GM Cutting Product Development for Two Years

By · October 29, 2008

GM today downplayed a report in Automotive News, an industry publication, that it would be cutting off nearly all product development spending for the next two years in an effort to trim as much as $1.5 billion in spending. The company is reported to be on the precipice of a cash flow crisis that would have it running out of money sometime next year. General Motors is spending more than $1 billion per month more than it brings in, which means that the cuts would likely provide GM with, at most, an extra month and a half of liquidity. Desperate times indeed.

“The 2009 stuff that's too late to cancel is coming out, then everything else gets pushed out anywhere between three months and up to a year...It's not just capital budget; it's also engineering, design... everything that would cause money to flow out in 2009.”

GM Source Familiar with Product Plans, Automotive News, Oct. 29, 2008

The GM source added that the company's two highest profile projects—the Volt and the Camaro—will not be affected by the cuts. Right now, the biggest casualty looks to be the Chevy Cruze, which had been slated for release in the 2011 model year.

The Cruze has played second fiddle to the Volt in GM's much publicized push toward fuel efficiency. The small car was expected to achieve a combined fuel economy beyond 40 miles per gallon, and come with a price tag that would be competitive in a market segment that the Volt, to be priced near $40,000, will not reach.

Several planned hybrids are also likely to be victims of the cuts. The Saturn Vue Plug-in—which had originally been planned for a 2009 release—has already been pushed back to late 2010. The product development cuts could mean a delay into 2011. GM's full hybrid pickup trucks, the Chevrolet Silverado and GMC Sierra, are scheduled for release in late 2008 or early 2009. The fate of the hybrid pickups is unknown.

GM, which has so much of its reputation riding on the Chevy Volt plug-in hybrid, has spared it from production delays at this time. But the economics of the vehicle are becoming strained. Bob Lutz, GM's product chief, expects the company to take a loss on every Volt it sells for at least a few years. How can a cash-poor GM continue to push the Volt towards the assembly line with the same evangelical fervor it has shown thus far, if there is no profitability expected for the model in the near future?

If the Volt does survive the current cuts, and any more around the corner, it will be to show the public that GM is maintaining a bold, daring, and expensive vision for the future of cars—even when the very future of the company itself in in peril. GM's gamble on the Volt—the underlying technology, market acceptance, and the economics—were described by Lutz in the July 2008 issue of The Atlantic:

“[Normally] you define the whole future of the car on paper before you give the go-ahead to start spending some serious engineering and design money on it. And in this case it was completely backwards. We saw that we had a smash hit that hugely resonated with the public, and we just decided: let’s go to work. No business case, but let’s get this thing into production-ready form, and we’ll worry about the cost and investment and the profitability later.”

The time to worry is quickly approaching.

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