per gallon, is reportedly outselling Honda’s new hybrid Insight.

Yet GM appears to be betting much of its future on the Volt, a car that can go forty miles (well beyond the distance an average US driver travels in a day) on a single charge. The car, which is due to go on sale later this year, alters the role of the internal combustion engine, which kicks in when the battery wears down and recharges it. Rolling it out will be an impressive show of corporate determination.

But the problem is a bit more complicated. First of all, GM is initially only marketing about 10,000 Volts, and those at a price of roughly $40,000 (although a $7500 tax credit should make it somewhat more competitive). Even if the Volt is reasonably well-received, it will barely make a dent in GM’s bottom line for the near future. It is difficult to see how that adds up to a vision for redefining the company, especially since it is selling off Opel and Saturn, two divisions that many auto industry analysts think are among its most viable.  

A Whole New World

We are on the cusp of what promises to be a major transformation of the auto industry: what is likely to amount to a transition away from a petroleum-based economy over the coming decade. President Obama has talked of the goal of a million plug-in hybrids on the road by 2015.  Shedding unprofitable obligations and becoming a smaller, more modest car maker may give GM a decent chance at competing in the new, greener auto market.  However, the next phase promises no less than the electrification of transport. Viewed from that perspective, the Volt only gets GM into the race for the future.

But to win, place or show, is another question entirely. Plug-in hybrids are also soon to roll off the assembly lines at Toyota. Ford will offer a plug-in hybrid Escape in 2010; Nissan and Honda are also moving in that direction. And BYD, a Chinese company in which Warren Buffet is a major investor, is offering a plug-in hybrid which it plans to sell for some $22,000 — almost half of the price GM plans for the Volt.  Moreover, several small automakers such as Tesla Motors in California are already selling all-electric cars, albeit rather pricey ones (in the $100,000 range) and some have begun pilot projects aimed at a transition to electric cars in the near future.

There are however, many questions remaining about the viability of electric cars as more than a niche technology. For starters, the investment in infrastructure is a big question: how to plan and finance adequate recharging stations. Plug-in hybrids are often considered transition technologies to an all-electric or hydrogen fuel cell future. But it may be the case that it is a very long transition, or even that the plug-in hybrid may endure for some time. This is the uncertain and very fluid economic marketplace that GM and other US automakers find themselves in.

This transformation is still in its embryonic stages, but it is not a trend likely to be short-lived. Traditional internal combustion autos are not about to disappear next year or the year after that. But over the coming decade, we are likely to witness a gradual transition to growing numbers of plug-in hybrids and perhaps electric cars. Coupled with looming breakthroughs in commercial-scale biofuels (non-food based ethanol or biodiesel), plug-in hybrids could emerge as a new green favorite.

How high and how fast oil prices rise as the world digs out of the current global recession will be a key factor shaping the pace and scope of change. If optimists are correct and the economy kicks into growth mode sometime next year, expect oil prices, already hovering in the $70 per barrel range, to jump back up into triple digits in short order. While painful for consumers, that would be an important factor accelerating the pace of change, as new technologies would become more cost-competitive. Another key factor may be whether or not Congress passes legislation that places a value on carbon, so-called “cap-and-trade” legislation.

Regardless, change is coming. A revolution in energy affairs is likely to unfold over the coming generation. Once a smart grid is in place, plug-in hybrids may be feeding energy back into the grid overnight. And that is likely to be just the beginning. It is less a question of if  than when.  And the extent to which GM and Ford and other U.S. firms are able to compete will tell us much about how America fares in the 21st century economy.

Robert Manning is a senior advisor to the Atlantic Council.  The views expressed here are solely his own, not those of any U.S. government agency. 

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