A Talk with GM's Bob Lutz: New Cars, New Goals

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On Friday General Motors emerged from bankruptcy after only forty days in Chapter 11. Now they’re trying to project the image of the “new” GM. What new cars will they roll out—and what are the company's chances of actually making a profit? Joining The Takeaway from Detroit is Bob Lutz, GM’s Vice Chairman. Lutz began his career in the auto industry in 1963 and he’s in charge of brands, marketing, advertising and communications for GM.

"Our goal is to get back to being a wholly-privately-owned company in two or three years — at the latest four years. And that's the government's goal too."
—GM vice-chairman Bob Lutz on the state of the company

Click through for a transcript of our discussion with Bob Lutz.

General Motors advertisement: This is not about going out of business. This about getting down to business. Because the only chapter we’re focused on is chapter one.

John Hockenberry for The Takeaway: Helping to write that chapter one for the new General Motors is vice-chairman of GM, Bob Lutz, who joins us on the phone from Detroit, Michigan. Mr. Lutz, thanks so much for being on The Takeaway this morning.

Bob Lutz: It’s good to be here. Thanks for having me.

John Hockenberry: It’s great to talk to you again. We’ve talked over many years and this is certainly a very different moment. Although I have to say, General Motors has typically announced some pretty ambitious plans, even emerging from bankruptcy: 10 new products emerging in the U.S. market; 43, or something like that, nameplates. First of all, wouldn’t it be better to focus on one or two successes like the Camero, you sold 10,000 units of that car as recently as a month ago.

Bob Lutz: Camero is white hot. As a matter of fact, we are focusing down. As you know we had to abandon four brands. Which is Saab, Hummer, Pontiac and…actually three brands, and focus down on Buick, GMC, Chevrolet and Cadillac. We’re going about close to 90 market entities or individual models down to a product portfolio sort of in the mid-30s. We’re really concentrating on excellence and I must say, everything we’ve introduced over the past three years has been introduced to tremendous critical acclaim and has in fact sold well. Our problem was financial and market collapse, it wasn’t that we were building bad vehicles that the public wasn’t buying.

John Hockenberry: Although that suggests that now that you’re out of bankruptcy with these huge overhead costs pulled away you’ll immediately be profitable. Is that your prediction?

Bob Lutz: Well, that would be the plan if we had a normal economy. With the 9.8 million annual rate, which is about half of the 17 million that the U.S. market was only two or three years ago…

John Hockenberry: That’s unit sales. That’s number of cars sold.

Bob Lutz: Yeah, that’s unit sales for the whole industry of which we have about 21-22 percent. But as you know Toyota is bleeding losses and cash even faster than we are. They just started out with a much larger money pile. But with this restructuring and with the legacy costs gone, our goal is to break even at 10 million units, which would be an incredible performance. And if we get some sort of economic recovery and it rises to 11 or 12, it doesn’t have to go back to 17, but if we get 12.5-13 million units, yes, we should be very profitable.

Farai Chideya: Alright, Bob, this is Farai. You’re the vice-chairman of General Motors. You were just talking about what it takes for you to be profitable. What are the terms of the government agreement that allows you to operate? What I mean by that is, if you do become profitable, is this profit that you keep? Is this profit you have to pay back to the U.S. government? How do you see that affecting you?

Bob Lutz: Well, it’s true, the U.S. government is the greatest shareholder. The government is not directly involved. The government has appointed some new board members, but it will be run exactly like a private company and it will be run for the benefit of its shareholders. We have some government loans which we want to repay as quickly as we can because we want to get rid of the interest expense and then in phase two we want to be profitable enough and successful enough that the stock rises, and then the U.S. government will successively sell its shareholdings and we will replace it with private equity. Our goal is to be back being a wholly privately owned company in two or three or at the latest four years time and frankly that’s the goal of the U.S. government, too. The U.S. government has absolutely no interest in owning a car company.

John Hockenberry: So you’re tracking that stock rise to get you out from underneath the government obligations in the next two to three years.

Bob Lutz: Nobody knows what the real timetable is because nobody knows how the economy is going to develop. If we have some sort of rapid economic recovery and car sales overall are higher, it could be earlier. If we sort of cruise along in the economic doldrums for the next five or six years it could be longer.

John Hockenberry: We don’t want to talk finances with you because, in many ways you typify the notion of style and design as the key core value of General Motors and the success of the American auto industry. But I’m wondering in this downturn, this economic downturn where you’ve also got energy prices at a high level, that America’s love affair with the automobile has cooled, and people look at cars as transportation, and that for the new GM maybe Bob Lutz is exactly the wrong guy who is so associated with the sexiness, the lifestyle, the whiz and pizzazz of cars. People just don’t look at them that way anymore.

Bob Lutz: Well, your postulative is actually wrong. There is a category of people that buy automobiles that are appliances. Let me just give you an example: The old Chevy Malibu was an appliance. We had a huge amount of trouble selling it. The average transaction price, because of all the discounting was about $16,500. Along comes the new Malibu, where we spent some money on making it absolutely gorgeous and making it look like it was $20,000 more expensive than it actually was, and the average transaction price is $22,500 and we’re at the limit of capacity.

John Hockenberry: Wow.

Bob Lutz: The same thing, so style is the number one differentiator. The old Chevy Equinox, which most people remember as a perfectly serviceable vehicle, it did the job fine, it had good fuel economy. The new Chevy Equinox which is restyled inside and out, and of course has some mechanical improvements, but when the first ones hit the dealers the dealers were ecstatic because they knew this thing was going to be white hot. And sure enough, it is.

John Hockenberry: Well we started talking about the white hot Camero, do you have to fuse the Camero with the Volt to sell the new breed of cars that General Motors is counting on?

Bob Lutz: We have to do both. We have to be energy conscious. We have to gradually transition the company to the electrification of the automobile, which with finite petroleum resources I think is inevitable. But we’re going to try to do that with style too. But your mentioning of the Camero is the perfect example of the fact that automobile purchases are not rational. I’ll tell you another demonstration that they’re not rational is the rejection by many people of domestic brands. I’ll say to some Mercedes or BMW owner, “Drive this new Cadillac CTS.” “Well…” “No drive it. Just drive it for a couple of days, I want you to try it.” The person comes back and says, “That car is fantastic!”

John Hockenberry: The rationality or irrationality of car purchases, Bob Lutz is going to have to live or die by the irrationality of Americans. Bob Lutz, thank you so much.

Bob Lutz: Thank you.