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Case #13

Who Killed the Electric Car?


FACTS and SUMMARY
General Motors, founded in 1908, grew to become one of the largest automobile
manufacturers in the world. During the last several years, GM enjoyed tremendous
success and growth selling over nine million automobiles in 2007. Although based
in Detroit, Michigan, GM employed over 250,000 workers across the world and had
divisions in Europe, Latin America, Africa, Asia and the Middle East.
During its long history, GM witnessed many political, social and economic changes.
But none have been as decisive as understanding the environment on a global scale
and the importance of the auto industry within this scope. As a result, GM adopted
and implemented six environmental principles in 1991 as part of its initiative to
use innovative technologies to improve the environmental performance of its
facilities1. During the length of its endeavor to become environmentally friendly,
GM not only met its targets ahead of schedule on multiple occasions, but also
received the EARTH ANGEL Award in 2008 as the most environmentally-friendly
automaker after reducing its carbon-dioxide emissions by over 17%.
One of the most significant contributions that GM has made to the recently
popularized green movement stemmed from its leadership in designing and
bringing to market an electric-powered car. The concept of the electric car was not
unique to General Motors, since it dates back to more than 100 years. In 1891
William Morrison built the first electric car model, however by 1901, the short-lived
success of the electric car ended when Henry Ford revolutionized the market
through the mass production of gas-powered vehicles.
It wasnt until 1990 that the idea of an electric car was revisited this time by GM
with its design of the EV1. The model received such a positive response that the
California Air Resources Board (CARB) passed the Zero Emissions Vehicle (ZEV)
Mandate that aimed to require 2% of the states vehicles to have no emissions by
1998. The first EV1 was leased in 1996, just as other manufacturers began
productions of similar models.
However, in 2003, GM unexpectedly announced that it would not renew the leases
for its EV1s since it could no longer supply parts to repair the vehicles. This
shocking announcement was further complicated by GMs claim that the EV1 could
not be commercial viable since only 800 vehicles had been leased. At this point,
many individuals questioned GMs motives due to the conflicting information
1Business Ethics page 203
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provided by GM and the facts obtained through GMs history, financial data and
market analysis.
Throughout all the questions and critics, GM maintained that the main cause of
EV1s discontinuation was a lack of consumer interest. However, in 2006, a Gallop
poll revealed that 33 million Americans were interested in purchasing an electric
car. According to another 1994 poll, conducted by the American Automobile
Manufacturers Association, Californias ZEV mandate had a 60% support rate and
nearly 30% of the respondents were willing to spend $20,000 - $30,000 2 for an
electric car. Critics claimed that GM pulled the plug on the EV1 due to the federal
governments ties to the oil industry as well as the fact that oil and gas companies
contributed over $46 million to the Republicans campaigns during 2000 and 2002
campaigns. Opponents viewed GM as a traitor a company that at one point was a
leader that inspired others to act on behalf of the environment rather than for its
own pockets3 to a company that chose to concentrate on the product that
ultimately was less risky and promised greater financial profit.

2008-2009 CASE UPDATE


Ironically, GMs decision to tread softly in regard to the pioneering opportunity
that came its way with the electric car could not safe the company from the
devastating effects of the economic crisis of 2008. On June 1, 2009 General Motors
filed for court protection with a government-financed plan intended to create a
viable company that can compete in the world markets 4. As part of the
arrangement, the federal government will provide a $50 billion loan to GM in
exchange for a 60% stake in the reorganized company. GM planned to launch a new
company within 60 to 90 days in an effort to reverse the effects of its $172.8 billion
reported debt. As part of the reorganization plan, GM has begun to auction some its
assets with GMs Saab units to be restructured in Sweden and GMs Opel line was
purchased by a Canadian car-parts maker.
On a brighter note, it would seem that GM, along with the entire automotive
industry, is giving the electric car a second chance with the Chevy Bolt an
extended-range electric vehicle that can travel up to 40 miles on battery power
alone with the extended-range capability of more than 300 total miles 5. Following
the petition for its bankruptcy proceedings, the first motions brought by GM sought
2 Business Ethics page 206
3 Business Ethics page 207
4 Sandler, Linda; Scinta, Bob; Van Voris Bob and Jeff Green. GM Files Bankruptcy to
Spin Off More Competitive Firm. Bloomberg, June 1, 2009.
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permission to spend funds so as to continue business operations while under court


protection6.
Although GM is attempting to reverse their decision in relation to the electric, with
the elapsed time, a large number of competitors have entered the scene making
leadership within this market more competitive than it was six years ago, when GM
discontinued the EV1. Nissan has announced that it might beat GM by bringing an
electric car to the markets as soon as fall 2010. Similarly, Ford has announced that
it plans to produce a battery-powered version of the Focus compact sedan in 2010.
Showing how competitive the once-exotic and obscure electric-car segment has
become7 is Mitsubishis plan to enter the electrics market. Demand for electrics
will boom, if automakers can keep prices down and driving range up 8. Ford expects
to sell between 5,000 and 10,000 of the battery Focuses in 2011, and Nissan
anticipates that by 2015, electrics will make up 10% of its global sales 9.
In addition to the Chevy Bolt, GM has also joined forces with Segway on Project
PUMA (Personal Urban Mobility and Accessibility) which aims to develop two-seat
electric powered pods that can address the challenges of traffic congestion and fuel
consumption10. PUMA is about 1/6 the size of a traditional midsized sedan that uses
the same technology employed in Segways PT stand-up transporter 11 with the
additional feature of being able to accommodate two passengers in a protected
environment with speeds up to 25 mph12. Although there are many issues to be
resolved before PUMA will become available in the US markets due to the complex
5 Ibid
6 Ibid
7 Healey, James. Nissan plans to challenge Chevy Volt; Automaker says it can get
electric car to market faster. USA Today, May 7, 2009.
8 Ibid
9 Ibid
10 Kelly, Kevin. The Story Behind PUMA. Automotive Design and Production, May
2009. Vol. 121, Issue 5, page 13.
11 Ibid
12 Ibid
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regulatory environment, both Segway and GM see the projects foundation in


developing markets such as Mumbai, Shanghai and Dubai 13.

QUESTIONS
1. What killed the electric car, GM EV1, and how would you solve the
problem while not bankrupting your company? You can use Tesla as
a model for your solution.

13 Ibid
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