GM And Daimler Are Stepping On It

They're teaming up on hybrids to counter rivals' unexpectedly popular models

General Motors Corp. (GM ) and DaimlerChrysler (DCX ) have been among the last major carmakers to get behind gasoline-electric hybrids. While Toyota, Honda, and Ford (F ) all have months-long waiting lists for their hybrids, GM and Daimler have scoffed at the technology. Daimler has bet heavily on diesel engines, arguing they're better at saving fuel. While GM has said it would produce hybrids, it has asserted that hydrogen fuel cells are the real future.

So why are the two giants suddenly rushing to get into the race? On Dec. 13, the pair announced they would team up to build hybrid systems that will help both companies develop fuel-efficient vehicles faster and more cheaply. Fact is, GM and Daimler have little choice: Hybrids are fast becoming America's fuel-saver of choice, and the longer these two wait, the further behind technology leader Toyota Motor Corp. they risk falling. "Neither company was sold on hybrids two years ago," says Brett Smith, analyst at the Center for Automotive Research (CAR) in Ann Arbor, Mich. "But they've realized there's a market."

Catching their rivals will require hitting the gas hard, though. While Toyota is already on its second-generation of hybrid offerings, the first models from the GM-Daimler collaboration won't roll off the line until 2007. By then, the Japanese giant will have had two more years to perfect its technology, build up sales volume, and bring down costs for what remains a pricey product. Even Honda and Ford, which aren't as far along as Toyota, will between them have six hybrids on the market by then. GM knows what it has to do. Says Thomas G. Stephens, group vice-president for powertrain development: "I have to offer good value, so I need to get the costs down."

That explains the tie-up with Daimler. GM had already planned to sell hybrid SUVs in 2007, but it needed partners to help defray the development outlays. By sharing its hybrid technology with Daimler, moreover, GM is betting that the more models out there, the cheaper it will be to produce them. Longer term, GM hopes to persuade other carmakers to license its technology. Toyota already has licensed hybrid patents to Ford, sold a system to Nissan, and talked to Porsche.

At least GM and Daimler won't be starting from scratch. A few years ago, GM developed a hybrid system for city buses, figuring public transit authorities had a greater need to save fuel than the average driver. GM's technology powers 335 buses in 18 U.S. cities. The idea is to modify that technology for passenger vehicles. GM will focus on truck and SUV hybrids; Mercedes on big luxury sedans.


It is no accident that GM and Chrysler will put the new hybrid system into their trucks first. Downsizing a system first designed for big buses so that it works in SUVs such as the Chevrolet Tahoe and Dodge Durango can be done with only minimal changes to the technology, says CAR's Smith. By contrast, he says, Toyota's system -- designed for small and mid-size cars with front-wheel drive -- may require more changes to make it work in big rear-drive trucks. What's more, GM's hybrid technology is expected to cut SUV fuel consumption by 25%, to about 21 mpg. That's a big deal in a segment that generates most of the operating profits at GM and Chrysler.

First, though, the duo will have to get the technology right. One of the biggest challenges: developing the software that controls a hybrid's gas and electric motors. Rivals say it will be hard to fine-tune technology designed for buses for regular vehicles. Says one Honda Motor Co. exec: "No one expects a bus to run smoothly."

Meanwhile, the hybrid pioneers aren't sitting still. By 2007, Toyota alone expects to have sold 200,000 hybrids, giving it the kind of sales volume that could provide a big cost advantage over GM and Daimler. Today, hybrids still cost an average of $3,500 more than conventional vehicles -- a premium Toyota and Honda would like to cut in the long run. "If GM's technology were launched this year, it'd be very competitive," says Lindsay Brooke, analyst at auto consulting firm CSM Worldwide Inc. "But by 2007, there will be a number of new hybrids in the marketplace."

GM and Daimler are finally taking hybrids seriously. Now their engineers will have to prove they can deliver.

By David Welch in Detroit

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