GM Cash Shortage Causes Volt and Cruze Development Shakeup

By Jason Lu

12.17.2008

As with the past few months, another day means another shoe drops.  This time, as General Motors awaits for Mr. Bush to present a federal bailout package, it has thrown its right shoe at the Chevy Volt and Cruze programs. Although GM has insisted that its financial situation will not affect the development of the Volt, current conditions are making top execs say otherwise.

The plant under construction in Flint, Michigan that was to produce 1.4 liter inline-four engines for the Volt and Cruze has been given a red light in order to conserve much-needed cash. Among other financial cutbacks such as severing sports sponsorships and reducing utility bills, the move will postpone purchases of wallet-thinning supplies such as structural steel in order to save as much cash as possible to pay off GM’s expected $4 billion bill by the end of the year.

“Everything that involves heavy cash outlays obviously is under review,” said spokeswoman Sharon Basel. “Our intent is to still go forward with a new facility bringing that engine to Flint, Mich.”

The 1.4 liter inline-four engines are planned to be used in recharging the Volt to extend its range. It’s also expected to power the efficient Cruze, which is due to arrive at European dealerships in March 2009. At launch though, the Euro-spec Cruze will be powered with either a 1.6-liter 112 horsepower gasoline engine with variable valve timing or a 2.0-liter 150hp common-rail turbodiesel.

However, even with the engine delay, both cars are still on track for a 2010 American debut.

Being me, I had to imagine Chevy dealers saying, “We’ll sell you the car now, but you’ll have to tow it home and wait six months for the engine to arrive.” I certainly hope that’s not the case, and Basel has made it clear that such will not happen.

“We have lots of options. The construction of the new plant is not going to interrupt our plans for the Volt or Cruze,” Basel said. In addition to its plant in Austria which already makes the 1.4 liter inline-fours, Basel also says that there is plenty of time between now and 2010 to set up the Michigan factory and begin engine production.

Although the delay should be temporary, the move does not bode well for General Motors. The Chevy Volt has the potential for shifting the public perception that GM sells a lineup of gas guzzlers, a mindset that has caused the general public to flock towards foreign makes such as Toyota and Honda. The Volt is not only a symbolic marketing tool, but it also plays an important role in GM’s restructuring and turnaround, which is part of the reason why the Volt development has always been one of GM’s top priorities.

When even the most important projects in GM’s playbook are faced with dilemmas such as this, it clearly highlights the desperation of 100-year-old General Motors.

Major projects “are huge cash outlays and we don’t have the cash,” Basel said.

General Motors has been lobbying for federal support, but following the death of a $14 billion dollar bailout package that they need in order to survive 2009, the company’s fate is now resting on the White House. At this point, GM is saying that it only has enough cash to make it to the early first quarter of 2009.

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Author: Jason Lu

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