GM Accelerates Toward Chinese Business, Plug-Ins
Two years ago, General Motors was on the brink of bankruptcy. But the U.S. government stepped in and took control.
Since then, as part of its restructuring, GM shed thousands of jobs and billions in debt. And last month, the company took the first step in shedding its "Government Motors" image by launching a successful IPO, which raised billions of dollars and allowed the government to reduce its stake in GM by half.
GM's CEO, Dan Akerson, who began work in August, says the company is committed to launching the Volt -- its plug-in electric car -- and to reaping huge profits from selling cars overseas in China and other emerging economies, including India and Russia.
China's $1 Billion Infusion
"We like to manufacture where we sell because it takes the risk of foreign currency translation out of the equation," Akerson tells NPR host Robert Siegel. "And to be a little bit more specific, we should sell about the same number of cars -- manufacture about the same number of cars -- in North America as we do in China this year, so we haven't quite surpassed it. But cars that are purchased here, in large measure, will be made in North America."
Akerson says all costs associated with manufacturing and R&D for the cars it sells in China are funded out of GM's China operation.
"So, there's no money flowing to the country of China," he says. "In fact, as I remarked to one government official: 'How many companies in America are actually getting a billion dollars sent from China back to the United States?' And GM is one of the few."
New American Jobs
In the past year, the Detroit automaker hired 7,000 people -- a number Akerson says is likely to grow when the company sees "greater sales volume throughout North America." And last week, GM said it would hire 1,000 engineers to support the Volt.
Despite substantial consumer demand for the Volt, the company only expects to have about 10,000 out by this time next year. So, is it just an interesting sideshow for GM with little mass-market potential?
"We originally had programmed about 10,000, but we want to get it to 100,000 to 200,000 by the next three to four years," Akerson says. "It isn't a sideshow; it's absolutely critical to the electrification of the car. In fact, we think the Volt could be the iconic car of our generation -- not unlike the Mustang was for another generation."
Selling The Volt
The Volt's price tag is $41,000 -- and that includes a battery that lasts about 100,000 miles. But there are also the costs associated with charging the vehicle. A $7,500 tax credit helps offset the car's high cost.
Akerson says 80 percent of Americans drive no more than 40 miles per day, and the Volt's battery should carry drivers between 40 and 50 miles per day. So, most drivers won't require any gas, he says.
"I think it's important to recognize that this is a first-generation breakout technology that really is a moonshot. In fact, Motor Trend said, 'We expected a science project and we got the moonshot.' "
Akerson says costs will come down -- just as they have declined for digital photography -- with economies of scale in production. He says GM won't need the $7,500 tax credit in the longer term.
Too Big To Fail?
He says GM is taking away lessons from the bailout and the company's successful IPO.
"First of all, on behalf of the company and all of its employees, I'd like to thank the American public for their assistance," Akerson says. "We do not want to be a ward of the state, and we've made tremendous progress. We've refunded -- in terms of preferred shares and debt and equity to our saviors, in a sense -- over $32 billion since the bailout."
GM proved that it was big enough to fail, he says, adding that the government's intervention demonstrated the importance of jobs and people.
"For the first time in many generations our cost structure is equivalent to the foreign transplants," Akerson says. "So, indeed it's now time for the best car to win."
GUY RAZ, host:
This is ALL THINGS CONSIDERED, from NPR News. Im Guy Raz.
MELISSA BLOCK, host:
And Im Melissa Block.
We're going to hear now about cars. Just two years ago, General Motors was on government life support. Since then GM has shed half of its brands, emerged from bankruptcy and last month, engineered an initial public offering that allowed the government to reduce its stake in the company by half.
Daniel Akerson took over as head of GM last August, and he was here in Washington today. He sat down with our co-host Robert Siegel to talk about the way forward for GM.
ROBERT SIEGEL, host:
Daniel Akerson, welcome to the program.
Mr. DANIEL AKERSON (CEO, General Motors): Thank you.
SIEGEL: Washington bailed out GM - and also Chrysler - to avoid calamitous job losses. GM is making money. When do we see some more jobs?
Mr. AKERSON: Well actually, in the last year we've hired, cross-country, about 7,000 people. And we've committed to do more as there's more progress, greater sales volume throughout North America.
SIEGEL: What kind of jobs are you talking about?
Mr. AKERSON: Well, we just announced last week that we would hire roughly a thousand engineers in the Detroit area to support the electrification of the car. We combined that analysis with the rollout of the Chevy Volt.
SIEGEL: But when we talk about manufacturing jobs, I mean, is it fair to say that since GM - very remarkably - is now selling more cars in China than it is in the United States, is it logical that in the future, the manufacturing jobs will go to China or Brazil, or places where you're selling more vehicles?
Mr. AKERSON: Well, we like to manufacture where we sell because it takes the risk of foreign currency translation out of the equation. To be a little bit more specific, we should sell about the same number of cars - manufacture about the same number of cars in North America as we do in China this year. So we haven't quite surpassed it.
But cars that are purchased here, in large measure, will be made in North America.
SIEGEL: But if the growth is in emerging markets, it would seem that the company that U.S. and some Canadian taxpayers help keep alive is going to be an increasingly global company. And your real workforce growth may take place in Brazil - or who knows where else.
Mr. AKERSON: Well, thats a good question. But just to make sure we're perfectly clear: The cars that we manufacture and sell in China, specifically, not only is all of the R&D performed in China for the Chinese market - and all of the manufacturing and the tooling associated with that is funded entirely out of the operation in China.
So there's no money flowing to the country of China. In fact, as I remarked to one government official, how many companies in America are actually getting a billion dollars sent from China back to the United States? And GM is one of the few.
SIEGEL: President Obama speaks often of green jobs, including green manufacturing jobs. And I want to ask you about GM's big green project, which is the rollout of the Chevy Volt.
First - I mean, I've read that as many as a quarter of a million consumers have expressed an interest in buying one. But by this time next year, there will be about 10,000 Volts.
I mean, does that mean that the Volt is, at least for now, a very interesting sideshow for GM? Is it a car whose battery doesnt quite have the capacity yet to be a mass-market automobile? Why so few Volts being made in year one?
Mr. AKERSON: Well, we originally programmed about 10,000, but we want to get it to 100- to 200,000 by the next three, four years. So it isnt a sideshow. It's absolutely critical to the electrification of the car.
In fact, we think the Volt could be the iconic car of our generation - not unlike the Mustang was for another generation.
SIEGEL: How do you sell people on the idea of the Volt - which I test drove this week, and it feels great and feels sporty. It costs $41,000 and for that, you buy not just a car, but a battery that gets you about 100,000 miles. But what -you're going to spend some money on recharging overnight, you know, with the plug-in. This is a novel equation for buying a car, and it only balances with a $7,500 U.S. tax credit.
Are you, in effect, saying - for now at least - this is a car for well-heeled environmentalists?
Mr. AKERSON: No, Im not saying that at all. Eighty percent of Americans drive 40 miles or less per day, and this battery should carry you 40 to 50 miles per day. So 80 percent of the average driver should - not going to require any gas.
In fact, I have a Volt. I've driven it over 500 miles. We've used less than two gallons of gas just using our normal driving patterns.
SIEGEL: Do you assume that GM will need the federal tax credit for the Volt for the foreseeable future - for those years when you're making 200,000 vehicles, say?
Mr. AKERSON: Well, I think it's important to recognize that this is a first-generation, breakout technology that really is a moon shot. In fact, Motor Trend said we expected a science project; we got the moon shot.
It really is a different car. You can't think of it in the same terms, and it's the first generation. Not unlike digital photography, you'll see cost comes down with economies of scale, production. And I think thats in our second generation - is cost takeout. So I dont think we need the $7,500 over the longer term.
SIEGEL: In the IPO, which has been quite successful, how do you think the bailout figures? There was so much talk about moral hazard when the government went into both the auto business and, frankly, the financial sector as well.
With hindsight, is the lesson that you are too big to fail? This is a good stock to buy because if anything really goes wrong at GM, Washington will be there.
Mr. AKERSON: Well, first of all, on behalf of the company and all of its employees, I'd like thank the American public for their assistance. We do not want to be a ward of the state, and we've made tremendous progress. We've refunded - in terms of preferred shares and debt and equity - to our saviors, in a sense, of over $32 billion since the bailout.
So when you step back and you look at it, it is important that we move forward and that there's no moral hazard, in my opinion.
Had General Motors gone down - and we've proved we were big enough to fail. But we - in my mind - as government involves itself in the economy, I think jobs and people come first. And now that this very difficult period in the history of General Motors has passed, the company is in fighting trim. For the first time in many generations, our cost structure is equivalent to the foreign transplants.
So indeed, it's now time for the best car to win.
SIEGEL: But is this chapter - where obviously, GM has wanted to get out of this, and stop having people talk about Government Motors and whatever else - is it a skeleton in the closet? Or is it actually a good thing which shows how seriously Washington takes the health of General Motors?
Mr. AKERSON: Well, as people have said: If it doesnt kill you, it makes you stronger.
(Soundbite of laughter)
Mr. AKERSON: We are a stronger corporation. And I do think we have learned many lessons from this episode that we hope never to have to experience again.
SIEGEL: Dan Akerson, the CEO of General Motors, thank you very much.
Mr. AKERSON: Thank you. Transcript provided by NPR, Copyright NPR.