Walking through the snow-covered streets of Detroit last week, an observer would have struggled to identify an upturn in the great city’s fortunes.
At night the streets are deserted and the monorail train loops the city centre with barely a soul on it. Boarded-up cafés and shops stand as a monument to Detroit’s booming past as the global centre of the automotive industry.
However, behind the doors of the Renaissance Centre and the Cobo Center, location for the 2011 North American International Auto Show last week, a quiet revolution is taking place.
The city’s “big three” carmakers — Ford (NYSE: F - news) , General Motors (NYSE: GM - news) , and Chrysler (Xetra: 710000 - news) — have been fighting back. In the third quarter, Ford posted record profits of $1.7bn (£1.1bn), while GM beat all expectations to raise $23bn in its IPO, reducing the US government’s grasp on the company.
And at the centre of attention is not a roaring SUV traditionally associated with Detroit. Rather, it is a range-extended electric vehicle that slides along the road with barely a sound.
If anyone had doubts about the importance of hybrid and electric vehicles to carmakers, they have been eroded over the past week.
The industrial espionage scandal at Renault (RNSDF.PK - news) , where three managers in the electric vehicle project have been accused of leaking information, shows the value manufacturers are attaching to green car projects. The French government said the scandal amounts to “industrial warfare”.
GM’s Chevrolet Volt was named car of the year at the Detroit show, an award that GM has not been nominated for since 2008.
“Since development began, we believed the Volt had the potential to transform the automotive industry,” Dan Akerson, the GM chief executive, said as he received the award. “Being named car of the year will help convince customers that the Volt is truly a breakthrough vehicle, delivering the benefits of electric driving without the range anxiety associated with pure electric vehicles.”
The car itself is neither a typical electric car, nor hybrid, GM says. It runs for the first 35 miles emissions-free using a 16-kWh lithium-ion battery. When the power runs, an engine using traditional fuel powers up the battery to extend the driving range for another 344 miles.
The car went on sale in the US in December, with GM shifting around 500 models so far, ahead of expectations. In 2011, 10,000 cars will be made, with production increasing to over 25,000 next year as the car is taken across the US and then to China and Europe (news) . It is expected to be on sale in the UK early next year as the Vauxhall Ampera, providing competition to Toyota’s Prius and Nissan’s forthcoming all-electric Leaf.
The man at the centre of the project is Tony Posawatz, GM’s vehicle line director for global electric vehicles and the Volt. His team has been under immense pressure not to repeat GM’s past failure with electric vehicles, namely the EV1, which was canned in 1999 at a cost of $1bn.
Nick Reilly, chief executive of GM Europe, which owns Opel and Vauxhall, says the company has “a free run with the technology”.
He added: “We need to really maximise the use so that GM gets ownership of the concept of the extended-range vehicles. Toyota has had that with the hybrid for a long time. We have an opportunity to do that and for everyone else to follow.”
GM has not confirmed any plans to build the car in Europe, although Reilly believes it could happen within five years, with Ellesmere Port in Merseyside the likely base.
“It depends how generation one [of the Volt] works, how many incentives government are giving, how many rivals come in with this type of car, and whether it becomes a regular volume model. I believe it will become a volume model.”
The initial response from customers and reviews in the US have certainly pleased GM, with compliments about the car’s handling and general drivability. This is adding to confidence in the company after a comeback in 2010. It made profits of $2bn in the third quarter and is expected to be profitable for the year, after cumulative losses of $88bn from 2005 to 2009.
The company is now able to target expansion, with Russia (OMXR.EX - news) and China on the agenda. Reilly took part in company meetings last Thursday on GM’s strategy in Russia, where it has a plant in St Petersburg.
“Everything suggests that market will be the second-biggest in Europe,” Reilly says. “We have got to be ahead of the curve and not just follow it.” In China, the world’s largest automotive market, GM is leading the curve and has the greatest market share of any company, with 13pc. In 2010, sales rose 28.8pc to 2.35m vehicles, more than GM sells in the US.
However, GM’s recovery faces serious challenges if it is to be sustained, not least in the hybrid and electric car segment. The Volt has been a critical success, but critics still question its commercial viability and whether its true objective is really to promote the environmental and technological capabilities of GM.
At $41,000, it is an expensive option for the traditional US consumer. Also, competition is growing, with the Toyota Prius in the US being joined by the Nissan Leaf, the Mercedes SLS E, the Smart Car, the Tesla Roadster and new models from Ford.
China is also investing heavily in the market. BYD plans to enter the US next year with its e6 electric car.
Kevin Wale, GM’s managing director in China, believes the country’s largest manufacturers, Geely, BYD and Chery, are being underestimated.
“They all made between 400,000 to 600,000 vehicles last year,” Wale says. “You put that into Europe and they are a major player. They also work with the best suppliers and design houses. There is not a supplier in the world who will not work for them because they know they will get paid.”
With the Chinese government backing its manufacturers, there remains a nagging concern that GM, a pioneer of the electric vehicle, may have slipped behind rivals in the development of some technology because of its bankruptcy.
Nonetheless, GM is in a stronger position than it was a year ago. The motto of Detroit, Speramus Meliora; Resurget Cineribus, is Latin for “We hope for better things; It shall rise from the ashes.”
It was written following a fire in the 19th century that ripped through Detroit.
It is also apt for GM today. After bankruptcy and four chief executives in less than two years, GM is back to talking about its cars.
The company at the heart of Detroit is once again striving to be the heart of its industry.
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