GM Cancels Diesel Program

11th March 2009

Another shoe drops. GM has announced that it cancelled the 4.5L Duramax Diesel engine program - indefinitely. They released the following statement today (11 March 2009):

“Given the current economic climate, GM has reviewed and updated its U.S. product portfolio and has decided to place on indefinite hold its previously announced plan to add a Duramax 4.5L V-8 diesel engine in 2010 to its Chevrolet Silverado and GMC Sierra light-duty trucks.

Chevrolet and GMC will continue to offer a heavy duty Duramax 6.6L V-8 diesel, which is class-leading in both horsepower and torque. Light-duty truck customers can also choose from several fuel-efficient gasoline engines with GM’s Active Fuel Management mated to a six-speed transmission or a new 2-Mode hybrid that provides up to 40 percent improved city fuel mileage and 25 percent improvement in overall fuel efficiency. In fact, no other full-size pickup has better fuel economy.

GM remains optimistic that the Duramax 4.5L V-8 diesel may be a viable option in its future portfolio.”

This is truly a sad day for many reasons. GM stood to gain revenue and share with this engine. Diesels command a healthy premium over gas-powered vehicles and they would have been first to market in the light-duty full-size pickup segment. Pickup buyers tend to be very loyal, but the Diesel could have tempted some Dodge or Ford buyers into a GM showroom. So GM, its dealers and shareholders all lose money with this decision. GM’s reputation would have gained as well. Being first with a feature like this carries may benefits that no amount of advertising or PR money can buy. This engine was going to be very innovative, with cylinder heads that eliminated the need for intake and exhaust manifolds. In addition, Diesels get better fuel economy, more torque and last longer than their gasoline friends - all of which would contribute to the reputation gain mentioned above.

So why is GM pulling the plug? There are probably several reasons. The most obvious is an effort to save money, which is in precious short supply over at the General. However, if this engine was scheduled to begin production this fall, the facilities and tooling have to be substantially complete, as does the engineering. Can you say, “Sunk costs?” Another reason is gas prices have fallen significantly in the last 6-8 months. Lower gas prices make the advantage of Diesel’s fuel economy less compelling for customers, resulting in lower sales. Another possible reason is posturing for the administration task force. Maybe they think if they are shown cancelling high-profile projects, that will demonstrate the severity of the situation. If so, they are playing a very risky game of chicken. Cancelling a program whose investments have largely already been paid and that will make you money and improve your market share and reputation to make a point could VERY easily backfire.

I think GM is simply trying to conserve funds. This might seem short-sighted, due to the benefits outlined above, but GM’s situation is dire, to say the least. While certainly not the optimal solution, they are finding themselves in the position of making decisions now which will hurt them in the long-term to save them from collapse in the short-term. The long-term only matters if it exists.