Monday, November 3, 2008

Why The Merger With Chrysler Can't Save GM

It looks like the proposed GM—Chrysler merger will have to wait for the next administration now that Bush has decided to kick that can down the road. Sadly, however, it probably won’t make much difference. Of course there will be new economies of scale and synergies to be leveraged from the merger, and thousands of United Auto Workers will lose their jobs, but the fundamental problem (especially from the GM side) lies in the products which consist of inferior cars and unmarketable trucks. Take the case of the much-publicized Chevrolet Volt, the car that is supposed to be GM’s salvation.

The Volt started out about eight years ago as a snazzy concept car to be shown at the Detroit Auto Show. The body was a subtle blend of the futuristic and the elegant, with just the right touches of both familiarity and creativity. In a master stroke of innovation, GM engineers had designed this body to sit atop a rolling low-platform chassis which would have the flexibility to run on fuel-cell-generated electricity, or conventional gasoline, or a hybrid of both. But then, the fuel cell idea was trashed when someone realized that it would take 100 years to build out an infrastructure of cryogenic filling stations that could supply liquid hydrogen across the country (see my blog of 7/31). After that, bit-by-bit, the Volt morphed in the way that often happens when something is designed and redesigned by very large committees with divergent points of view. The Volt that has emerged from this committee process now features a battery pack to be recharged at the plug-in socket on the garage wall at home, and a reconfigured body which now closely resembles the Prius and has none of the original futuristic charm. Evidently, GM honchos figured that if it looked like the Prius, it might sell like the Prius.

Recently, one of the national networks sent a TV crew to the GM proving ground to do a video piece on the development of the Volt. With the camera rolling, the little Volt finished prototype began to climb a very slight hill on the test course. And then it slowed, unexpectedly. And then it stopped dead in its tracks and refused to move any farther. To make matters worse, the GM spokesperson started to spin the episode by saying that the car was still very experimental, completely ignoring the fact that the Volt has been floating around the drawing boards at GM for all of the 21st Century. Nothing could better underscore the fact that GM is no Toyota, and while a GM—Chrysler merger would create a company bigger than Toyota, the quality gap would probably still persist.

Also see: “It’s The Infrastructure, Stupid” 7/31/2008

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