Richard Wagoner, chief executive officer of General Motors Corp., is nearing what he calls one of the biggest decisions of his career.
He must determine whether to propel GM, the world's largest automaker, into the production of vehicles powered by fuel cells -- batterylike devices that combine hydrogen and oxygen to make electricity.
The cost, US$500 million for the initial rollout in 2008, would swell to billions of dollars annually if Wagoner chooses to mass-produce the new models.
Wagoner, 49, is already spending US$300 million-US$400 million every year to study fuel cells, and he defends the investment as crucial to GM's future.
"People say, `How can you afford to spend so much on fuel cells?' and I say, `How can you afford not to?'" Wagoner says from his seat in a Gulfstream V executive jet soaring over California's Central Valley.
Wagoner says he has an overarching motive for promoting fuel-cell vehicles: The fact that they produce no harmful emissions would help his company become a leader in reducing greenhouse gases that, according to an August report by the World Bank, are warming the Earth's climate and disrupting economic development.
The GM boss also must win his fuel cell bet if he's to boost GM's profit margin, which reached 3.2 percent in North America during the first half of this year. That's well short of the 5 percent he says he has to have to provide a respectable return for shareholders.
He says fuel cells could make the difference down the road, and some industry analysts agree. "This is the brass ring," says William Pochiluk, an analyst at AutomotiveCompass LLC, a market research company in West Chester, Pennsylvania. "It's General Motors' single best chance to capture market share." The company earned US$1.52 billion on first-half sales of US$94.6 billion -- after earning US$714 million on sales of US$88.8 billion in the year-earlier period -- as US sales of the Chevrolet TrailBlazer sport-utility vehicle and other trucks rose 16.3 percent.
Wagoner captured 28.1 percent of US vehicle sales in 2001, thereby stabilizing GM's market share after four decades of decline, in part by announcing 0 percent financing bargains one week after the Sept. 11 terrorist attacks.
GM shares closed at US$39.57 on Sept. 25, down 18.6 percent so far in 2002 compared with a 26.9 percent drop in the Standard & Poor's 500 Index.
Among the reasons investors aren't flocking to GM shares: Wagoner's unfunded US pension liability could approach US$16 billion by year's end. Also, after 2004 money-losing Fiat SpA may exercise its option to force Wagoner to buy the 80 percent of Fiat Auto he doesn't already own. That could cost GM US$4 billion.
There's a substantial downside risk to a big push into fuel cells as well. If consumers don't buy the new models in large numbers, GM could lose the war in the low-emission field to Toyota Motor Corp. and Honda Motor Co. Think of the decade-long, Betamax v. VHS battle for primacy in videocassette recorder technology.
The Japanese automakers are downplaying fuel cells in favor of other technologies that reduce pollution. They're turning out hybrid vehicles that use gasoline and electric motors operating in tandem.
And Toyota and Honda have a head start in the market: They sell such vehicles in the US now, while GM won't be introducing its fuel cell models for at least six years.
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