Can the Chevy Volt Survive GM?

The risk of bankruptcy threatens Detroit's most promising futurecar.


Two momentous things are happening at General Motors. One is GM's electric-powered car, the Chevrolet Volt, which might be a breakthrough machine if it debuts on schedule in late 2010. The other is the deepest financial crisis in GM's history, which threatens virtually every program underway at the huge automaker—including the Volt.

First, the money problem. One of the most overlooked stories of recent weeks is GM's decision to postpone nearly all of its new-product spending for the next two years, as Automotive News reported recently. GM won't confirm the details, but such cutbacks would be a drastic measure meant to preserve cash and help GM avoid bankruptcy, which many analysts think is likely by next year if car sales stay in a funk and GM doesn't raise cash from outside sources.

It's also an extremely risky move. As everybody knows, one of GM's biggest problems is that its cars have fallen behind offerings from competitors like Toyota and Honda. And even though sales are down for the Japanese automakers, too, they haven't eviscerated new-product funding or given up on the future. So GM's spending freeze could erase gains the Detroit automaker has made against its foreign-based rivals in recent years and once again widen the gap between GM and Japan.

The Volt, for now, appears to be an exception to the cutbacks. GM executives say the Volt enjoys privileged status in Detroit because so much is riding on the car. Vice Chairman Bob Lutz, for one, has declared that the Volt "is about recapturing General Motors' technological leadership."

There's been a lot of skepticism in the industry about whether GM can really build a car that goes 40 miles on a single battery charge—much farther than the next-generation Toyota Prius will be able to go—without a lot of compromises that would kill the appeal of the car. But GM has been converting skeptics as it has revealed technical details and, now, an actual production version of the Volt.

The prototype Volt that GM has been showing off is a sporty four-seater with futuristic touches meant to draw in mainstream gearheads. The dashboard controls are touch-sensitive and set in a white console reminiscent of an iPod. Instead of standard gauges for speed and RPMs, there's a digital display that looks like the screen of a Sony PSP. Wind-tunnel engineering has made the Volt even more aerodynamic than a Corvette, critical for milking the most mileage possible out of the battery. GM says that recharging the car at home, through an ordinary household outlet, will cost less than $1 per day and drain less power than it takes to run a refrigerator.

But will the Volt survive if everything else at GM goes down the drain? Or if the company declares bankruptcy? In Chapter 11, creditors and a bankruptcy judge have a lot of say over corporate strategy, and it could get hard to justify large expenditures for a futurecar at the expense of mainstream offerings today.

Despite its allure—and the attention the Volt would get if it succeeded—GM officials admit it will be a low-volume car for several years, with sales of perhaps 20,000 per year. Would GM be able to justify spending on the Volt while, say, delaying the launch a mainstream compact car like the Chevy Cruze, which is also due in 2010 and could promise annual sales of 150,000 or 200,000? It stands to reason that GM has plans to use the Volt's electric-drive technology in other vehicles, which would be essential to justify the expense. But in Darwinian times, survival trumps nice-to-have, and in order to get to 2015 you have to first make it through 2009. Besides, if gas prices continue to fall, will drivers really care that much if the Volt cuts yearly gas consumption by 500 gallons?

If GM were healthier, these would represent the kinds of reasonable risks that global companies have to take in order to be competitive down the road. But GM is hurting, and the pain is going to get worse. A key test of the automaker's prospects is whether the Volt gets a jolt, like virtually everything else at GM these days.