Jan 13, 2009

Business - GM unveils battery plan, may need more loans

Tom Krisher

DETROIT – General Motors Corp., a wounded company living on cash borrowed from the government, didn't behave like one Monday as it unveiled ambitious plans to research and assemble lithium-ion batteries in Michigan and picked a Korean company to supply the cells to power the Chevrolet Volt electric car.

But a top executive raised the prospect that GM will need more federal loans later in the year if the U.S. auto market doesn't improve, saying that the company presented a worst-case scenario to the government last year that would require $18 billion in loans, $4.6 billion more than the Bush administration has granted.

The battery factory, to be opened somewhere near Detroit, will employ more than 100 people and be highly automated as it takes cutting-edge lithium-ion cells imported from LG Chem Ltd. of South Korea and welds them into battery packs for the Volt and other next-generation vehicles from GM.

GM also announced the creation of a 31,000-square-foot battery lab, the largest in the country run by an automaker, at its Warren technical center. It also said it has joined with the University of Michigan to test batteries at the Ann Arbor campus and train future engineers to design components for electric cars.

No one would say exactly how many jobs would be created, but the news was welcomed by Michigan officials who are trying to bring down the state's 9.6 percent unemployment rate, the highest in the nation.

Tony Posawatz, GM's vehicle line director on the Volt, said he expects the battery factory and lab will bring in companies that supply parts for futuristic electric cars, creating another employment base for the troubled Detroit area.

"We have enough critical mass that future growth will cluster," Posawatz said.

An existing facility that straddles the border between Detroit and the tiny enclave of Hamtramck will assemble the Volt, so southeastern Michigan is the likely front-runner to land the battery factory as well.

Gary Cowger, GM's manufacturing chief, said it's important that the new factory be near the Volt assembly plant because each battery pack is 6 feet long and weighs 400 pounds.

The Volt is designed to plug into a standard wall outlet and travel 40 miles on battery power alone. After that, a small internal-combustion engine kicks in to generate power for the car. The car is set to go on sale late next year at a price expected from $30,000 to $40,000.

Monday's announcement at the North American International Auto Show in Detroit was fresh evidence that GM expects to survive the recession and thrive, even as Chief Operating Officer Fritz Henderson raised the prospect of federal loans beyond the $13.4 billion already granted to the company.

Henderson wouldn't speculate on what would cause GM to seek more money, but he said the company submitted a "downside scenario" in December that would require a total of $18 billion.

"We had said at the time there could be financing beyond what was just called for in the baseline plan," Henderson told reporters. "It's just speculation to say what would be required beyond the 13.4."

GM is forecasting a U.S. auto market of anywhere from 10.5 million to 12 million vehicle sales this year. The market finished last year at 13.2 million, but the fourth-quarter sales rate averaged around the lower end of GM's estimates.

Henderson said GM already is negotiating with the United Auto Workers in an effort to meet concessions required by the terms of its loans. Those include labor cost parity with foreign automakers with U.S. factories, something the UAW has said it would try to get the President-elect Barack Obama's administration to remove.

But Henderson said GM is proceeding with the talks based on the loan terms that it has in hand.

The battery announcement was among the biggest news from the Detroit show Monday, where Toyota Motor Corp. ramped up the competition in hybrid gas-electric vehicles by showing off the next generation Prius, the top-selling hybrid in the U.S.

The 2010 Prius gets an average of 50 miles to the gallon, four more than the current model, which already is the most fuel-efficient vehicle ranked by the Environmental Protection Agency.

The third generation of the hybrid has a more aerodynamic design, but its exterior is easily recognizable as a Prius. Toyota said pricing will be released before the midsize sedan goes on sale in late spring.

Honda Motor Co. on Sunday unveiled a new version of the Insight to compete directly with the Prius, and Ford Motor Co. has a hybrid Fusion also due out this spring.

Also Monday, California startup Fisker Automotive debuted a production version of its $80,000 plug-in Fisker Karma and vowed to sell 15,000 of the sporty luxury hybrids annually. The company also unveiled a slick convertible version called the Karma S, which it expects to build in 2011.

Volkswagen AG said it plans to offer hybrid and diesel versions of four upcoming vehicles being developed for the U.S. market, including a future successor to the Jetta sedan.

Amid all the attention on hybrid and fully electric vehicles, LG Chem CEO Peter Kim said the company may eventually build battery cells in Michigan, and it anticipates that its U.S. subsidiary, Compact Power Inc., will add to its 100-person work force in Troy, Mich.

Posawatz said GM chose LG Chem because of its flat-cell design that dissipates heat better and stores more energy than competitors' cylinder-shaped cells.

He said the competition from the team of Frankfurt, Germany-based Continental Automotive Systems and A123 Systems Inc. of Watertown, Mass., was very capable, but "one has to be the lead."

LG Chem's Kim said the GM contract boosts his company's global presence.

"We now are a global player. We have many plants sited worldwide. So it would be possible to produce it in the United States in the future," he said.

The current LG Chem was established in 1947 and besides batteries, also produces petrochemicals. LG Chem is a member of the LG Group, a major South Korean industrial conglomerate with interests in areas including electronics, flat panels, telecommunications and logistics.


AP Business Writer Kelly Olsen in Seoul, South Korea, contributed to this report

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