Lutz does some quality thinking

[Camino LS6]

“Five Things I Think I Think”

Remarks by Robert A. Lutz

Automotive News World Congress

Marriott Hotel GM Renaissance Center

Detroit, Michigan

January 23, 2008

Thanks and good evening, everyone. It’s a pleasure to be back at the

Automotive News World Congress.

It’s been five years since I’ve spoken here, which seems unbelievable to me, but

it’s true. Back in ’03, I predicted that the automotive industry was on the cusp of a

New Golden Age… then proceeded to explain how the New Golden Age wasn’t

going to look much like the Old Golden Ages.

To my credit, I didn’t say exactly when this was going to happen…

Obviously, we’re not reveling in the throes of a Golden Age at the moment… But

it’s not chopped liver, either. I would argue that the industry is in much better

shape than it was five years ago, and that General Motors is in a lot better shape

too. Our cars and trucks have improved, and we just had our second best sales

year ever, with growth in total and in three of four regions of the world.

I would also argue that this industry is on the cusp of major change — for the

better — and it’s going to look radically different in the future as a result, although

it will be for reasons none of us imagined five years ago.

So, tonight, I’m going to tell you what I think… about a lot of things.

And the reason for that is simple: Over the past week or two, with the Detroit

show and accompanying hoopla, I’ve been asked more times than I can count,

“Hey, Bob, what do you think about this? What do you think about that?”

I’ve done a lot of media interviews, obviously, and so I’d get the question there,

but I also got it from friends and colleagues on the show floor or at various

events. “What do you think?”

Well, tonight, I’m going to tell you “Five Things I Think I Think.”

And the first one is one I’m going to get out of the way right away, before any of

you has a chance to say, “Hey Bob, what do you think about ‘Global Sales

Leadership’?”

And the answer is: I don’t think about it. And the answer would be the same

whether today’s numbers said General Motors is Number One, or Number Two…

or tied!

Last time I checked, being the biggest or second-biggest automaker on the

planet had absolutely no effect whatsoever on your P&L statement, your share

price, or your market cap. It has nothing to do with it.

Would we like to be the world’s largest automaker? Sure! Who wouldn’t? Will we

continue to fight tooth and nail for every possible sale this year and beyond in the

hopes of doing so? Absolutely.

However, the bottom line is, we are running the business in the best interest of

the customers, employees and shareholders. Period. And that’s what we’ll

continue to do, no matter what.

Besides, there seems to be some hostility generated by some in the American

media and academia toward Number One, because to them, the biggest

corporation is obviously the “baddest” corporation.

So I feel like for the last 76 years we’ve been like the guy at the county fair with

his head poking through the rubber sheet and people throwing pies at him. If it’s

time to pull our head out of that rubber sheet, wipe our eyes and our hair and let

somebody else catch some pie in the face for awhile, so be it.

By the way, I prefer lemon meringue.

OK? On to number two on the list of things I think I think, and that is this: “The

Detroit show was not lacking buzz.”

I couldn’t believe some of the post-show write-ups that characterized it as

“lackluster” or “without its usual buzz.”

How can you possibly not find any buzz at an auto show that includes so many

examples of the world’s most advanced propulsion technology … and a 620-hp

Corvette … and a 550-hp Cadillac… and two significant full size pickup debuts…

not to mention a city street full of longhorn cattle — some of whom were clearly

very close friends?

I’m sorry, but there’s no explanation other than the fact that this is another case

of some members of the media displaying – if you’ll pardon the expression at this

juncture – a herd mentality.

I talked to an awful lot of journalists during the show, and I heard very, very few

of them, individually, say this year’s show was sub-par. And yet, collectively, in

print, many ran stories bemoaning the lack of enthusiasm and the dearth of

show-stopping vehicles.

Some of them complained that in these troubled times of over-dependence on

foreign oil and increasing fuel economy standards, dumb old Detroit is still

showing nothing but new pickups and gobs of horsepower — how woefully

behind the times!

Well, that’s not what I see. I see companies working hard to move the ball down

the field on advanced technologies, and I see companies at the same time giving

customers what they want.

People still have need for trucks in this country. People still buy them for work.

People still want them to haul boats and horse trailers. Everyone is not going to

suddenly switch into Smart Cars, or Saturn Astras, or tiny little pickups, unless

they suddenly decide to haul tiny little horse trailers carrying tiny little horses.

And as for high-performance vehicles, as I said at the show, there is plenty of

room in the global automotive market for green and mean. The Corvette ZR1 and

Cadillac CTS-V, in fact, both captured major awards for Best in Show and I don’t

think we’ll have much trouble finding people who want to buy them.

Now I’m not saying that everyone in the press is short-sighted on this issue—

don’t get me wrong. On the contrary, I think the majority of them understand that

the market is broad enough for this.

Most of them get the fact that just because the grocery store is greatly expanding

its line of organically grown vegetables, it doesn’t mean that it shuts down the

meat counter.

Which brings me to my third assertion, and that is “Consumer behavior is difficult

to change, and it when it does change, it takes time, and a darn good reason.”

For example… look at the differences in automotive purchase behavior between

Europeans and Americans, which is basically dictated by the price of gasoline.

Take a Chevrolet Cobalt entry-level model here in North America, and a

premium, loaded Opel Astra in Europe with six-speed, leather upholstery and

power everything.

Here are two cars basically off the same architecture. One sells here for around

$13,000 and frankly, it’s not breaking any sales records, even at that price. The

other sells for more than $30,000 and it’s Europe’s second-largest selling car.

Why is that? Well, it’s because Europeans, at their fuel prices, are willing to pay

premium prices for premium small cars that deliver terrific fuel economy.

That is not the case here in America, land of the big truck and big horse.

Nor will it magically become the case once the fleet we offer for sale hits a 35-

mile-per-gallon average. It will only be the case if gas prices rise sharply to

levels near what they’re paying in Europe.

We refuse to let the price of fuel rise gradually in the U.S., and therefore we fail

to induce change in consumer behavior. If for the last 15 years we’d had a slow

but sure rise in federal fuel taxation of 15 cents a gallon per year… that would

have gradually put the customer in the equation.

Every time people look for a new vehicle, they would think, ‘Hey, how much am I

paying for gasoline? Is it perhaps time to go to a slightly smaller vehicle?’

We could have, over time and without any federal fuel-economy regulation, used

the market mechanism to gradually transition the American public into a vehicle

mix that looks a lot more like Europe’s, smaller and more diesel-oriented.

I’m not advocating tax hikes or calling for higher fuel prices, I’m just explaining

the difference between the European fleet and our own.

And in America, instead of raising fuel prices, we’ll end up having to raise new

vehicle prices, because of the increased use of lightweight materials and fuelsaving

technology. And that, in turn, is going to cause people to hang on to the

vehicles they have longer and so it will take that much longer to roll over the fleet

on the road today, which is exactly counter to the intended effect.

And if the intended effect is to lower our dependence on petroleum and imported

oil, well, it won’t do that either.

Which brings us to the fourth thing I think I think: “The best route to a significant

near-term reduction in petroleum usage is E85.”

It’s just common sense! As I said, you don’t roll over the whole fleet at once. It

takes decades… and the bigger the price disparity between the old ones and the

new ones, the longer it takes.

I kept getting the question at the show… if GM is so gung ho on electrified

vehicles and hybrids and fuel cells, then why this emphasis on E85? Why the

deal with Coskata? They’d ask, “Which of these technologies are you really for?”

And I’d say, “Yes!”

As Rick Wagoner said at the show, several times, the answer is we are for all of

the above, but ethanol and biofuels are the best near-term solution. Yes, we

continue to work on electrically driven vehicles, as fast as we can, but

realistically, they are going to take many years to be on the road in volumes that

make much of a dent in petroleum usage.

We need to make more of an impact on petroleum usage, more quickly than that.

We already have millions of flex-fuel vehicles on the road right now… more than

6 million in the U.S. alone… vehicles that could be running on ethanol, if it were

more readily available.

In fact, as Rick said, if all the flex-fuel vehicles that GM, Ford, and Chrysler have

committed to have on the road by 2020… were to run on ethanol, we could

displace 29 billion gallons of gasoline annually… or 18 percent of the projected

petroleum usage at that time.

And if all manufacturers in the U.S. made that same commitment, we could save

53 billion gallons of gasoline annually… or 32 percent of our petroleum usage.

Nothing else we can do… gets even close to that kind of impact, that soon.

What’s more, ethanol offers a cleaner alternative to petroleum… it’s adaptable to

our refueling infrastructure… it doesn’t have to be imported… and it requires little

change in that pesky subject I mentioned earlier: consumer behavior.

Now, that said, let me tell you the fifth and final item on the list: “Electrically

driven vehicles powered by lithium ion batteries represent the long term future of

the automobile industry.”

A year ago, everyone was saying, ‘What’s GM doing with this car that’s allegedly

going to run on lithium ion batteries, which we all know won’t work in a car?’ Fast

forward to this year, and we saw no fewer than five automotive companies at the

show with concepts that are purported to either someday run on lithium ion

batteries, or a lithium ion propulsion system that’s just around the corner.

But remember, not all lithium ion technology is created equal. It’s like beer.

Some people say beer tastes bad. But there are many different types… you’ve

got pilsner, ale, stout, wheat beer… some beers are better than others.

Just because somebody says one particular lithium ion technology is a little bit

aggressive and it’s been known to cause thermal problems, does not mean they

all do. Some approaches are better than others, and the technology is

advancing every day. Just recently scientists at Stanford presented technology

using nanosilicon wires in the lithium ion mix that offers 10 times the energy

storage. That would make a 40-mile-range become 400 miles, in theory.

This and other advancements may be years away, in reality, but we’re going to

be ready, because we’re developing the vehicles, the drive systems, the

electronic control technology… today.

We are going to be ready, more ready than anyone else is going to be, when the

battery technology is beyond what it is right now. And then you’re going to see,

gradually but emphatically, the auto industry enter a whole new age.

That’s what I think, anyway.

Thank you for your kind attention.

[Camino LS6]

The powers that be need to be made to understand this.

[ZL-1]

The powers that be won't rise fuel taxes in the US to change consumer behaviour any time soon, because any sentence with the word 'tax' sounds bad to US voters' ears and those guys are in the business of being reelected.

EDIT - re the battery thing, I am really hoping GM can pull this off together with their partners. My job makes me naturally weary of the '100K sales projections', but I'd like to see a successful Volt going into history books as an important car in the transition to all-electric.

Edited January 30, 2008 by ZL-1

[Camino LS6]

The powers that be won't rise fuel taxes in the US to change consumer behaviour any time soon, because any sentence with the word 'tax' sounds bad to US voters' ears and those guys are in the business of being reelected.

Raising fuel taxes isn't what I have in mind.

[ZL-1]

Raising fuel taxes isn't what I have in mind.

So... how else does one provide an incentive to buy more fuel efficient cars and/or an incentive to buy alternative fuel cars?

[Sixty8panther]

So... how else does one provide an incentive to buy more fuel efficient cars and/or an incentive to buy alternative fuel cars?

Who says we need to? Isn't $3.00 enough?

[Camino LS6]

So... how else does one provide an incentive to buy more fuel efficient cars and/or an incentive to buy alternative fuel cars?

I believe that it is past time for the huge Oil companies to begin a transformation into Energy companies, and that the government needs to push them there. The issue isn't consumer willingness to buy alternative fuel cars, it is the lack of a viable infrastructure to make the fuels available. High gas taxes/CAFE standards are a bankrupt notion in this country. What is truly needed is a domestic "Marshall plan" to move us from oil in the shortest time possible.

[FUTURE_OF_GM]

Awesome...

Just hope I'm dead before I HAVE to drive an electric appliance.

[ZL-1]

Who says we need to? Isn't $3.00 enough?

It all depends on how much the alternate fuels cost relative to gasoline. If a clean fuel for use in an internal combustion engine is more expensive fewer people will use it.

To me $3.00/gal is cheap: I pay over 1EUR per litre of diesel and diesel is cheaper than gas here.

[Camino LS6]

Tell the powers that be what you think:

http://www.usa.gov/Contact/Elected.shtml

[Camino LS6]

It all depends on how much the alternate fuels cost relative to gasoline. If a clean fuel for use in an internal combustion engine is more expensive fewer people will use it.

To me $3.00/gal is cheap: I pay over 1EUR per litre of diesel and diesel is cheaper than gas here.

Actually the biofuels are, or will be, cheaper.

[Robert Hall]

It all depends on how much the alternate fuels cost relative to gasoline. If a clean fuel for use in an internal combustion engine is more expensive fewer people will use it.

To me $3.00/gal is cheap: I pay over 1EUR per litre of diesel and diesel is cheaper than gas here.

$3.00 is cheap....even if it were $4/gal I'd probably still drive my SUV that gets 18mpg maximum... not a big enough incentive for me to drive something tiny.

[Camino LS6]

$3.00 is cheap....even if it were $4/gal I'd probably still drive my SUV that gets 18mpg maximum... not a big enough incentive for me to drive something tiny.

Exactly why CAFE is pure foolishness.

But, how would being able to drive your SUV on $1/gallon Ethanol grab you?

[Robert Hall]

Exactly why CAFE is pure foolishness.

But, how would being able to drive your SUV on $1/gallon Ethanol grab you?

Sounds good...I'd consider a flex-fuel vehicle if Ethanol were widely available cheaply.

[SuperSport623]

If/When E85 becomes available in my area, ill convert my Nova in a second... I hear wonders about E85 as a performance fuel

[regfootball]

i wish my 500 were flex fuel. I have like 3 or 4 E85 stations within 5 miles of home. Makes sense though, the corn growers assoc. offices is in my town too!

[PurdueGuy]

why can't they just make all the vehicles they produce flex-fuel? If I understand it correctly, it mainly just requires harder pistons, better/different seals and fuel lines, and some programming for running different fuel maps when a higher octane is present (e85). I would think they could make all that happen easily within a couple years' time. Then no one would have to think about whether they're buying a flex fuel vehicle, they'd just pick what they want, and it would naturally be a flex fuel vehicle.

I should look up to see if there is any e85 available around here. It was all over the place when I was in IN, but I haven't seen any here. Heck, the "regular" gas at the pumps around here is usually 85 octane. *scratches head* IDK if that's just there for all the old trucks still running around out here, or what, but I don't know of any cars that need anything lower than 87 octane from the factory in the last, what, 10 years?

Edited January 30, 2008 by PurdueGuy

[ZL-1]

Actually the biofuels are, or will be, cheaper.

now i'm curious :AH-HA_wink:

do you have a link to some article or other online material i can read?

[Camino LS6]

now i'm curious :AH-HA_wink:

do you have a link to some article or other online material i can read?

It's all here on C&G, in fact here in the GM news forum you can read about GM buying into a firm making the claim that they will be able to produce $1/gal. Ethanol. Just scroll down.

[Camino LS6]

Here's that link:

http://www.cheersandgears.com/forums/index...showtopic=22264

Check out the alternative fuels/propulsion section for lots more good information on ethanol, hydrogen,biodiesel etc.

[ZL-1]

It's all here on C&G, in fact here in the GM news forum you can read about GM buying into a firm making the claim that they will be able to produce $1/gal. Ethanol. Just scroll down.

OK, thanks! I'll look it up

[Camino LS6]

OK, thanks! I'll look it up

It's a good read as well.

[Camino LS6]

The best thing is that Lutz really, really, gets it.

[loki]

Raising fuel taxes isn't what I have in mind.

How about stop subsidizing any fuels? let the best one win.

[Camino LS6]

How about stop subsidizing any fuels? let the best one win.

Ethanol will be able to stand on its own soon. The others are just as important and should be pushed as well, no one fuel should "win" - we should be the ones winning.

I hope we have the wisdom to prevent any one enrgy source from dominating our economy again as oil has.

Eggs in many baskets would be best.

[Camino LS6]

Link added to favorites, thanks WMJ!

[SuperSport623]

Yeah im familiar with that link.. i just gotta figure out what else has to be changed in my fuel system

HOLY CRAP! a quick search shows an E85 station is not only planned on Long Island, but on the biggest street racing block on long island.... w00t!

[thegriffon]

Original transcript from fastlane:

http://fastlane.gmblogs.com/012308-RAL-World-Congress.pdf

[daves87rs]

A good read....

[daves87rs]

Exactly why CAFE is pure foolishness.

But, how would being able to drive your SUV on $1/gallon Ethanol grab you?

Then I would own one...

[daves87rs]

The best thing is that Lutz really, really, gets it.

Which is good because many people don't...

[Camino LS6]

E-85 is creeping closer to my area now, when it gets here It will become part of my purchasing criteria.

[Duncan]

E-85 is creeping closer to my area now, when it gets here It will become part of my purchasing criteria.

I've got an E-85 pump just down the street from my apartment.

Hopefully, the Camaro will allow me to make use of it...right, GM? :AH-HA_wink:

[loki]

i'm curious if we'll have an engine designed for E-85, here...?

[SuperSport623]

that one station around me thats planning E85 is also one of the few that has 100octane race fuel.. from what ive been able to read, Ethanol is high octane, so it will be a good alternative to the $6 a gallon race gas sold here!

[Camino LS6]

i'm curious if we'll have an engine designed for E-85, here...?

I think you can count on an optimized e-85 engine as soon as enough e-85 stations exist to support it.

[BuddyP]

I have a E85 station just a couple miles from home. Actually I wish my '03 Avalanche was a '05 just so I could run E85 in it. If it was E85 capable, I'd run it all the time. I have no problem driving a smaller car for an everyday driver, but I need the truck to pull a 22' enclosed trailer at times... and has come in VERY handy when hauling misc items.

For E85 to spread, there's got to be a alternative to creating it other than using corn. Switchgrass seems to sound like the best alternative. Where corn produces 354 gal of ethanol per acer, switchgrass can produce 1150 gal per acre. And since it is basically a weed it doesn't need fertalizer or excessive water to grow, and has a growing range of pretty much the whole US. It's basically be to the US as what surgar cane is to Brazil.

[CARBIZ]

I see a lot of 'flex-fuel' vehicles on dealer lots around here. Too bad there are no stations to serve them, but like with the unleaded fuel thing 35 years ago, GM has to put the cart before the horse, so to speak.

Nearly all of GM's vehicles in Brazil have been 'flex-fuel' for a few years now, so the technology is neither new or expensive. It makes a lot of sense to me, and GM has a big jump on the technology. Whether the market goes over to ethanol or not, it doesn't cost a lot more to build a flex-fuel vehicle and it makes sense to hedge our bets against any future (artificial or otherwise) oil shortages.

[regfootball]

there are like 3 or 4 e-85 stations within 5 miles of my house. of course, the MN corn growers office is right by a couple of those pumps. go figure