GM betting on higher fuel prices

How long will fuel prices remain high? GM thinks for a very long time. In fact, they believe that fuel prices will produce fundamental behavioral change by consumers — and have already begun to change their strategies in response. GM will close four truck plants, will start massive production of the Chevy Volt, and will dump the Hummer line in the near future:

The Volt will make its appearance in the market for the 2010 model year, putting them on the lots in about fifteen months. The Volt uses both electricity and gasoline, and in some cases, ethanol. It can go 40 miles a day without using anything other than a daily recharge from a standard household electrical outlet. Using gas, the car can go an estimated 600 miles between charges.

The Volt will have company at the low end of GM’s line. They intend to produce two new traditional sub-compacts to go along with the Volt — the Aveo and another unnamed model. It’s a clear indicator that cheap fuel will not return in the near future.

As for Hummer, it may have seen its last days on GM’s lots. The carmaker purchased the line ten years ago and has had plenty of success with the boxy, heavy SUVs. However, sales have plummeted 30% this year, and with gas prices continuing to increase, only the wealthy, foolish, or both can afford them. GM would love to sell the line to another manufacturer, but that seems like a difficult sale to make. Analysts wonder why GM didn’t see the writing on the wall and dump Hummer earlier. That seems a little harsh; the line was highly profitable, and investors would have wondered why GM suddenly divested itself of a hot brand.

In one way, though, this proves that the auto industry learned from its mistakes in the 1970s. They clung to their big-car, gas-guzzling lines through two successive oil-price shocks, losing a great deal of market share to the Japanese. This time they have started shifting quickly to meet the market demand of the future.

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