GM to import first Volt engines, plant on hold

DETROIT Wed Jan 28, 2009 4:22pm EST

The Chevrolet Volt electric car is seen during the North American International Auto Show in Detroit, Michigan January 13, 2009. REUTERS/Mark Blinch

The Chevrolet Volt electric car is seen during the North American International Auto Show in Detroit, Michigan January 13, 2009.

Credit: Reuters/Mark Blinch

DETROIT (Reuters) - General Motors Corp has suspended work on a $370 million engine plant in Michigan, forcing it to import engines for the initial production of its all-electric Chevy Volt, a senior union official told Reuters on Wednesday.

The move underscores both the pressure on GM to cut costs as it struggles to restructure under federal oversight and on the money-making potential for the plug-in hybrid vehicle.

Even before the decision to ship engines to the United States, GM executives said that they did not expect to make money on early sales of the highly anticipated car. It is scheduled to go into production in November 2010.

GM, which has been pledged $13.4 billion of U.S. government loans in an emergency bailout, said last year it would build an engine plant in Flint to support the Volt and a new small car, the Chevy Cruze.

The Flint engine plant, which was expected to open next year, was expected to build a turbocharged 1.4-liter engine for the Cruze small car and another version to extend the driving range of the Volt.

In December, as GM scrambled to save cash and stay out of bankruptcy, the automaker said it was delaying the next phase of construction for the Flint plant but said it expected the delay would be temporary.

On Wednesday, a GM spokeswoman said some construction contracts for the plant had been canceled and that it would consider other nearby options for building the next-generation of small four-cylinder engines.

"This allows us to finish our assessment of manufacturing capacity, capital expenditure and existing floor space and not to spend money while we're doing that," GM spokeswoman Sheryl Arb said.

GM Chief Executive Rick Wagoner and Michigan Governor Jennifer Granholm had announced plans to break ground on the Flint engine plant in September after state officials helped arrange tax incentives for the construction.

A United Auto Workers official said GM had assured the union that production of engines for the Volt would be transferred to Flint as soon as possible.

"GM is looking to find the most cost efficient way to build the new family of engines," UAW Local 599 President Bill Jordan told Reuters in a telephone interview. "It will still be in Flint and still under 599."

"The Volt kickoff will be an engine from across the ocean and as soon as possible the engine will be built in Flint," Jordan said.

GM is already building a version of the Chevy Cruze at its South Korean subsidiary and could source the early run of engines for the Volt from a supplier there.

Earlier this month, GM announced that Korea's LG Chem would supply the Volt's 400-pound lithium-ion battery pack, the vehicle's most expensive and critical component.

GM plans to invest $30 million to build a Michigan plant that will build battery packs for the Volt from cells supplied by LG Chem.

The Volt, designed to run 40 miles on battery power alone, has become the centerpiece of GM's attempt to reinvent its product line and focus on developing more fuel-efficient vehicles.

The car's engine is designed to kick in after its electric-only range is exhausted as a generator that will send power back to the battery to keep the Volt running.

For that reason and the Volt's ability to recharge at a standard electric outlet, GM's design marks a potential advance on current generation hybrids which use both a combustion engine and a smaller battery in parallel.

GM plans to build about 10,000 Volts in the first year of production, eventually ramping up to about 60,000 units per year. The automaker has also said it will use the electric-drive architecture that underpins the Volt for other models, potentially including a more expensive Cadillac.

(Additional reporting by Kevin Krolicki; Editing by Lisa Von Ahn, Leslie Gevirtz)