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GM to back upstarts to make it 'cool'

The Chevrolet Volt plug-in hybrid is a bold step into the future for GM, but there should be a lot more innovation in the pipeline as GM begins investing more in start-ups.

The Chevrolet Volt plug-in hybrid is a bold step into the future for GM, but there should be a lot more innovation in the pipeline as GM begins investing more in start-ups.

Published Aug 17, 2011

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From an empty car parts factory in the heart of Rust Belt America, General Motors is out to show the world that the company once dismissed as an industrial dinosaur has gained some Silicon Valley cool just two years after its taxpayer-funded bankruptcy.

With a solar charging station as a backdrop, GM's venture capital unit touts a $7.5-million (R53-million) investment in Sunlogics, at the solar energy system maker's new headquarters in a former car parts plant in Rochester Hills, Michigan.

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The investment, announced last month, gives GM Ventures a stake in a company building solar charging equipment. It comes out of a $200-million (R1.42-billion) venture capital budget that GM has earmarked to spend over three years in response to fears that the world's largest carmaker could lose out on the next big thing to start-ups such as electric car specialist Tesla Motors.

While the investment fund is minuscule compared with GM's $8-billion (R57-billion) annual research and development budget, the commitment to venture-style investing is a radical step. After all, this is a company that is still one-third owned by the U.S. government and better known for its entrenched bureaucracy and crippling risk aversion over the past 30 years.

“We're buying options on future R&D,” said Steve Girsky, GM's vice chairman and former New York investment banker who drove GM Venture's creation.

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“It encourages people to take risks around here,” he added. “It encourages us to look outside of GM. You can only do so much with your internal R&D.”

Driving the change at GM are a pair of Detroit outsiders keen to break from the company's association with big, gas-guzzling SUVs - Chief Executive Dan Akerson, a former private equity and telecommunications executive, and Girsky.

The goal is to jump-start innovation at a 103-year-old company that executives admit had badly lost its way. At GM's investor meeting this month, chief marketing officer Joel Ewanick said it needed to build a global brand image like Apple.

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“There was a period when GM was remarkable in terms of the innovations we generated - not only the sheer number but the impact,” said Jon Lauckner, head of GM Ventures. “That fell away over the past 20 or 30 years and now it's time to crank that back up again.”

GM's research labs were once a hotbed of invention, including the development of a new kind of gasoline to reduce engine knocking and the industry's first fully automatic transmission under Charles “Boss” Kettering, a man credited with 140 patents.

GM has had prior experience, not so successful, with electric cars, introducing the small EV1 in 1996 for California consumers to lease. GM killed the high-profile money-loser in 2003, a decision vilified three years later in the documentary movie, “Who Killed the Electric Car?”

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In the 1990s and into the new millennium, GM counted heavily on large pickups and SUVs for the bulk of its profits, a reliance it came to regret in 2008 when the recession and spiking gasoline prices drove consumers toward smaller, more fuel-efficient cars.

Then, in the early years of the last decade, the carmaker made a mistimed bet on developing fuel cell technology still expected to be many years from being ready for mass marketing. It then had to shift funding away from hydrogen to develop a new generation of electric cars led by the Chevrolet Volt.

The fast-track development of that plug-in hybrid allowed GM to claim credit for the most fuel-efficient car on the road, edging past Toyota's vaunted Prius.

“Inventing a new kind of propulsion lends itself to creative inventor types and those people are not in Detroit,” said John Casesa, an investment banker with Guggenheim Partners who works with venture capital firms.

GM's focus on a Silicon Valley-style approach to research comes two years after its bankruptcy and a $52-billion (R371-billion) bailout, a turbulent period that had some venture capitalists and start-up executives crowing about how they would bury Detroit.

Phil Murtaugh, CEO of electric car maker Coda Automotive, said venture capitalists came to realize that “the car companies aren't necessarily dinosaurs run by stupid people. They're just extremely difficult, complex businesses.”

Instead, venture capitalists fell in love with the global nature of the auto industry, where one small contract can result in parts in hundreds of thousands of vehicles built around the world. GM executives, meanwhile, now cite the risk of being left behind by disruptive change.

“The industry is on the verge of a huge transformation that will challenge our engineering capabilities,” Akerson told hundreds of engineers at a Detroit conference in April.

“Somewhere, some kid is inventing the next Hewlett-Packard in a garage. We want to find him or her,” he added in a reference to that technology company's humble beginnings. -Reuters

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