GM, Auto Industry, and Drivers Better Positioned for Changing Fuel Prices

DETROIT – Recent jumps in prices at the pump are again making fuel economy a hot topic.  Reporters and analysts speculate about how high prices might go, how global events might affect oil prices, and how the auto business might be impacted.  Drivers, anxious over prices that seem to increase with each fill-up, wonder what next week will bring.

While the anxiety and hardship are real, General Motors and the industry – and many drivers – are better positioned than ever to weather both short-term gyrations in fuel prices and the long-term climb in energy prices that most analysts expect to accompany global growth.

The following White Paper summarizes these recent changes in the U.S. auto market and GM’s initiatives to improve the efficiency of its vehicles.  It is intended to help put current headlines into perspective.

GM offers high-efficiency products in high-volume segments

GM’s product lineup is significantly more fuel efficient than it was even a few years ago.  GM offers high-efficiency products in most high-volume vehicle segments, and more are coming to the market each year. (All fuel economy ratings below are EPA Estimates.)

• Chevrolet Volt’s revolutionary powertrain offers approximately 35 miles of electric power per full charge, with a range extender providing an additional 340-plus miles of gasoline-powered driving once the battery is discharged.

• The new Chevrolet Cruze Eco, with its 42 mpg EPA highway estimate, offers the best highway fuel economy of any gasoline engine (non-hybrid) car in America.

• The Chevy Equinox and GMC Terrain crossovers offer space for the family and a 32 mpg highway estimate.

• Chevrolet Malibu has EPA mileage estimates of 22 mpg city, 33 mpg highway, and can travel nearly 500 highway miles on a tank of fuel.

• Chevy Traverse, Buick Enclave, and GMC Acadia crossovers offer the power and space of a traditional SUV with V6 fuel economy (17 mpg city, 24 mpg highway).

• Chevy Silverado and GMC Sierra offer the best highway fuel economy estimates of any V8 pickups (22 mpg), and offer hybrid models for the ultimate in full-size truck fuel efficiency (20 mpg city, 23 mpg highway).

• The Chevy Tahoe, GMC Yukon, Cadillac Escalade, and GMC Yukon Denali lead the full-size SUV segment in fuel efficiency with the optional Two-Mode hybrid system (20 mpg city, 23 mpg highway).

• Over the next year, Chevrolet Sonic, Chevrolet Malibu Eco, Buick Verano, and the Buick LaCrosse and Regal with eAssist will provide additional high-efficiency offerings.

Previous price shocks have already lead to more efficient vehicles

Before discussing more specifics on GM, it is worth looking at the shifts that have recently occurred in the U.S. vehicle market.  Those shifts have already reduced the weekly fuel bills of many new car buyers, though they have also made it tough for some drivers to further cut their fuel bills.

The United States has experienced periodic gas price increases for nearly 40 years.  A series of fuel price shocks have followed the initial price jump and gas lines that resulted from the 1973 Yom Kippur war and OPEC oil embargo.  Oil hit inflation-adjusted highs in 1979-1980 (Iranian revolution) and 2008 (multiple factors, including strong global economic growth).  Even during periods of lower prices, there were short-term shocks, and except for a sharp drop following the 2008 economic crisis, oil and gasoline prices have been trending upward for nearly 10 years.

Auto companies, policy makers, and consumers have responded rationally, if not always consistently, resulting in a marked increase in the efficiency of new vehicles and significant shifts in vehicle buying patterns.

That is not to dismiss the pain experienced by some.  Families on tight budgets struggle with any energy price increase, and lower-income drivers are sometimes stuck with older, less efficient cars and trucks they can’t afford to replace.  And periodic dips in fuel prices can lull consumers into buying less-efficient vehicles under the assumption that fuel prices will stay low.

But in aggregate, significant shifts in the market over the past decade have left drivers, and the industry as a whole, less vulnerable to rising gas prices.

See Image 1 for the Top five U.S. vehicle segments, by sales 

Several trends stand out:

• Small car share has increased, not only because drivers anticipate higher fuel prices, but because small cars have gotten better.  They now come in an almost infinite variety of brands and body styles, and have performance, comfort, and safety features once found only in larger, more expensive vehicles.

• Crossovers such as the Chevrolet Equinox (22 mpg city, 33 mpg highway) and Buick Enclave (17 mpg city, 24 mpg highway) have largely displaced traditional SUVs, with a significant increase in overall fuel efficiency.  For example, moving from a traditional midsize SUV to a compact crossover can knock more than 35 percent off a typical driver’s fuel bill (see below).

• Midsize cars continue to sell well, though they have lost some share to small cars and crossovers.  Still, with space for a family and highway fuel economy estimates of 30 mpg or higher, cars like the Chevrolet Malibu (33 mpg) and Buick Regal (32 mpg) will remain mainstays of any carmaker’s lineup. 

• Full-size pickups remain an important part of the U.S. vehicle market, and today’s truck buyers are primarily those who truly need the capability of a truck.  As a result, many truck buyers in a recent GM survey said they would drive less, drive more slowly, or make other adjustments rather than move to a different type of vehicles

Segment shifts have brought significant fuel savings

As the examples in the following table show, these segment shifts have already reduced weekly gas bills for many new-vehicle buyers.  This has left many drivers less vulnerable to moderate increases in prices at the pump, though it also makes it tougher to achieve additional fuel savings by moving to a vehicle that is more efficient still.

The biggest gains come in the initial moves up the fuel efficiency ladder. The improvement from moving from a traditional midsized SUV to a four-cylinder crossover like an Equinox is significant.  However, moving to something still more efficient brings diminishing financial returns.

Also, within a given class of vehicles, small changes in relative fuel economy make little difference in fuel costs.  In the example below, choosing an automatic instead of a manual in a Chevy Cruze Eco adds less than 50 cents a day.

See Image 2 for fuel economy comparison

This presents something of a dilemma for consumers, whose first reaction to rising gas prices is often to shop for a more efficient vehicle.  As the table above shows, moving out of a newer midsize car or compact crossover may not save much money, unless fuel prices go extremely high or the driver’s annual mileage is far above average.

One final observation – although most customers say fuel economy is important, they still balance fuel cost with other attributes, including functionality, comfort, performance, style, and safety.  Also, some customers are pragmatic about calculating fuel cost and weighing it against other needs.  Others get excited by the prospect of squeezing every last mile out of a gallon of gas, or about owning a vehicle with the latest energy-saving technologies.

In short, one size does not fit all – there is no vehicle or technology that can meet the needs of every driver.

The promise of electricity

Although electrically driven cars such as the new Chevrolet Volt are just entering the market, they point the way toward significant reductions in the weekly fuel bill of urban and suburban drivers.  The EPA fuel economy site estimates that for the scenario above, a Chevrolet Volt running on electricity from the grid would cost about $12 per week to fuel, about a third of the cost of fueling a Cruze Eco.

Of course, electrically driven cars are brand new, in limited supply, and more expensive to buy than current compact or midsize sedans, so for now their greatest appeal is to committed environmentalists and early adopters.  But as the cost of the technology comes down, production volume increases, and charging stations become more common, these vehicles are expected to offer another cost-saving option for many drivers.

It is that potential to reduce fuel costs – along with the potential to diversify energy supplies away from petroleum – that keeps carmakers and governments interested in electric vehicles.

Global companies need a broad range of energy-saving technologies

Most energy-saving technologies have their own cheering sections, made up of entrepreneurs, investors, media, and plain old fans, all loudly proclaiming that “Technology X” is the answer to all the world’s energy ills.  Global auto companies, however, understand that there is no single solution that meets the needs of all customers in all markets.

As one of the world’s largest carmakers, GM has a broad range of vehicles and technologies available and under development.  The company has been planning for additional increases in gas prices, and can respond with new products and technologies if significant and lasting changes occur.

GM already offers a number of high-efficiency vehicles in the U.S., and is introducing more each year. (All numbers are EPA estimates.)

• For customers looking for hybrid-like fuel efficiency at an affordable price, the new Chevrolet Cruze Eco offers a 42 mpg highway estimate, the highest for any gasoline powered (non-hybrid) car sold in the U.S.  Other Cruze models also offer excellent highway fuel economy, (35 to 36 mpg) along with a spacious cabin and safety and convenience features once found only on larger cars.

• Chevrolet Equinox and GMC Terrain continue to set sales records, in part because of their excellent fuel economy estimates of 22 mpg city, 32 mpg highway.  Equinox and Terrain have higher fuel economy estimates than Honda CR-V (28 mpg) or Toyota RAV4 (28 mpg), and exceed the highway estimate for the Ford Escape Hybrid (31 mpg).

• Chevrolet Malibu, with its 22 mpg city, 33 mpg highway estimate, is right in the thick of the midsize sedan segment, with economy comparable to leading imports.  Malibu was recently joined by the Buick Regal sport sedan, which offers a 28 to 32 mpg highway estimate.

• Chevrolet Traverse, with its advanced V6 with direct injection and variable valve timing and a six-speed transmission, offers the best fuel economy estimates of any eight-seat crossover, 17 mpg city, 24 mpg highway.

• Chevrolet and GMC have several options for truck buyers looking for better fuel economy.  The Chevy Silverado XFE and GMC Sierra XFE have the highest EPA estimates (15/22) for a full-size pickup with a V8 engine and automatic transmission, the combination overwhelmingly preferred by truck buyers.  Silverado and Sierra also offer the only hybrids in the full-size truck segment, with EPA estimates of 20 mpg city, 23 mpg highway. 

Improving internal-combustion engines

Because most U.S. vehicles, large and small, will continue to be powered by gasoline fueled internal-combustion engines, GM is working hard to further improve the efficiency of these engines and the vehicles they power.  Some examples include:

• Direct Fuel Injection – General Motors was the first domestic automaker to introduce direct fuel injection, and GM currently offers 15 models with direct injection, including many of the passenger cars and crossovers in its lineup.  Direct injection facilitates more precise fuel delivery and better control of the combustion process for lower consumption and emissions.

• Active Fuel Management – Active Fuel Management allows V8 engines to shut off four cylinders under light load conditions while still providing full performance instantly when needed.  Most of GM’s full-size trucks have AFM on their V8 engines, with 16 models currently available.

• Variable Valve Timing – Variable valve timing allows powertrain engineers to maximize efficiencies when operating an engine over the full range of performance.  By adjusting the timing of valve opening based on speed and load, both fuel consumption and emissions can be reduced.  Variable valve timing has been enabled on both overhead cam four cylinder and V6 engines and on some V8s.

• Diesels – The revamped Duramax 6.6-liter diesel V8 that debuted in the 2011 GMC Sierra HD and Chevrolet Silverado HD achieves 20 percent better fuel efficiency than the earlier version thanks to a new high pressure common-rail fuel injection system

In Europe, where diesels power more than half of new cars, GM builds four-cylinder turbocharged diesels ranging from 1.3- to 2.2-liters in displacement.  These engines also are used in other global markets where diesels are important.  Because of this expertise, GM is well positioned to offer advanced smaller-displacement diesel engines in North America should the market warrant.

• New gasoline engines – GM continues to make significant investments in new generations of fuel-efficient gasoline engines.  The company has invested more than $494 million in three U.S. plants to build the next generation of the Ecotec four-cylinder engines, and more than $890 million to build a new generation of cleaner, more efficient small-block engines.  In China, Shanghai Automotive Industry Corp. and GM are expanding their partnership to build a new generation of advanced engines and transmissions that will provide enhanced fuel efficiency and performance.

• Six-speed transmissions – Nearly every car and truck in the Chevy, Buick, GMC, and Cadillac lineups now have six-speed transmissions (both manual and automatic) available, with most of them now standard.  A six-speed can provide a fuel efficiency improvement of about 4 percent over a four-speed.

A range of advanced technology solutions

GM uses an array of advanced powertrain technologies to help reduce fuel consumption.  For the U.S. market, eAssist, Two-Mode hybrids, and extended-range electric drive are near-term solutions.

• eAssist – eAssist will be introduced this year on the Buick LaCrosse and Regal, and will debut on the Chevrolet Malibu Eco early in 2012.  It combines a 15 kW electric motor, a 115 volt lithium-ion battery, and GM’s fuel-efficient 2.4-liter direct injection Ecotec engine, and other technologies provide a significant boost in efficiency (approximately 25 percent).  The electric motor acts as a generator to recapture energy when the vehicle decelerates or brakes, and automatically stops and restarts then engine in stop-and-go driving.  The electric motor also provides an electric boost when the vehicle is accelerating, and allows the fuel to be completely shut off during deceleration.  Based on GM testing, eAssist technology will enable the LaCrosse and Regal to achieve up to an estimated 37 mpg on the highway, and enable the Malibu Eco to achieve an estimated 38 mpg on the highway (final EPA certification pending).

• Two-Mode Hybrid – The Two-Mode hybrid system on the Chevy Tahoe and Silverado, GMC Yukon, Yukon Denali and Sierra, and Cadillac Escalade enables the best overall fuel economy of any full-size light duty trucks, with two-wheel-drives estimated at 20 mpg city and 23 mpg highway.  The Two-Mode hybrid system saves fuel by providing all-electric launch, low-speed electric-only propulsion, and electric assist during demanding driving, acceleration, and towing.  It also recaptures energy normally lost during braking, and allows the engine to be shut off during deceleration and when the vehicle is stopped.

• Voltec Extended-Range Electric Drive – The Chevrolet Volt is an electric vehicle with extended-range capability.  When its 16-kWh lithium-ion battery is fully charged from the grid, the Volt can travel approximately 35 miles (EPA estimate) depending on temperature, terrain, driving technique, and battery age.  When the Volt’s battery runs low, a gas-powered engine seamlessly engages to extend the driving range until the battery can be recharged.

Volt will initially launch in seven markets:  California, Connecticut, Michigan, New Jersey, New York, Texas, and Washington, DC.  Volt is expected to be available throughout the United States by the end of 2011.  Although availability is expected to remain limited in the short term, production increases are possible this year, with potential production of up to 45,000 Volts in 2012.

The Chevy Volt and its sister vehicle, the Opel Ampera will go on sale in Europe in 2012, and Volt will also be sold in China. 

• Battery Electric Vehicles – GM has recently launched three battery electric vehicle field-test programs in Asia and Europe, with more to come.  These demonstration fleets help GM capture real-life driving patterns and behaviors from prospective customers.

Deep experience and expertise in batteries, electric motors, and power controls will ensure GM provides the best possible choices when it comes to vehicle electrification technologies.  At the same time, GM is investing in start-up companies with innovative ideas to accelerate next-generation electrification technologies. 

As recent events so clearly demonstrate, it can be very difficult for policy makers, auto companies, and consumers to predict the near-term future.  But over time, we expect to see an ongoing shift in industry mix towards more fuel efficient vehicles, and in the United States and around the world, GM is making the right portfolio decisions for its long-term success.

About General Motors

General Motors Company (NYSE: GM, TSX: GMM), one of the world’s largest automakers, traces its roots back to 1908.  With its global headquarters in Detroit, GM employs 209,000 people in every major region of the world and does business in more than 120 countries.  GM and its strategic partners produce cars and trucks in 30 countries, and sell and service these vehicles through the following brands:  Baojun, Buick, Cadillac, Chevrolet, GMC, GM Daewoo, Holden, Isuzu, Jiefang, Opel, Vauxhall, and Wuling.  GM’s largest national market is China, followed by the United States, Brazil, the United Kingdom, Germany, Canada, Italy, Russia, Mexico, and Uzbekistan.  GM’s OnStar subsidiary is the industry leader in vehicle safety, security and information services.  More information on the new General Motors can be found at www.gm.com.

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