Larry Burns is not your
typical ecological warrior. After all, he works for one of the
largest corporations in the world, in
an industry whose products are often fingered by environmentalists
as contributing to global climate change and urban smog.
Yet Burns, vice president of research and development for General Motors, is
the visionary largely responsible for helping to transform a company that has
been viewed as an environmental villain into a leading advocate for the “hydrogen
economy”—the long-sought-after chimera of environmentalists that
suddenly seems within our reach.
No doubt GM faces an uphill battle as its market share has declined from 33 percent
in 1995 to 26 percent in 2005 (see accompanying chart). Furthermore, though still
the global leader in sales, GM is in the midst of a major cost-cutting campaign.
CEO Rick Wagoner has been focused on revenue growth and reinvigorating GM brands
such as Chevrolet and Buick, but huge legacy costs associated with retirement
commitments to employees no longer working for the company has limited his options.
Proposed cuts in its workforce would drop GM’s worldwide employee totals
below 300,000 for the first time since World War II.
Consider the following sobering statistics:
30,000 jobs are set to be cut by 2008
12 manufacturing facilities will be closed by the same date
An accumulative 30 percent drop in production capacity between 2000 and 2008
Like Ford—the other Detroit-based U.S. automaker witnessing reduced sales
of the SUVs that have provided much of the profit over the past few years—GM’s
challenges today stem from their slow response to changing market conditions,
according to experts in the auto and financial community. Author Gregg Easterbrook,
for example, claims the shift from U.S. to Japanese car makers over the past
decade is largely a result of the fact that we all live in a “smaller world” that
now demands a greater emphasis on fuel and energy efficiency.
GM’s Hummer is perhaps the ultimate example of this over-reliance upon
giantisms and a reluctance to shift gears and offer products that respond to
today’s social needs. In response to these criticisms, GM is now working
with German automakers DaimlerChrysler AG and BMW AG to develop a simpler hybrid
system than Toyota’s. Relying upon this “sisters in innovation” approach,
GM is hedging its bets. Though its hybrid system does not offer the same level
of fuel savings as the Toyota design, it costs less and is more easily configured
into the large SUVs and larger cars that form the bulk of GM brands. While GM
is indeed moving into that trendy segment of the auto market, its long-term bet
still lies with hydrogen. High gasoline prices have fueled the current hybrid
craze, but these same high fuel prices also make hydrogen attractive.
GM actually developed a fuel cell vehicle back in 1966, long before the other
major car companies began to look beyond petroleum. Fuel cells operate more or
less like a battery and run on hydrogen to create electrical—rather than
mechanical—energy. Unlike a battery, fuel cells do not need to be recharged.
They will produce electric power as long as there is hydrogen fuel and oxygen
(from the air) available. “We discontinued fuel cell research in the seventies
and eighties because the technology was not ready for automotive application,
and we needed to focus our resources on advancing more conventional automotive
technology,” Burns said. He added that when manufacturing pioneer Geoffrey
Ballard achieved a breakthrough in fuel cell power density and endurance in the
nineties, thereby making fuel cells more practical for automobiles, “we
ramped up our fuel cell program again and began to develop our own intellectual
In 2004, GM announced the largest single fuel cell transaction with the Dow Chemical
Company, the world’s largest chemical manufacturer and one of the largest
producers of hydrogen in the world. Dow was looking for a way to make the best
use of an industrial byproduct. Under the terms of the agreement, Dow could eventually
use up to 35 megawatts of power generated by 500 GM fuel cells—each capable
of generating 80 to 100 kilowatts of electricity—during the commercialization
phase of the agreement beginning this year. This agreement allows GM to test
its fuel cell prototypes and speed up the commercialization process.
According to Burns, GM is the first major auto company to truly come to grips
with the fact that hydrogen and fuel cells are the right combination to not only
solve vexing problems with our status quo transportation systems, but also provide
a unique opportunity to expand the market for automobiles in the developing world. “Only
12 percent of the people in the world own vehicles,” pointed out Burns. “An
attractive way to accelerate growth in the developing countries is to build cars
that are affordable, safe, compelling and sustainable from an energy and environmental
standpoint. GM believes that fuel cell vehicles are key to revitalizing the auto
industry while delivering higher value to our customers—and higher margins
Burns summed it up this way: “We want to completely reinvent automobiles,
and in doing so reinvent the industry. The only way fuel cell vehicles matter
is if they sell in high volumes. The industry sells about 60 million vehicles
annually, and there are about 700 million vehicles in the world today. So we
need to reach very high levels of sales to make a real difference in reducing
petroleum consumption and addressing environmental challenges.”
Another significant advantage is that fuel cells enable revolutionary designs
like GM’s Hy-wire concept. Hy-wire contains the fuel cell and other vehicle
systems within a “skateboard” chassis that is topped by a body that
can be easily interchanged. Thus, the skateboard could provide the same basic
architecture for many types of vehicles—sedans, trucks and SUVs—keeping
development and manufacturing costs down, Burns said. He added that a vehicle
like Hy-wire could also be upgraded through software rather than by hardware
changes, boosting its appeal among those cognizant of the importance of durability
to their pocketbooks as well as the environment. In GM’s view, the car
of the future becomes a platform that can easily incorporate new innovations
into its functionality over time.
GM today is devoting the single biggest portion of its research and development
budget to fuel cell technology. It has set goals of making fuel cell vehicles
commercially viable by 2010 and being the first car company to have a million
fuel cell vehicles on the road. Despite critics who contend that the hydrogen
economy is fraught with problems—a huge price tag, energy losses in converting
electricity to liquid hydrogen fuel, and even some fears of increasing the size
of the ozone hole—Burns is unfazed. “I haven’t seen a show-stopper
yet,” he declared. “Even developing a hydrogen infrastructure may
not be as big of a challenge as we originally believed. Our most recent analyses
suggest that an initial infrastructure to fuel hydrogen vehicles across the U.S.
could be developed for $10-15 billion.”
Yet challenges remain. GM’s marketing chief Mark LaNeve has wanted to shift
the company away from major discounting of its cars, but that practice continues
in 2006. The wave of the future, nevertheless, remains with new kinds of innovative
cars, including those fueled by hydrogen. Merrill Lynch estimates that the average
number of new vehicle launches will rise from the historical average of 35 to
54 annually during the next three years.
If GM can shift the public’s fascination with hybrids to the even more
revolutionary step forward epitomized by hydrogen, the company may be able to
hold on to its global lead in sales figures. However, GM needs to make more money
on the vehicles it sells. In 2004, for example, GM sold its cars for $1 less
than the average price tags in 2003. That is not sustainable. Of course, sustainability
comes in many forms. By gambling on hydrogen in such a big way, GM is trying
to prove that large multi-national corporations are offering better products
to address pressing social concerns. But that embracing of environmental and
social values in the development of their new products does not guarantee success
in today’s increasingly unforgiving global marketplace.
Bruce Piasecki is founder and president of the AHC Group of
Saratoga Springs, N.Y., a change-agent consulting firm that serves
Fortune 500 and other companies.
His books include In Search of Environmental Excellence (Simon & Schuster,
1990), co-authored with Peter Asmus, a corporate social responsibility specialist.