Case #13

“Who Killed the Electric Car?”

General Motors, founded in 1908, grew to become one of the largest automobile manufacturers in the
world. During the last several years, GM enjoyed tremendous success and growth – selling over nine
million automobiles in 2007. Although based in Detroit, Michigan, GM employed over 250,000 workers
across the world and had divisions in Europe, Latin America, Africa, Asia and the Middle East.

During its long history, GM witnessed many political, social and economic changes. But none have been
as decisive as understanding the environment on a global scale and the importance of the auto industry
within this scope. As a result, GM adopted and implemented six environmental principles in 1991 as part
of its initiative to “use innovative technologies to improve the environmental performance of its
facilities”1. During the length of its endeavor to become environmentally friendly, GM not only met its
targets ahead of schedule on multiple occasions, but also received the EARTH ANGEL Award in 2008 as
the most environmentally-friendly automaker after reducing its carbon-dioxide emissions by over 17%.

One of the most significant contributions that GM has made to the recently popularized “green
movement” stemmed from its leadership in designing and bringing to market an electric-powered car.
The concept of the electric car was not unique to General Motors, since it dates back to more than 100
years. In 1891 William Morrison built the first electric car model, however by 1901, the short-lived
success of the electric car ended when Henry Ford revolutionized the market through the mass
production of gas-powered vehicles.

It wasn’t until 1990 that the idea of an electric car was revisited – this time by GM with its design of the
EV1. The model received such a positive response that the California Air Resources Board (CARB) passed
the Zero Emissions Vehicle (ZEV) Mandate that aimed to require 2% of the state’s vehicles to have no
emissions by 1998. The first EV1 was leased in 1996, just as other manufacturers began productions of
similar models.

However, in 2003, GM unexpectedly announced that it would not renew the leases for its EV1s since it
could “no longer supply parts to repair the vehicles”. This shocking announcement was further
complicated by GM’s claim that the EV1 could not be commercial viable since only 800 vehicles had
been leased. At this point, many individuals questioned GM’s motives due to the conflicting information
provided by GM and the facts obtained through GM’s history, financial data and market analysis.

Throughout all the questions and critics, GM maintained that the main cause of EV1’s discontinuation
was a lack of consumer interest. However, in 2006, a Gallop poll revealed that 33 million Americans
were interested in purchasing an electric car. According to another 1994 poll, conducted by the

1
Business Ethics – page 203

1
American Automobile Manufacturers’ Association, California’s ZEV mandate had a 60% support rate and
nearly 30% of the respondents were willing to spend $20,000 - $30,0002 for an electric car. Critics
claimed that GM pulled the plug on the EV1 due to the federal government’s ties to the oil industry as
well as the fact that oil and gas companies contributed over $46 million to the Republicans campaigns
during 2000 and 2002 campaigns. Opponents viewed GM as a traitor – a company that at one point was
a leader that “inspired others to act on behalf of the environment rather than for its own pockets”3 to a
company that chose to concentrate on the product that ultimately was less risky and promised greater
financial profit.

2008-2009 CASE UPDATE

Ironically, GM’s decision to “tread softly” in regard to the pioneering opportunity that came its way with
the electric car could not safe the company from the devastating effects of the economic crisis of 2008.
On June 1, 2009 General Motors “filed for court protection with a government-financed plan intended
to create a viable company that can compete in the world markets”4. As part of the arrangement, the
federal government will provide a $50 billion loan to GM in exchange for a 60% stake in the reorganized
company. GM planned to launch a new company within 60 to 90 days in an effort to reverse the effects
of its $172.8 billion reported debt. As part of the reorganization plan, GM has begun to auction some its
assets – with GM’s Saab units to be restructured in Sweden and GM’s Opel line was purchased by a
Canadian car-parts maker.

On a brighter note, it would seem that GM, along with the entire automotive industry, is giving the
electric car a second chance with the Chevy Bolt – “an extended-range electric vehicle that can travel up
to 40 miles on battery power alone with the extended-range capability of more than 300 total miles”5.
Following the petition for its bankruptcy proceedings, the first motions brought by GM sought
“permission to spend funds so as to continue business operations while under court protection”6.

Although GM is attempting to reverse their decision in relation to the electric, with the elapsed time, a
large number of competitors have entered the scene making leadership within this market more
competitive than it was six years ago, when GM discontinued the EV1. Nissan has announced that it
might beat GM by bringing an electric car to the markets as soon as fall 2010. Similarly, Ford has
announced that it plans to produce a battery-powered version of the Focus compact sedan in 2010.
“Showing how competitive the once-exotic and obscure electric-car segment has become”7 is
Mitsubishi’s plan to enter the electrics market. “Demand for electrics will boom, if automakers can keep

2
Business Ethics – page 206
3
Business Ethics – page 207
4
Sandler, Linda; Scinta, Bob; Van Voris Bob and Jeff Green. GM Files Bankruptcy to Spin Off More Competitive
Firm. Bloomberg, June 1, 2009.
5
Ibid
6
Ibid
7
Healey, James. Nissan plans to challenge Chevy Volt; Automaker says it can get electric car to market faster. USA
Today, May 7, 2009.

2
prices down and driving range up”8. Ford expects to sell between 5,000 and 10,000 of the battery
Focuses in 2011, and Nissan anticipates that by 2015, electrics will make up “10% of its global sales”9.

In addition to the Chevy Bolt, GM has also joined forces with Segway on Project PUMA (Personal Urban
Mobility and Accessibility) which aims to develop “two-seat electric powered pods that can address the
challenges of traffic congestion and fuel consumption”10. PUMA is about 1/6 the size of a traditional
midsized sedan that uses the same technology employed in “Segway’s PT stand-up transporter”11 with
the additional feature of being able to accommodate two passengers “in a protected environment with
speeds up to 25 mph”12. Although there are many issues to be resolved before PUMA will become
available in the US markets due to the complex regulatory environment, both Segway and GM see the
“project’s foundation in developing markets such as Mumbai, Shanghai and Dubai”13.

QUESTIONS

1. What killed the electric car according to the facts of this case?

2. What does GM’s decision to end production of the electric car have to do with business
ethics? In your answer, consider stockholders’ and stakeholders’ best interests.

3. What are the pros and cons of the technologies that may replace the internal combustion
engine?

4. If you were the CEO of GM, what decision would you have made about the EV1? (Refer to the
Appendix before answering).

5. Based on the factors that allegedly “killed” the electric car, what are current factors that may
now offer different results for this type of car’s success in the market?

8
Ibid
9
Ibid
10
Kelly, Kevin. The Story Behind PUMA. Automotive Design and Production, May 2009. Vol. 121, Issue 5, page 13.
11
Ibid
12
Ibid
13
Ibid