GM to Expand Its Ethanol Capabilty
Wall Street Journal. (Eastern edition). New York, N.Y.: Feb 7, 2008.
General Motors Corp. said half of its U.S. vehicle volume will be able to run on ethanol by 2012, just as partner Coskata Inc. is expected to be ramping up ethanol production.
In a speech at the Chicago Auto Show, GM North America President Troy Clarke said GM will have 11 ethanol-capable vehicles on the market this year and 15 in 2009. Mr. Clarke also announced that GM will be producing its first four-cylinder ethanol-capable model, the FlexFuel Chevrolet HHR, in 2010.
"We don't only want to respond to the needs of the market. We want to anticipate them," Mr. Clarke said.
Mr. Clarke also said that Warrenville, Ill.-based Coskata, which announced its partnership with GM in January, has formed an alliance with ethanol-plant engineering firm ICM Inc. to build its first plant, which is expected to open in late 2010.
Coskata President and Chief Executive Bill Roe said the company plans to announce the location of that plant and another plant in the next few weeks, and construction on both will start this year. ICM's production process currently is being used for half of all U.S. ethanol production.
Coskata said it will be able to mass-produce ethanol at the plant for less than $1 a gallon using a unique process that converts feedstock, biomass, agricultural waste and even municipal solid waste to ethanol.
Mr. Clarke said GM is continuing to research hybrids, plug-in electric vehicles and other fuel-saving technology, but believes ethanol can provide the quickest reduction in emissions. The U.S. already has a fueling infrastructure for ethanol, and consumers would have to make minimal changes in behavior, he said.
He said that if GM, Ford Motor Co. and Chrysler LLC meet their promises for the number of ethanol-capable vehicles they will have on the road by 2020, there would be a reduction of 29 billion gallons of fuel annually, or 18% of the country's usage. GM now has 2.5 million ethanol-capable vehicles on the road and expects to have up to 20 million by 2020, Mr. Clarke said.
Comments
This is an interesteing article for a number of reasons. The first is that it illustrates how a large company might respond to an external demand of the market. It also illustrates how a large company can mitigate their risk when entering a fast cycle market through a diversifying partnership. There is significant risk to GM if half of their production cars run on ethanol by 2012 and there are not enough ethanol plants to support the demand. Critical to GM's strategy is an abundant supply of ethanol, however, GM has enough problems making cars, so they are wise in pursuing a strategic partnership to lay off the risk of developing the ethanol capacity at the same time. In the end everybody should win, Coskata wins by having a consumer for thier product and GM wins by having a cheap supply of ethanol to meet future needs.
Posted by: Steve Stroup | February 28, 2008 5:48 AM
I think this is an interesting article because it illustrates a number of the concepts that we have discussed in class. First, it shows how a large company, GM chooses to enter a fast cycle emerging technology market through a strategic partnership. The partnership makes sense because GM, investing a significant amount of resources in the production of ethanol cars needs to insure that there is enough ethanol production to meet demand, Coskata will concurrently develop this capacity as GM ramps up their car production and each should benefit. Interestingly, GM has passed most of this risk to Coskata, if oil goes to $50 a barrel, GE can probably go back to their previous production of normal cars, Coskato will be left out to dry. Another concept that this article shows is that it shows how companies respond to the external environment, and try to anticipate future external trends by proactively developing products for these markets.
Posted by: Steve Stroup | February 28, 2008 2:12 PM