Kevin O'MarahI’ve been rough on GM often over the past few years and sometimes even spread the venom over the whole of Detroit (link: http://www.amrresearch.com/Content/View.aspx?pmillid=21088). My complaint has rested on the idea that the Big Three practically defined the “push” model of supply chains starting with the famous quip attributed to Henry Ford (‘any color you want as long as its black’) and running up through such inside-out disasters as the fabled, failed Pontiac Aztec. I have however given GM one big pat on the back and it was in response to a convincing insider interview I had with Jim Heaton, an auto industry lifer and old friend of AMR. The conversation happened at least two years ago and it was all about the forthcoming Volt (link: http://www.amrresearch.com/content/view.aspx?compURI=tcm:7-38548&title=GM+Plugs+Into+Content+Economy#) – General Motors’ electric car. Well, it’s here now not only does it look good, but it appears that GM, and Detroit in general, may have turned a corner.
Let’s start with the moment of truth – a consumer shopping for a new car. Having just done this myself I am warm to the task and begin with whether or not I can bear being seen in the car. Comparing the Volt to other electric vehicles and hybrids I’d say, yes, it looks pretty darn good. If I care about fuel efficiency and greenness, which I do, the Volt deserves at least a tie with others pitching that angle. For me, the deal breaking question ends up being range and here, the Volt pulls away. Its range when fully charged and fueled is 340 miles – more than I currently get with my other car – and massively better than pure electric options like the Leaf from Nissan which claims only 100 miles on full charge and needs eight hours to recharge.
The key to this vital advantage is proof to me that GM gets “demand-driven”. The car uses an electric motor to do my first 40 miles for the equivalent of $1 a gallon plus a gasoline engine that gets 50 miles per gallon for the next 300 miles by essentially recharging the battery in flight. Takeaway for the buyer: this car can save me lots of money on gas and still handle unexpected errands that might add many miles to my driving day before I get a chance to recharge. I am reminded of the quote I attributed to Heaton back in 2008: “what drivers want…what drivers want”. GM is not just making a symbolic sustainability gesture here, but offering customers something truly new and better as it tries to change the industry’s competitive dynamic to save itself.
Taking a step back up the supply chain to production and sourcing, again I see the right things happening. For instance, GM’s secret sauce (I am told) is its power management logic which is embedded in software that optimizes energy use across battery, engine, and native power creation from things like braking that traditionally waste energy. This is the kind of innovation I have seen pioneered by people like General Electric in their locomotives business. The competitive edge comes from intellectual property rather than procurement muscle.
A demand-driven supply chain also takes into account demand shaping which says customer behavior is not strictly an exogenous variable, but something that can be affected by marketing decisions that are coordinated with production and sourcing. GM only plans to build 11,000 vehicles in 2011 and another 30,000 in 2012. One dealer interviewed by the New York Times said of this limited volume “we’ve already got more orders than we’ve got cars”. This kind of limited availability release has worked for great demand creators like Apple and Nike, and fits well with the reality that wide adoption of electric vehicles will take time and lots of new infrastructure. It is also no small thing that GM is tapping into a demand source in the form of government subsidies providing buyers a $7500 tax credit which acts as a discount bringing the effective sticker price into range for everyday consumers. And let’s not underestimate the potential that feel-good stories about job creation in the heartland could add a patriotic edge in the US market.
It is often the near death experience that makes someone really change their ways, and this is no less true for companies than people. GM certainly saw and stayed away from the light in 2009; perhaps this was the turning point. For Detroit as a whole, the fact that Ford is also profitable means that maybe a bottom has been touched and hope is ready to rise again.
Check out the Volt. At the very least, you’ll be distancing yourself from Rush Limbaugh (link: http://www.freep.com/article/20100729/BUSINESS01/7290436/Limbaugh-rips-GM-Chevy-Volt ).
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1 response so far ↓
1 Brian Hellauer July 30, 2010 at 11:33 am
Didn’t realized, but kind of expected, that the Volt would be entering the market in those kinds of low-volume numbers. That’s good – it will give GM a chance to get the technology sorted and bring the costs down. I hope they get it right, as most Americans now have an interest in GM succeeding.
Nice post.