Breaking bread with General Motors Vice Chairman Robert Lutz was like auditing a strangely entertaining master's course in economics and marketing – and not just the marketing of cars. Lutz knows a thing or two about farmers' markets as well.
Lutz had recently returned from an Auto Show in Frankfurt, Germany. He likened American and European taste in cars to the kind of fruit you find in their respective markets. "Americans like everything big and beautiful," he noted, mentioning the size of the peaches in our produce aisles.
"But those gorgeous big peaches often taste mealy," he said. "In Europe, you'll find smaller fruits with bruises, and they taste fantastic, all juicy and sweet."
It turns out that Bob Lutz is a gardener, and takes particular pride in his annual crop of tomatoes.
As I'm not an expert in economics, marketing or horticulture, I basically sat and listened to the freewheeling conversation between the 75-year-old automotive executive and six bloggers who write about cars, energy and the environment… and I took lots of notes. Unfortunately, I can't write as fast as Lutz can speak – and the man ended up speaking virtually non-stop for more than an hour. So what follows is merely an impression of what was said. (If you want to hear the full and accurate extent of the conversation, you can do so by listening to my dinner mate Matt Kelly's podcast of the evening. )
Of course, one of the first topics of conversation in this room was the Chevrolet Volt, a vehicle Lutz has referred to as "a whole new ballgame for the industry." He thinks the Volt will appeal to the same market that's buying the Prius, "a large and growing market of people who want the world to know that they are doing the right thing."
He told us that the car's first experimental battery packs will be installed this month. They'll be testing them on "welded-together old Malibus," he said.
"The battery guys are absolutely confident that these packs will work," he said.
Lutz promises more media events of this type next year. "GM wants to be transparent about the development of the car, including any problems that arise."
At the Frankfurt Auto Show he'd just visited, Lutz was surprised at how many companies are developing vehicles similar to the Volt, including Volvo, Mitsubishi and Nissan; the latter claiming that their vehicle will have a 160 mile range.
He said that General Motors is committed to recapturing environmental leadership from Toyota, and predicted that "if you pit the GM team against Toyota, we will win."
"We've learned the quality and reliability thing. And on a level playing field, GM can win against Toyota," he said.
The wild card is U.S. regulations, and tinkering with the CAFE standards.
CAFE, which stands for Corporate Average Fuel Economy, is set by the National Highway Transportation Safety Administration (NHTSA), and is defined as "the sales weighted average fuel economy, expressed in miles per gallon (mpg), of a manufacturer's fleet of passenger cars or light trucks with a gross vehicle weight rating (GVWR) of 8,500 lbs or less, manufactured for sale in the United States, for any given model year. Fuel economy is defined as the average mileage traveled by an automobile per gallon of gasoline (or equivalent amount of other fuel) consumed as measured in accordance with the testing and evaluation protocol set forth by the Environmental Protection Agency (EPA)."
GM publicist Chris Pruess interjected that even the experts they consulted in Congress "claimed they had no idea how the formula works."
The current CAFE figure mandated by government is 27.5 mpg. The Senate has been talking of raising that standard to 35, which Lutz asserts "will kill us."
"We can get there technologically," he said, "but commercially, it is a problem because it would cost so much… At 35 mpg, we would have to eliminate some vehicles and add about $10,000 of technology to the rest of the lineup."
This is why Toyota is also fighting a higher CAFE, he said.
Lutz is passionate about this subject. He feels that government regulation is the wrong way to create fuel economy. As he said last year on his GM FastLane Blog:
"You can't legislate people's vehicle choices through CAFE increases. As I've said before, that's like trying to address the obesity problem in this country by forcing clothing manufacturers to sell smaller, tighter sizes. It just doesn't work that way."
At our dinner, Lutz said, "if we really want to conserve gasoline, we raise the price. Gas is $7 per gallon in Europe and everyone there drives smaller, more efficient vehicles. This would drive consumer behavior more than mandates."
He quickly added, "GM is not going to say we support higher gas prices. But if Congress was really determined, they would put the consumer in the game."
Underlying the discussion of fuel economy was the specter of global warming. Lutz reminded the group that every living creature emits carbon dioxide. He said that when the oceans evaporate, they emit carbon dioxide. "Out of all the global CO2, only 0.4% is caused by motor vehicles," he said.
He has given this subject a lot of thought. "Methane is 21 times more potent that CO2 if you are concerned about the greenhouse effect," he said. "It's Important to realize that you could immobilize every car and truck on the planet and it wouldn't make a difference to global warming."
The real culprit, he said - "and everyone is reluctant to say this" - is overpopulation.
Somehow, the conversation turned to the old Chevrolet Nova. For years, the story has been bandied about that the popular model from the 1960's and '70's was a dud when marketed in Mexico, because in Spanish, "No va" means "it won't go."
As much fun as that story is, Lutz says it's completely untrue. "The word 'nova' is the same in Spanish as it is in English," he said. "The word is derived from the Latin root for 'new.'" He doesn't believe that Hispanics rejected the car. This story was a "quaint conjecture of the US press."
Lutz was asked a question about the breadth of GM's offerings. He agreed that "GM does have too wide a portfolio."
He admitted that before returning to the company in 2001, he couldn't tell the difference between any of the Buick sedans. He said that one of the things he's done since then is to refocus all the corporation's brands.
"Pontiac is going to be very tightly focused and no longer just versions of Chevy," he said.
Lutz talked about the benefits of global leverage, where each of GM's international divisions does what it does best.
"If you buy a Saturn, it's an American car, even if it's based on Opel. It's GM's intellectual property," he asserted. But, if you buy a Toyota – even if it's built in America – you are supporting the Japanese economy."
All of the GM representatives we talked to that evening were proud of the redesigned Cadillac CTS. According to Lutz, "There's a certain class of people who have become bored with the usual choice of BMW, Mercedes and Audi. The CTS is a welcome change."
He was asked: How does a company like GM weather a recession?
"First a disclaimer," he said. "I am not an economist. But I did well in economics in school. I don't believe we'll have a sharp recession; just an adjustment. But the economy seems to be adjusting very well."
As for GM, he sees no reason to panic. A US recession doesn't affect the corporation's other markets, like Europe and China. "There's still plenty of market expansion in regions outside the U.S.," he said. "We're experiencing double digit growth there – growth that doesn't necessarily have a 1 in front of it."
He admitted that the company is shifting a lot of its manufacturing to areas that are more efficient, which means that they are shedding jobs here. If this conversation had taken place after the recent one-day UAW strike, there may have been some follow-up on this line of questioning, but we kept on talking about GM's global markets.
Lutz noted that there are lots of reasons why American cars are so expensive today. In developing countries, they are still able to sell bare bones vehicles that are cheap – vehicles like our parents owned 30 years ago. But in highly developed countries, safety and fuel regulations mean we can only sell highly sophisticated, expensive cars."
Asked about the future of Chinese car companies, Lutz said that the Chinese have a "relentless drive for precision and perfection." He predicted that their first generation cars will be similar to those of Toyota, Honda and Hyundai, but as with those brands, subsequent generations will produce world class vehicles. "There is no question that the Chinese will be highly effective competitors," he said.
Lutz said that this is "both the most exciting and thrilling – and scariest – time in the automotive industry."
After an evening discussing the energy, the environment and world economy, it was almost shocking when the topic turned to performance vehicles. Lutz was asked when a new model Corvette can be expected. Despite the company's current environmental/energy focus, Lutz agreed that "we have to take care of the other end" of the spectrum.
"We have no intention of letting the Dodge Viper best the Corvette," he said. "As an auto company, we cannot afford to pick our orientation and cater just to that segment. We have to differentiate. "
Lutz said he would hate to make the statement that a Corvette will not run on a lithium ion battery at any time. He noted that there are members of the European Parliament who are talking about banning all sports cars. "If it comes to that, we may want to consider a battery operated Corvette."
He then mused about the possibility of designing a diesel Corvette, as diesel engines provide "incredible torque." He added that Porsche has not ruled out diesel engine products.
From performance to luxury cars and luxurious features, Lutz stated that "Consumer desire for the extraordinary item is part of an affluent society. Luxury is buying capability they will never actually NEED. To want those things is normal human behavior."
He pointed out that from a purely needs-based viewpoint, "nobody needs more than a two-year-old off-lease Chevy Malibu that still has 40,000 miles on its warranty. It's reliable, safe, roomy and can be obtained for $12,000. If strictly for transportation, everybody would drive that and achieve what they need at the lowest cost."
But people want more, and to a man like Bob Lutz, that's what makes the world go round.
It's like peaches. Some people like them big and flashy - while others would rather go for good taste.
There's room in the market for all of them.
This month, I'm kicking off a new series of posts here at SoCal Mom and at my review site, SoCal Stuff.
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