What this covers
Jonathan Rauch, a writer from the Brookings Institution and the Atlantic Monthly, sits down with EconTalk host Russ Roberts to examine GM's Chevy Volt as a case study in organizational risk and cultural change. Rauch spent considerable time at GM's facilities reporting on the project and brings that insider access to a conversation that treats the Volt not primarily as a technological problem but as a deliberate corporate gamble—one designed to force the company to overcome its chronic inability to follow through on breakthroughs. The discussion spans the Volt's engineering logic, GM's troubled history with electric cars and hybrids, the competitive landscape Tesla and others are creating, and the external factors—gas prices, climate perception—that will ultimately determine whether the bet succeeds.
The conversation moves across several distinct territories. Rauch explains the Volt's clever design, which exploits the fact that 75% of daily driving trips fall below 40 miles, and contrasts it with GM's failed EV1 from decades earlier, which suffered from short range and prohibitive costs. He traces how Tesla's 2005 announcement catalyzed GM's pivot toward electric propulsion and discusses the company's own earlier misstep of abandoning hybrids just as Toyota dominated the market. Throughout, Rauch emphasizes that the hard problem is not battery technology but sustained organizational commitment—a weakness illustrated by GM's pattern of impressive breakthroughs (Saturn, fuel-cell research) followed by corporate retrenchment and mediocrity. The conversation also touches on California's zero-emission mandate, the climate and economic logic of grid-charged vehicles, and whether the Volt's success, if it comes, would paradoxically strain GM's finances because the company expects to lose money on each unit sold.
Rauch argues that the Chevy Volt is less a technological gamble than an organizational and commercial one: GM is deliberately taking a huge, public risk on an electric car to force a change in its risk-averse, follow-through-failing corporate culture.
- The hard part of the Volt is not the battery but sustaining commitment and changing GM's culture, which has historically failed to build on breakthroughs (Saturn, EV1).
- GM broke its own rulebook by building car and battery simultaneously and going fully public, raising the price of failure on purpose.
- Commercial success of the Volt would itself be a financial strain because GM loses money on each unit, and outcomes hinge on uncontrollable factors like gas prices and global warming perception.
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A fuel cell car is really an electric car—it uses hydrogen and a catalyst to generate electricity that runs the car—and recognizing this internally melted GM's resistance to building an electric car, since they realized they had effectively been pursuing electric propulsion all along.
“a fuel cell takes hydrogen and uses a catalyst to convert it to guess what electric power which runs the car people think about the fuel cell as a hydrogen powered car and it is in the sense that you put hydrogen in it but it's really on electric powered car”
The Volt's design is clever because 75% of days people drive less than 40 miles, meaning most Volt drivers on most days won't need to burn any gas at all.
“what's really clever about it is that 75% of days people drive less than 40 miles which means that most bolt drivers on most days won't need to burn any gas at all”
Plug-in electric cars offer a grid benefit because they can be charged at night using spare capacity that would otherwise go to waste, effectively turning the car battery into storage for off-peak electricity, though once hundreds of thousands are on the road additional power plants would be needed.
“one of the nifty things about plug-in electric cars generally is the battery in the car becomes storage for electricity that otherwise would go to waste so during the night you download electricity into your car battery and then you drive around on it during the day”
GM initially conceived the Volt as an 'iPod car'—analogous to how Apple's iPod contained no new technology but repackaged it to reposition the company and change how people think about music—but GM escalated from a ~10-mile plug-in to a 40-mile range to break the public's perceived link between gas tank and automobile.
“they call it the AI car they want it to be like the iPod the thinking there is that there's no new technology in an iPod it's a new package though it changes the way people think about the product”
Tesla's 2005 announcement of an all-electric lithium-ion roadster catalyzed GM's decision, because Bob Lutz argued that if a tiny Silicon Valley startup could produce and market an electric car, it was no longer acceptable for him to hear that GM could not do it.
“he basically just started pounding the table he told me he lost it in a meeting at GM and he said if this little company in Silicon Valley can produce and market an electric car it is no longer acceptable for me to hear that GM cannot do it”
By 2005-2006 GM's brand had become so damaged that focus groups liked GM cars better when the nameplate was removed, and they liked them less once told they were GM.
“they do these focus groups and discover that people like the GM cars better if you take the name tag off once you tell them GM they don't like it anymore that's how bad the brand has become”
The EV1 was a technological masterpiece in reduced rolling friction, aerodynamics, battery and internal controls, but it failed commercially because its range (initially 70-80 miles, never above 110) was too short, charging took 8-10 hours, and GM lost money on every handmade unit it produced.
“everybody who's ever dealt with it inside GM outside a gym they say this car was a technological masterpiece in terms of its reduced rolling friction its aerodynamics the battery the internal controls”
Internal combustion triumphed over electric and steam cars in the early automobile era because gasoline is an extremely energy-dense substance and there was no practical way to store and carry electricity in a car until lithium-ion batteries arrived a few years ago.
“internal combustion triumphs because gasoline got very good gasoline is a very high energy energy dense I guess is the phrase substance and you couldn't figure out a way to store electricity and carry it around with you in the car and that was the killer problem until just a few years ago when lithium-ion batteries came along”
Building a single automobile is a miracle of capitalism given the sheer number of moving parts that must work together and arrive at the end of the assembly line at the same moment, with a conventional new model costing $250-500 million (sometimes up to a billion) and the Volt program costing on the order of half a billion to a billion dollars.
“building a brand-new model car conventional car internal combustion car is a two hundred fifty to five hundred million dollar enterprise sometimes more than that depending on the car can it can even be a billion”
GM will likely ramp up its lobbying department alongside its engineering department to ensure the EPA interprets the inherently ambiguous mileage estimates for a car like the Volt in GM's favor.
“GM will also be ramping up its lobbying Department to make sure that the EPA interprets those mileage estimates in their favor because it's inherently ambiguous as you point out”
GM's decision to kill its hybrid program in the early 2000s was a far bigger strategic mistake than the EV1 fiasco, because they walked away from the hybrid market just as it took off, letting Toyota become master of the hybrid market and gain an enormous image boost from the Prius despite GM's technology being at pace with Toyota's at the time.
“killing the hybrid program was a strategic mistake because they walk away from that market just as it takes off toyota becomes master of the of the hybrid market the prius gives it this enormous image boost”
The Prius's popularity is driven substantially by perception and the desire to do the right thing rather than measurable climate impact, as illustrated by a chemistry professor who admitted the Prius didn't really affect global warming yet owned one anyway.
“Mike Munger the Duke University quoted the professor of the chemistry department there who admitted that the Prius didn't really have any impact on global warming but it he owned one anyway because it was the right thing to do”
The popular story that American carmakers destroyed the electric car to protect gas profits is not the whole truth; GM internally was proud of the EV1, and it was destroyed because lawyers told them liability risk from supporting experimental cars on the street was too high.
“the true story is that inside GM they're extremely proud of the ev1 and they feel it's the case of no good deed went unpunished and the reason it got destroyed they tell me off the record is because the lawyers told them they had to do it there was too much liability risk”
A growing view in the car industry since the 1990s is that dependence on gasoline is the growth bottleneck for the industry's future, because it is a fuel that causes global warming, enriches dictators, and has enormous price volatility, so manufacturers want to get off gasoline to remove a constraint on growth.
“a lot of people in the car industry this is a sea change since the 90s have come to see dependence on gasoline as the growth bottleneck in the industry's future they think that the real constraint on the ability to grow the car market will be dependent on a fuel that causes global warming that puts money in the pockets of dictators that has enormous price volatility”
The zero-emission mandate of the 1990s was misguided because even an all-electric car produces emissions from the power plant generating its electricity, so it merely relocates emissions; moreover the mandate distorted the market by shelving the range-extended hybrid concept (the eventual Volt design) years earlier because it wasn't technically zero-emission.
“there is no such thing because even an all-electric car you've got the emissions from the power plant that makes the electricity”
GM has a recurring pattern of falling behind and attempting 'Hail Mary' technology passes that fail, exemplified by Roger Smith spending roughly $40-50 billion on robots and high-tech manufacturing for virtually nothing while Toyota won by slogging ahead with continuous incremental improvements and no big technology gambles.
“Roger Smith for instance decided to have a massive plant modernization program and spent something like 50 40 billion dollars is the number that's just thrown around on robots and high-tech manufacturing and that money went right down the drain”
GM's chronic downfall is not the inability to achieve breakthroughs but its failure of follow-through; the Saturn succeeded with great cars, dealer network and waiting lists by 1992-93, but GM let it languish—folding it back into the bureaucracy, starving it of product, and letting cars get mediocre—because unions and management resisted Saturn's special privileges and it only broke even.
“GM downfall time and again also for instance with the joint venture with Toyota has been follow-through it's it's not striving for the breakthrough its capitalizing and building on it sticking with it”
GM's importance to the American economy by employment has shrunk dramatically, from a peak of roughly 600,000 US workers in 1979 to around 100,000 today (with roughly 75,000 unionized), so unlike in the era when GM was seen as running the economy, the public now has little stake in which competitor wins the electric car race and will benefit from the competition itself.
“in 1979 GM was at its peak of employment I think it had 600,000 US workers today I think that number is around a hundred thousand and I know that it's unionized workforce is closer to 75”
GM believes the new CAFE standards (raised from 25 to 35 mpg corporate fleet average, effective around 2020) have inadvertently handed the Volt a business case, because no carmaker knows how to meet the standard with existing technology, and a very fuel-efficient Volt would create room within the mpg standard to keep selling conventional cars, buying breathing space for the transition.
“neither they nor any car maker in the world knows how to meet that standard with existing technology in order to do it you're going to need a different kind of car and they believe that these cafe limits have handed the Volt a business case”
Electric propulsion is inherently superior to internal combustion for driving feel because an electric motor delivers full torque immediately without going through gears—it is either fully on or off—making it smooth, clean, and quiet; the only problem is the battery.
“when you turn on an electric motor it's completely on all the way doesn't have to go through gears to get up up to full torque it's either on or it's off full torque immediately it's great it's smooth it's clean it's quiet the problem is the battery”
Even on coal-generated electricity, the better calculations suggest a plug-in electric car does slightly better than a gasoline car on global warming, and far better if electricity comes from hydro, methane, or nuclear sources.
“even on coal power the better calculations i've seen suggests that a plug-in electric does slightly better than a gasoline-powered car and of course if you're getting your electricity from hydro or methane or nuclear which was nuclear then the effect on global warming are are far better”
GM's plan to get the Volt into dealer showrooms by late 2010 is fantastically ambitious because it means developing and getting an entirely new type of car to market in no more time than it takes to build the next model of an ordinary car.
“trying to do it two years from now basically means developing this car and getting it to market in no more time than it takes to build the next model of any ordinary car that's out there on the road it is a fantastically ambitious time scale”
Much of the Volt gamble depends on factors outside GM's control—primarily the price of gasoline and public perception of global warming—and at the time of recording both were trending unfavorably for the Volt, with gas prices falling and a cooler year dampening climate concern.
“there two things that are totally out of GM's control mostly out of their control one is the price of gasoline and the other is the world's perception the public's perception of global warming”
The Volt faces real competitive pressure because it is not operating in a vacuum: Toyota plans a much less ambitious experimental plug-in fleet before the end of 2010, Tesla is developing a family sedan, and Nissan and others are entering the race partly as a result of what GM is doing.
“Toyota has announced that they are going to have a plug-in electric car in experimental fleets meaning hundreds of cars not tens of thousands so it's much less ambitious than what GM is talking about”
The 40-mile battery is extremely difficult because it requires a very large, sophisticated battery with 300 cells where if any one cell fails the whole battery can stop working, plus complex software and control equipment just to prevent overheating; outside critics argued a 20-mile battery would have been much easier and less risky.
“it requires a very large very sophisticated battery with 300 cells and at any one of which goes out the whole battery stops working potentially a very complicated software and control equipment just to keep the thing from overheating”
The Volt aims to be the first mass-market plug-in electric car you can drive most of the time without burning gas, achieving this by driving ~40 miles on a battery charge and then using an onboard gas-powered generator to recharge the battery, so the wheels only ever see electricity.
“the car will drive 40 miles on a charge you plug it in at night it charges up in a ordinary electrical socket in six to eight hours you drive it up to 40 miles and then after 40 miles it's got an onboard internal combustion-powered generator which recharges the battery on the road so all the wheels ever see is electricity”
GM never did the normal corporate balance-sheet calculation for the Volt; whereas most cars are fully designed on paper and then costed out with a business plan before the accountants, with the Volt GM decided to build the car first and wait for the business plan afterward, born of GM's dire need for a change of image and culture.
“most cars as Bob Lutz told me you design the entire car on paper and then you cost it out you put it in front of the accountants and you make sure there's a business plan for the car this car they never even did that they said GM has got to have a breakthrough product we're going to build the car first and then wait for the business plan”
The Volt's deeper challenge is not technological but organizational and commercial: changing GM's risk-averse corporate culture and breaking through with a radical new product in a possibly unready market while financially weak, making it much more a business risk than a technology risk.
“I left the story thinking no this is really a story about the organizational hurdle of changing a corporate culture and the commercial hurdle of breaking through with a radical new prod in a market that may not be ready when you're financially weak it's really much more a business risk than a technology risk”
GM is deliberately using the Volt to increase its 'risk-taking metabolism' and force a change in its corporate culture by making the price of failure too high through full public exposure—they know it will be hard and that failure will be public, but the openness is part of the point.
“they were using it as a way to increase their risk-taking metabolism they took this risk on purpose they knew that it was going to be hard”
The Volt's commercial gamble is paradoxical: if the car is a hit commercially it becomes a strain financially because GM will lose money on every unit even at a ~$40,000 price, and they plan to sell them in the hundreds of thousands as a Chevrolet for one-car families rather than a niche toy for the rich.
“the financial gamble here is that if the car is a hit commercially it's a strain financially and that's not the ideal place for a car company to be with a new product a popular loss leader”
To build the Volt, GM had to shred the car-making rulebook in two key ways: instead of solving the hardest problem (the battery) first and then building the car around it, they pursued real-time invention building car and battery simultaneously; and instead of a secret skunkworks, they went public early so the world would see how hard they tried even if it fails.
“GM decided they're going to go for real-time invention they're going to build the car and the battery at the same time which means if they have problems with the battery the whole car stops in its tracks and they miss their deadline so that's rule number one that they break”
GM is acting boldly precisely because, despite its size, it now sees itself as an underdog in the car market—trying to reproduce a startup mentality in the center of a 100-year-old bureaucracy—a reversal from the era when GM was seen as effectively running the entire economy.
“GM for all its size now thinks of itself is something of an underdog in the car market”
Welcome to econtalk and introduction of the guest.
“welcome to econ talk part of the library of economics and liberty I'm your host Russ Roberts”