Published on December 12th, 2019 | by Steve Hanley0
GM’s Secret Plan To Finance Electric Vehicles: Build Larger SUVs
December 12th, 2019 by Steve Hanley
GM president Mark Reuss is at it again. Last month in an op-ed for CNN Business, he trotted out a long list of reasons why the world is not ready for electric cars just yet but may be someday, God willing and the creek don’t rise. Now here he is just a few weeks later revealing the company’s super secret plan to raise enough money to pay for EV development — build larger SUVs.
No, that is not a misprint and it is not some sort of sick joke. GM this week took the wraps off its newest SUV offerings. The hot selling Chevy Tahoe — which once was marketed as a shorter alternative to the gargantuan Suburban — is now a whopping 6.7 inches longer than the current model. The Suburban itself has grown by 1.3 inches to 225.7 inches, making it one of the largest passenger vehicles on the road at nearly 19 feet long. That’s about 2 feet longer than a Honda Odyssey or Chrysler Pacifica. The Ford F-150 Supercrew is longer but not by much. Both the Tahoe and the Suburban form the basis for similar vehicles marketed under the GMC or Cadillac brands.
During the unveiling in Detroit, Reuss told Reuters that as the industry moves toward electric vehicles, profits from large SUVs will help pay for investments like developing an electric pickup truck and building a US battery factory in conjunction with LG Chem.
The GM factory in Arlington, Texas that builds the Tahoe and Suburban is operating 24 hours a day to meet demand. Reuters claims the profit margins on large SUVs are up to 30%, which can translate into as much as $15,000 per vehicle or more. Barclays estimated large pickup trucks and SUVs accounted for 72% of GM’s North American profit in 2018.
Prices and fuel economy numbers for the new Tahoe and Suburban have not been announced, but the average Tahoe sold for $57,414 in November, according to data from ALG, a unit of TrueCar. The new vehicles will be powered exclusively by 8-cylinder gasoline or 6-cylinder diesel engines.
Americans are falling all over themselves to buy larger and larger SUVs and are taking out loans of 6 years or more to pay for them. Lately, other manufacturers have sought to profit from the enormous vehicle craze by introducing 7- or 8-passenger models of their own, all with macho sounding names like the Volkswagen Atlas, Subaru Ascent, Hyundai Palisade, and KIA Telluride. All of them sell the illusion of traveling to distant mountain peaks far from the madding crowd when in fact they will spend their lives fighting their way through urban congestion just like all the other cars on the road.
The quest for larger and larger vehicles is driven in part by the “footprint rule” that is part and parcel of US fuel economy regulations. The bigger the vehicle, the more climate-killing emissions it can spew out of its tailpipe and still be in full compliance with all applicable laws. It’s a safe bet that the desire to sell more hugely profitable large vehicles is one reason why General Motors is siding with the current so-called government in Washington in its quest to strip California of its ability to set its own emissions standards. What a novel marketing scheme — make more money by poisoning all your future customers. Brilliant!
A Ray Of Sunshine
There is some good news out of Detroit. Reuss says the new vehicles feature new digital technology that permits over the air updates just like Tesla pioneered with the first Model S. Reuss sees digital architecture as another potential income stream for the company. “It’s huge,” Reuss said, waxing rhapsodic over the potential to sell customers new digital functions or avoid warranty repairs with a software update. You can bet GM dealers will want a piece of that action.
Feeding The Addicts
The strategy that GM and the other automakers are following on the way to the EV future is rather like giving heroin addicts more heroin because the profits can be used to create addiction treatment plans. So far there is only one automaker on the face of the Earth that is taking the urgency of transitioning to 100% zero emissions in the transportation sector seriously, and that is Tesla.
All the rest are force-feeding the goose while promising that more humane animal husbandry measures are coming. Even Volkswagen, which is leading the charge by legacy automakers to bring electric vehicles to market, plans to pay for its investments in electrification by selling millions upon millions of conventional automobiles.
Tesla has done a fine job of disrupting the industry, but there is a long way yet to go. When that factory in Arlington, Texas starts churning out electric SUVs and trucks, then and only then will there be light at the end of the tunnel.