Is GM Listening to Customer Needs?

In a recent blog post, I compared Toyota’s aggressive pursuit of fuel-efficient autos to GM’s delayed reaction to this customer need. I suggested that GM was not listening to the changing priorities of customer needs. There is a great article in the Wall Street Journal (subscription) that describes the current industry battle over hybrid designs.

What struck me most about the article?

"GM's hybrid design, by contrast, is designed to rely on the gasoline engine over a wider range of speeds. Engineers can thus use smaller electric motors and batteries. The drawback: Fuel-economy gains are less dramatic.

The full-size SUV hybrid GM plans to launch in late 2007 is expected to achieve 25 miles per gallon in highway-city driving, a 25% improvement in fuel economy over the gasoline-powered version. By comparison, the redesigned hybrid Honda Civic is supposed to achieve around 50 mpg, about a 45% improvement over a comparable gasoline-powered Civic model."

In all fairness, Toyota has it’s own share of challenges. First, its hybrid engine does not easily scale up into large SUV’s. Second, it is more costly than the GM approach.

This information begs the following questions… How will customer need priorities shift over the next

few years as fuel goes from $3.00 per gallon to the $6.00 per gallon price paid in Europe? What happens if it goes back to $1.50?

As a practical matter most of us drive 10,000 miles a year. If we get 20 miles per gallon, we will use 500 gallons a year of fuel. If we get 40 miles per gallon, we will use 250 gallons per year or a 250 gallon difference. If gas is $1.50 a gallon, we save $375/year with the more fuel efficient auto. If gas is $6 per gallon, we save $1500/year.

Toyota's design adds $3000 to the selling price of its hybrid vehicle. GM's design may add half that amount to selling price, but only save half as much fuel. A rational buyer may be indifferent at low fuel prices but lean toward the more fuel efficient Toyota design at higher fuel prices where there is little difference between additional purchase price and cumulative fuel savings.

Maybe GM believes that U.S. auto purchasers' need hierarchy is not rationally organized. Look around, maybe they are right.