General Motors to Develop Hybrid Vehicles Despite Expected Losses

Strategic Insights -

As the US carmaker continues to invest in its hybrid technology, General Motors chairman and CEO Rick Wagoner stated that the company expects its new hybrid fuel-saving vehicles to incur losses, but is pushing ahead with development in the belief they will improve its image. Despite low volume and high costs, GM is committed to launching hybrid versions of its Chevrolet Tahoe and GMC Yukon large sport utility vehicles in late 2007, followed by hybrid pick-up trucks. The move is seen as an attempt to improve GM's environmental credentials, much like Toyota's success with its Prius hybrid hatchback.

Key Takeaways:

  • General Motors expects its new hybrid fuel-saving vehicles to incur losses due to high costs and low volume.
  • The company will make its hybrids visually distinct from their petrol-only counterparts to help improve brand image.
  • GM will launch hybrid versions of its Chevrolet Tahoe and GMC Yukon large sport utility vehicles in late 2007, followed by hybrid pick-up trucks.
  • The development of hybrid vehicles is expected to improve GM's environmental credentials and help to increase fuel economy by 10 per cent to just over 20 miles per gallon.
  • The North American automotive division of GM lost $2.5bn in the first half of the year due to rising healthcare costs and slowing sales of its existing big SUVs.
  • Financial analysts are concerned that the increased focus on fuel efficiency could hurt GM's US launch next year of its new range of large SUVs and pick-ups.
  • The company is under pressure to improve its image and appeal to environmentally conscious consumers.

Statistics:

  • General Motors expects its new hybrid fuel-saving vehicles to lose money.
  • The volume of hybrid vehicles is expected to be low, with sales currently booming in the US.
  • The cost of building hybrid vehicles requires an electric motor and battery as well as an engine.
  • The current level of petrol pricing is approximately $2 a US gallon.
  • $8 a US gallon is the price at which petrol prices would need to reach to persuade customers to pay enough to cover the extra costs of building hybrid vehicles.
  • GM's North American automotive division lost $2.5bn in the first half of the year.
  • Hybrid vehicles are expected to improve fuel economy by 10 per cent to just over 20 miles per gallon.

Sources:

  • Rick Wagoner, chairman and CEO of General Motors, from the Financial Times, 2006. (Source: Financial Times)
  • Rod Lache, analyst at Deutsche Bank, from the Financial Times, 2006. (Source: Financial Times)
  • "Profits not the motive", Financial Times, 2006. (Source: Financial Times)
  • "Rivals line up", Financial Times, 2006. (Source: Financial Times)
  • www.ft.com/autos, Financial Times, 2006. (Source: Financial Times)