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GM studies Tesla amid fears it will disrupt auto industry

Dan Akerson, Chairman and CEO of General Motors,

Dan Akerson, Chairman and CEO of General Motors, speaks during a ceremony at the Fairfax Assembly Plant in Kansas City, Kan. (Jan. 28, 2013) Credit: AP

As General Motors Co. Chief Executive Officer Dan Akerson sees it, Tesla Motors Inc. has the potential to be a disruptive force to the automotive industry and he doesn’t want to be caught off guard.

The former telecommunication executive has assigned a small team to study billionaire industrialist Elon Musk’s upstart electric-car maker and how it might threaten the 104-year-old automaker’s business, Steve Girsky, GM vice chairman, said last week during an interview at Bloomberg headquarters in New York.

“He thinks Tesla could be a big disrupter if we’re not careful,” Girsky said. “History is littered with big companies that ignored innovation that was coming their way because you didn’t know where you could be disrupted.”

The approach is part of Akerson’s effort to change GM’s culture as he pushes the automaker to move beyond its 2009 bankruptcy reorganization and make it the most profitable car company in the world. He has redirected research and development spending, focusing efforts on commercial applications, quickening implementation and investing money in startup companies that are developing cutting-edge technology.

As Akerson tells it, he really took the fun out of a company forum to celebrate innovation at the automaker when the topic of patents came up.

“We had people with 20 and 30 patents,” he told a crowd in Houston this year. “I was kind of a downer. I said, ‘How many have we commercialized? How many are in our cars?’ None.”

Among Worst

Akerson’s distaste for GM’s old ways is well-documented. He joined the company’s board as part of the 2009 government-backed bankruptcy and $50 billion bailout. He took over as CEO before GM’s initial public offering in 2010, when Ed Whitacre decided he didn’t want to remain for a long term.

As a board member, Akerson “said he thought GM was one of the worst companies he’d come across in his entire life,” Whitacre wrote in his book “American Turnaround.” “And he was not a fan of GM cars — he made that crystal clear.”

Since becoming CEO, Akerson has complained publicly about GM’s “committee culture” and “fiefdoms.” He has pushed a reorganization of the corporate structure to put greater emphasis on Chevrolet and Cadillac as global brands, along with installing new technologies and systems for improved communication and transparency.

Broad Efforts

His efforts have reached far and wide: to stop losses in Europe, develop cars more efficiently and quickly, make drivers more connected, improve customer service and boost quality.

While Akerson and Girsky are encouraging more risk-taking, the CEO is demanding that R&D be concentrated on ideas that car-buyers will want and pay for. During the Texas speech earlier this year, he described an environment that suggested engineers had free rein to work on nearly anything they pleased.

“We pulled that in,” he said.

GM trimmed research and development spending by 9.3 percent to $7.37 billion last year, according to a company regulatory filing in February. R&D has also seen some high-level executive departures, including Chief Technology Officer Tom Stephens; Alan Taub, the R&D head, and Chris Borroni-Bird, who was working on futuristic vehicles.

It makes sense to bring GM’s R&D spending back in line with its size, Eric Noble, president of industry consultant Car Lab, said in a telephone interview this week. Revenue last year was $152 billion, down from $206 billion in 2006.

“General Motors had the most money and their R&D efforts have historically pursued things that weren’t necessarily applicable in the near term,” Noble said. “The fact that they probably can’t afford those sorts of black-box endeavors anymore shouldn’t be new news to them.”

Connected Cars

Girsky, who has been overseeing GM’s efforts to turn around its European business, is spending more time in the U.S., focusing on strategy and innovation after hiring a new leader to run the automaker’s Opel operations earlier this year. He’s specifically interested in connected cars and said paralyzing traffic congestion could be a major problem for automakers in the future.

He replaced Stephens and Taub with Jon Lauckner, the head of GM Ventures, which was set up in 2010 to make investments in startup companies, such as the $7.5 million equity investment in Sunlogics Plc and $5 million into Powermat.

Apollo 13

The investments are, in some ways, an exercise in risk- taking, Girsky said. He recalled a meeting in which one executive estimated that an investment prospect had a 15 percent chance of success.

“That’s good enough for me,” Girsky said. “We told them that if some of these don’t fail, you are not taking enough risk.”

GM is also learning to overcome its internal doubts. Girsky pointed to announced plans for 4G LTE to be in most U.S. vehicles beginning next year and the introduction of the diesel version of the Chevrolet Cruze this year as examples of moving quickly. Both projects were plagued by worries that it would take longer to do than it actually did, he said.

“At some point, the mindset of this group went from ‘we can’t do it, we can’t do it, we can’t do it’ to ‘Wow, not only can we do it, but we’re going to win!’” Girsky said.

He has started giving employees Apollo 13 patches, which honor the 1970 NASA space mission that faced seemingly insurmountable odds that were ultimately overcome.

“The definition of success at R&D used to be how many patents have you generated?” Girsky said. “Well, we have a new definition of success: How much of your stuff actually goes into the car?”

Next-Generation Volt

GM has been a leader in plug-in electric vehicles with its development of the Chevrolet Volt plug-in hybrid. While the Volt was met with disappointing sales, GM is working on the next- generation version that Akerson has indicated could come out in 2015 or 2016. He told an audience in California earlier this year that engineers are working to cut as much as $10,000 from the cost of each Volt, which starts at $39,145.

Tesla’s Model S, priced from $69,900, outsold the Volt in the first quarter, and the company hasn’t announced its second- quarter deliveries yet. The Model S underbody is similar to a skateboard-like concept that GM proposed in 2002 for fuel-cell vehicles, Girsky said.

“That’s what they used,” Girsky said. “It’s fascinating. I don’t know if it’s going to work or not work. All I know is if we ignore it and say it’s a bunch of laptop batteries, then shame on us.”

Paying attention to Tesla is a change for GM, Girsky said. “In the old days, they would’ve said, ‘It’s a bunch of laptop batteries and don’t worry about it and blah, blah, blah,’” Girsky said. Akerson’s “view of the world is this kind of thing can change, can impact our organization. It may not be in his lifetime here, but it will be in somebody’s lifetime. And we need to be prepared.”

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