(repeating story that first ran Tuesday without changes to text)
* GM Ventures can spend $200 mln in its first 3 years
* Funds still modest but symbolically important
* Wants to find the next HP-style inventor
* VC investing in transport-related areas up in 2011
By Ben Klayman
DETROIT, Aug 16 (Reuters) - From an empty auto-parts plant
in the heart of Rust Belt America, General Motors Co
With a solar charging station as a backdrop, GM's venture
capital unit touts a $7.5 million investment in Sunlogics, at
the solar energy system maker's new headquarters in a former
auto parts plant in Rochester Hills, Michigan.
The investment, announced last month, gives GM Ventures a
stake in a company building solar charging equipment. It comes
out of a $200 million venture capital budget GM earmarked to
spend over three years in response to fears that the world's
largest automaker could lose out on the next big thing to
start-ups such as electric car maker Tesla Motors
While the investment fund is minuscule compared with GM's
$8 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.
"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."
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In embarking down the venture capital road last summer, GM
joined a number of other automakers, including
Volkswagen
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 Inc
CRANK IT UP
"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?"
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 automaker
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 Motor Corp's <7203.T> 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 bailout,
a turbulent period that had some venture capitalists and
start-up executives crowing about how they would bury Detroit.
The venture capital bets are indicative of GM's approach to
making investments for for the future while still protecting
what Akerson and other executives call a "fortress balance
sheet" that includes more than $30 billion in cash.
Phil Murtaugh, CEO of electric car maker Coda Automotive
and a former GM and Chrysler executive in Asia, said venture
capitalists came to realize that "the auto 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.
GM, for instance, invested $5 million in wireless charging
start-up Powermat in January with an eye toward rolling it into
vehicles including the Volt. One idea: apply the technology to
cordless charging for electric cars.
Of course, GM is not alone in putting money into such
companies.
Global venture capital investment in transportation and
energy storage through the first six months of this year is
running ahead of the pace in 2010, when investments totaled
$1.71 billion, according to consulting firm Cleantech Group.
HALL OF (HEATED) MIRRORS
Still, companies like GM have some way to go to convince
venture capitalists who think the early success of start-ups
such as electric car makers Tesla and Fisker Automotive
signaled that the big U.S. automakers had lost their way.
"Why have groups focused on heated mirrors, heated seats,
new colors?" Ray Lane, a managing partner at U.S. venture
capital fund Kleiner Perkins Caufield & Byers, said in April in
Detroit. "Those are the not the priorities of the industry and
they will not be the priorities of the generation of buyers
coming up in the next 10 years."
Kleiner Perkins has a stake in Fisker and invested with GM
in electric bus maker Proterra.
By not focusing fast enough on the promise of electric
cars, the industry opened the door for start-ups.
"Tesla will be in the Smithsonian at some point," said Alan
Salzman, CEO of Tesla investor VantagePoint. "Tesla may or may
not be around 15 years from now, but they nonetheless clearly
have served as the catalyst for the industry."
Automotive history is littered with the corpses of failed
start-ups, including Preston Tucker in the 1940s, who was
immortalized in a 1988 Hollywood movie starring Jeff Bridges.
However, Fisker CEO Henrik Fisker said he is focused only
on building his company. "I'm not here to teach the automakers
anything. We're here to create a new car brand."
Girsky says GM has developed a healthy paranoia about
competition from all corners, including companies outside the
auto industry.
"Competition is going to come from a lot of places -- the
traditional guys like Ford, Honda and Volkswagen; the emerging
markets guys like Geely <0175.HK>, Chery and Tata
However, GM's restructuring has allowed it to stop worrying
about survival and focus on investments that could transform
the way it builds cars that are not yet even on the drawing
board.
"When a couple of these (investments) start to fail,"
Girsky said, "no one's going to get shot around here."
(Additional reporting by Sarah McBride and Nichola Groom in
Los Angeles, editing by Martin Howell)