In late 2005, Bob Lutz was losing patience. Toyota was getting huge P.R. mileage out of its Prius hybrid, even as the automaker was gearing up to make inroads into the least energy-efficient segments of the market, large SUVs and pickups. Adding insult to injury, Lutz heard in late 2005 about a Silicon Valley company called Tesla Motors that was developing a high-performance electric car, which would sell for $100,000. Such a car would not be commercially viable from GM's perspective, but the idea that a start-up company in California could be doing something so technologically sophisticated-when the mighty GM couldn't-ate at Lutz. But the GM hierarchy was extremely skittish about batteries, hybrids, or electric cars, especially after the misadventure with the EV-1. In terms of commerce and public relations, it had been a disaster. So when Lutz pressed for some form of electric car, as he had on at least two occasions since his arrival, he was shot down. The data didn't support his thinking, he was told.

Soon thereafter, Lutz says, he "just lost it." In a fit of pique, he demanded GM snap out of its paralysis on the issue. He turned to veterans like Jon Lauckner of engineering and John Smith of product planning, both of whom reported to him, and also to Larry Burns, the head of R&D, and urged them to find a solution. With the help of an informal skunkworks that included veterans of the EV-1, they developed an internal white paper, a vision statement aimed at launching something they called the iCar. The paper was presented to GM's Automotive Strategy Board in March 2006, and the board approved it.

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It was the equivalent of an Apollo moon shot: The company was going to invent a propulsion system and design an entirely new vehicle at the same time. "We don't normally let people do that," notes GM CEO Rick Wagoner. But despite those misgivings, Wagoner and his team had now set a goal of unveiling a new design-not a fanciful concept car, but a real car that could go into production-at the January 2007 Detroit auto show, only nine or 10 months away. By the standards of the automotive industry, that would require blazing speed.

In April 2006, the call went out to Tony Posawatz to start making it happen. Posawatz was tapped to become project leader for a combination of reasons. He had been involved in the EV-1 project and was known for his interest in alternate propulsion systems. Partly because of his MBA, he also had business savvy. And he had been involved in product launch efforts for half his 24 years at the company. There was also a personality factor: Posawatz was someone who could operate in a loosely defined, somewhat chaotic environment. He could be creative. He could hustle different departments for resources. He could get things done unofficially.

Still, he almost didn't take the iCar job because he thought it would be a "science-fair project," a term GM people use to describe something that may be interesting but has no chance of moving into commercial production. "I said, 'No, I'm not interested in doing a concept car. I do real cars.' Then I got the second call. 'No, no, no. You don't understand. This is more than a concept car. '"

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He was given about a dozen people from various parts of the company to get started part-time. Only Posawatz was assigned to the project full-time. "Everyone else had other jobs," he says. "It was purposely set up as a team with a lot of different types of diversity. I'm not talking about just the general diversity, but diversity of thought, from age to different types of individuals, different backgrounds." The charge to the team was very clear and exciting. "The leadership message we got was, 'Try to find a way to displace petroleum.' They didn't say, 'Be the greenest or be the most environmentally friendly.' Those are all nebulous terms. But when you tell engineers, 'Try to find a way to displace petroleum,' oh, boy, engineers can solve those problems."

Lutz asked the team to do a pure electric vehicle, but they pushed back; they weren't going to be stampeded into any particular course of action. The problem, as the team launched into engineering simulations and feasibility studies, was that GM's engineers were intensely divided over whether future cars should be powered by diesel, E85, pure electric batteries, hybrids of various sorts involving both electric and combustion engines, or fuel cells that might operate on hydrogen or methanol. It was an emotional, high-stakes war among the tribes.

The starting point was a review of what was right and wrong about the EV-1. "We went through a point-counterpoint process," Posawatz explains. The EV-1 was a two-seater, which limited its market appeal. It was a unique vehicle in terms of components, which made it expensive. It used a 220-volt inductive charging system, which required rewiring many customers' garages. It had no cargo space. And it had lead-acid batteries, which meant it had a limited range. Ideas were created, tested, fought for, and shot down.

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One raging debate was how far the new car should be able to go on a single battery charge. "Why 40 miles?" Posawatz asks rhetorically. The winning argument was that 78 percent of Americans drive less than 40 miles a day. It also ended up being ideal because of the amount of tunnel intrusion the appropriately sized battery would create.

To avoid giving drivers range anxiety, the team decided to add a small gasoline engine. It could never actually power the vehicle; it was there to recharge the battery and thus extend the range of the vehicle past 300 miles. Drivers running short on power could simply stop at a gas station and fill up, obviating the fear of running out of juice on a long and lonely road.

Posawatz's breakthrough was getting the warring tribes to rally around a unifying concept, which became known as E-Flex (later Voltec). The idea was to make a vehicle architecture flexible enough to accommodate the various energy strategies GM engineers were pursuing. "If you're a fuel-cell advocate, the engine generator set can be replaced by a fuel-cell stack. If you're an E85 advocate within the company, we can burn E85 fuel in the engine generator set. So, ultimately, when people finally understood the value of it, and its connecting qualities, it became something that the whole organization rallied around. It reached the point that everyone felt, 'This is my idea.' Everyone had a kick at the can."

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By November 2006, two months before the Detroit auto show, the E-Flex team had made enough progress that Wagoner and the ASB decided to start production engineering work on the car, now called the Chevrolet Volt. That was an unusual step; typically, the company doesn't start the very expensive engineering work on a model until after it has gauged the market's response to an unveiling. Wagoner made a key speech in Los Angeles at about this same time, promising GM would take the lead on a new generation of fuel-efficient vehicles. Few in the outside world believed GM was serious.

Taking a new car from concept into production is like a relay race; no matter how skilled the individual, no one can handle all aspects of getting it done. So in March, two months after the Volt was introduced, a German by the name of Frank Weber arrived from GM Europe to take over for Posawatz. Weber's title became vehicle line engineer and chief engineer, meaning he was responsible for bringing the vehicle to market and meeting its cost "boundaries," as well as for resolving all technical questions. The VLE position is one of the toughest jobs at GM, and Weber's measure of success is simple: Either the Volt is launched in November 2010, or it's not.

One reason GM has put a European in charge of the Volt launch may be that Europeans in general are ahead of Americans in attempting to adapt to a world in which energy costs are high and there are constraints of space, money, and resources. "Fuel is nine dollars per gallon in Europe," Weber says. "But there is definitely another piece, which is European history in dealing with limited space. Because of the war also, I think there is something in Europe that makes everything a little leaner. You go with less." What's also unusual is that Weber reports to a leadership board, which includes Wagoner, Lutz, and all the top product people inside GM.

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"The Volt is on!" Rick Wagoner announced at a press conference before the annual shareholders meeting in Wilmington, Delaware, in May 2008. The board of directors had just authorized funds to gear up production. Not surprisingly, Wagoner approaches the Volt more from a business and economic angle than from a technological or design point of view. "The first cars out are going to be pretty expensive," Wagoner explains, sitting in his office in the Ren Cen. "That is the key issue we need to be confronting. We really have to be able to drive down the costs.

Lutz says the Volt will be an "absolute game changer." That's not to say he isn't concerned that the cars will be priced so high that it discourages customers from buying them or that GM will have to subsidize purchases, meaning it will lose money on each sale. "There isn't a well-developed supply base for the stuff that you need in an electric vehicle, and we're having to pay exorbitant prices for a lot of the stuff. But some of it we'll integrate in-house. We already have seen areas where we can save a lot by switching to making something instead of buying it. So the second and third generations will be cheaper."

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A company with GM's global scale should be able to quickly find many markets for the Volt. "I think it has the potential to be almost the Model T redux," says Lutz. "That's why we've designed it to comply with all known crash regulations around the world. It'll be available in right- and left-hand drive, and it'll go to China and Latin America, Europe, everywhere. Clearly the technology is such that, once we've got it into mass production as a Chevrolet, there's no reason why we can't do larger versions, smaller versions, more luxurious versions, truck versions, and so forth."

Lutz says the Volt's technology may be the only thing that will enable GM to meet tough U.S. fuel economy regulations: "Because we're going to get a label of over 100 mpg for it." That figure is widely debated. Some analysts consider 50 mpg more realistic; it will depend a great deal on how the U.S. Environmental Protection Agency conducts its mileage test. If it operates the Volt only on the battery, it would use no gasoline. But if the EPA insists on using the gas engine to charge the battery, the miles per gallon would be fewer.

Lutz believes that in the early stages of the Volt's development, the media overstated the challenges of the lithium-ion battery-with help from Toyota. "Toyota started [the negative media coverage] because they have such an enormous equity in nickel-metal hydride batteries, which are okay. But they are last-generation. They are very mature; they're very reliable. We use 'em, too, in our full-size hybrids. But the energy storage is only half of what you get with lithium-ion."

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Neutral observers agree Toyota was not eager to make the move to lithium-ion because of its huge investment in three factories in Japan that made nickel batteries. "There is only one company that has a stranded cost in nickel, and that's Toyota," says Alex Molinaroli, CEO of Johnson Power Controls, which makes lithium-ion batteries for BMW and Mercedes-Benz in Europe. "They [Toyota] would be least motivated to move to a new technology." Lately, however, Toyota has gotten on the bandwagon and has announced that it, too, will unveil a plug-in hybrid in 2010 using lithium-ion batteries. Thus a high-stakes technology race is fully engaged.

If the Volt fails it will be a signal to everyone inside GM and to everyone who watches the company that its woes were as deep as its harshest critics suggested. It either could not make the right bets or could not break free from its bureaucratic shackles to innovate. If, however, the company starts production in November 2010-or comes close-it will be a wakeup call to those same people and to the whole market. GM can once again stake a claim to design and technological leadership in the auto industry.

Excerpted from "Why GM Matters," written by William J. Holstein and published by Walker Publishing Company, Inc., New York, 2009. William J. Holstein has written for BusinessWeek, U.S. News & World Report, The New York Times, and Fortune, among other publications, and is author of the books "Manage the Media" and "The Japanese Power Game."

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ELECTRIC WARRIORSFive Key People Behind the Chevy Volt

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BOB LUTZGM Vice ChairmanWhy: Asked the GM product development team to look at ways of building a Prius-beater. Key quote: "I think it has the potential to be almost the Model T redux."

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TONY POSAWATZVolt Vehicle-Line DirectorWhy: Took the Volt from white paper to vehicle program in less than 12 months. Key quote: "I'm not interested in doing concept cars. I do real cars."

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JELANI ALIYU (in back) Volt Concept DesignerWhy: His 2007 Detroit show concept sold the public on the idea of the Volt. Key quote: "It just doesn't produce the same old answers to an evolving problem."

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DENISE GRAYDirector of Energy Storage SystemsWhy: Helped define the choice of lithium-ion battery chemistry for the Volt's powertrain. Key quote: "This thing is plausible. It is real."

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