growth of the top line is never discussed, it is always assumed, it is always assumed that they give you the company sales figures for last year, thi year, and/or the last ten years, and the next ten years, and so you take the top line for granted and then you work on the costs to minimize the difference between the top line and your costs. when you do that in the automobile business, you automatically start taking away customer excellence. >> rose: and in our second segment joining bob lutz is elan musk, cofounder and ceo of tesla motors. >> we are on the verge of gliferg the sedan, the four-door sedan model s, and it is really quite a significantly, and to tell you a little bit about that, it has a range of, electric, over 300 miles, there is a performance version that will do zero to 60 in a four-point four seconds with situate faster than a porsche 9/11 carrera, it will actually beat crash rating in every category without exception by 2012 standards this is a very difficult thing to meet, in fact, my understanding there is not a single vehicle that is fast, better crash category in 24 standards so we will be the only one. >> rose: lutz and musk next. >> funding for charlie rose was provided by the llowing. >> rose: and american express. additional funding provided by these funders. >> and by bloomberg, a provider of mtimedia and news and informationervices worldwide. captioning sponsoredy rose communicatis from our studios in new rk city, this is charlie rose. >> rose: bob lutz is here. he is an auto industry icon. he sells leadership in bmw, ford, chrysler and general motors, hisredit with reviving gm after being in global development in 2001, he wres about the auto industry in car guys vers bean counters, the batt for the soul of american business, i am pleased to have bob lutz at thistable and back on this program. welcome. >> thank you, good to be here. >> the last time i saw you, a whole bunch has happened. >> i will say. >> >> the classic understatement. >> rose: yes indeed. let's talk about that first. >> yes so things were going bad, you had the federal government had to come in. >> yeah. >> rose: take me how you saw all of that. >> well, it was pretty demoralizing at first, and i was actually thinking of retiring. >> but you are only 70 something. >> yeah, i know. >> but i felt good and i do love the industry, but i was afraid that -- there was some talk from the administration at the time of now that we owned them, we will make them build the kind of cars that we think they should make and i thought oh, my god here we go, an endless series of green mobiles. >> and in the event, though, that didn't happen, and as i got to know the obama automotive task force, i got the feeling that they were doing the job well. >> they got off the information they needed, they came out of the study with a much better opinion of general motors, and i could se that, once it became ear that the federal government was in this only to support us momentarily, get us back out of chapter 11 as quickly as possible, hopeful that we would be able to chuck off government ownership as quickly as possible and had no intention of telling us how to run the business, except that they wanted us to run it for a profit because they are the shareholders, so once that became evident i relaxed with the whole thing and told myself, hey, at the end of the day this has been a very good thing, it is cleared out a lot of deadwood, it fix add lot of labor cost issues, it fixed legacy cost issues, it fixed the balance sheet, and it focused everybody's minds, including the unions, on the fact that if you don't run the busins right, ultimately you will go chapter 11 and everybody became a believer, you know, even those who, on both the union and management side, said, aw, ah, come on, general motors will never go chapter 11 and it did. >> rose: it did. >> i think it was an experience of like death and rebirth while it was terrible for the shareholders and many bondholders and many employees, a horrible thing to go through but at the end of the day, it made gm competitive. >> rose: here is what is inresting, i see you as a nservative and as guy that doesn't want government around very much. >> that's true. >> rose:. >> except for the right kind of gulations, you know, safety regulations. >> intelligent regulations. >> rose: but when you needed help you were happy to see the government to help you mail out. >> yes and no, first of all, we do not live in a pure, private, economy, we live in a economy with a lot of government involvement at many levels, labor legislation, social legislation, environmental legislation, et cetera, et cetera, et cetera, so it isn't exactly free market unfettered capitalism we have in the united states. and to a very large extent, a lot of the government regulation that we ha and the exchange rate the u.s. granted japan after the war that gave japan a 4,000 dollars cost advantage, the fact that corporate average fuel ecomy was enacted to where the japanese were producing all of the little cars were. >> were on the good side of the average they didn't have to change a thing. >> we had the big calls that the american public wanted. >> we had to keelhaul the whole program and change everything, that is when the american industry collected and lost it on quantity, so, there were a lot of government policies designed to hurt the automobile industry, so and then the sub ime mortgage meltdown was a product, 1998 to community renewal act. >> which forced the banks to grab loans to people who couldn't poured to pay for the houses. >> so it caused a lot of the problem,. >> repayment, that is another factor, and this free market capitalism stuff, you have to let the rule of reason dictate your actions. >> the american automobile industry. >> if you let them go bankrupt,. >> the major automotive suppliers in the united states, ford motor company would have been dragged down, thousands of dealer ships around the country would have closed, i mean, the ripple economic effects would have been too awful to contemplate, so it is very easy for somebody like mitt romney to say, this was unwarranted government intervention, then there are thoseith short memories who say, well, we have a private banking system, what is wrong with the normal debtor in possession procedure, why couldn't they have ge through a normal chapter 11, why did the government have to step in? hello, they forget, there was no money. the banks didn't have money, there was nobody that could finance e chapter 11 for ford or chrysler, the government was the only entity at the time that had any money, so am i forgot intervention? normally, no. >> rose: last recourse. >> yes. and if it is to avert a larger economic catastrophe at a time when the nation was already teetering on the brink of, you know, a worldwide financial meltdown, if i had been the president i would have done the same thing. so you defend the president people step forward and say -- >> it is one of the few things of the current administration that i put on the positive side of the ledger. >> >> rose: wagner my friend had a job too, he is a food man. >> he is a very good ma >> >> i think it was necessary, yes, because putting in the government, it was an unpopular act politically and exposed the administration to a lot of criticism that bically from the republican side, and to have supported no matter, no matter how good that management, when a calamity like that occurs and the government has to come in with that money they can't just put it in and say, hey, try to take a little better care of it this time. i mean they have got to make a change. they have to make a change and i think everybody understood that for political reasons alone, it was necessary to pretty much clean house. >> rose: hgot actors in there running the company now. how good of a shape is general motors in? >> i think general motors is in terrific shape. the fixed costs are very low. which results in a low brake even, so that means american industry levels of 11 and a half, 12 million annual rate, which ud to be a level of market that automatically generated massive losses, in fact, we sometimes lost money at 17 million industry, now general motors is highly profitable, had about, at 12 and a half million, wage costs are much lower, we have a second tier wage in place, the healthcare burden is largely gone, so general motors is a very low break even point. >> >> rose: and it can compete -- >> well that is the important part. and, you know, i am pleased to say i was largely in charge of that. >> >> rose: why. >> well, i described that in my book. and to some extent, i blame american business education, whether it is harvard preschool or wharton or berkeley or stanford, they all teach the same thing. and they all teach business administration as essentially a cost minimization model, you know, here are your various variables you play with, what you do is you analyze the data, you find out where pockets of costs are that you don't really need, you eliminate them to imove margins, and the interestingly enough, and i have written business school cases, i have taught business school cases and i have learned from business school cases. i have done all three. growth of the top line is never discussed, it is always assumed, it is always assumed that they give you the company sales figures, for last year, this year, or the last ten years and the next ten years, and so you take the top line for granted and then you work on the costs to minimize the difference between the top line and your costs. when you do that in the automobile business, you automatically start taking away customer excellence, and it is like a restaurant that has a good clientele and is known for fabulous food and then it is taken over by a restaurant conglomerate who analyzed the food and say you guys are using too much butter, start substituting margarine and 90 percent of the customers. >> rose: and the vegetables could be fresher? >> or we will take the vegetables, are you buying these every day pressure? you don't have to do that. keep them two or three days, nobody is going to notice and this nobody is going to notice, nobody is going to notice, it is death by a thousand small cuts. >> rose: the principle here is make things that peopleant. absolutely. >> rose: that they want to buy. >> absolutely. >> rose: and steve jobs never looked as you know, we know from all of the new books by walt isaac and others, steve jobs didn't say i will do a focus test on this to see if the customer wants to buy, if he created what his vision was, there would be a market for it. >> that is what george lucas did before star wars, all of the great creative people don't spend time going out and handling people's heads and if steve jobs before doing the i-phone ife went out and asked customers to describe their ideal smart phone, the description he would have gotten would have been a slightly improved norl cellphone, maybe with bigr buttons, maybe with a bigger screen, but nobody, the public was not capable of envisaging the i-phone and that is where i think every -- every industry that has a broad customer base has to work on custer delight, and it has to have some people like steve jobs who are perhaps, unless they are ceo, they may be a little bit difficult to deal with, and because -- >> rose: they are demanding, perfectionists. >> perfectionists and a lot of times have ideas that are not based on analytical fact. >> and people will say where is your data. >> i don't have any data because nobody has done this before, and the -- i have no data because nobody has done this before is usually not a popular answer with the bean counters. >> rose: all right. the title of this book is bob lutz, car guys versus bean counters. what is a car guy? >> well, a car guy, first of all, it can also be a female, it is a polly gender term. >> rose: absolutely. >> but it is a person -- >> rose: same thing with bean counters. >> in the car business it is a person who has the creative sense, that somehow is in tune with public sentiment, is passionate about vehicles himself or herself, can easily tell the difference between a great car and a immediate oaker car. >> rose: name me a car guy iacocca would be inthat group. >> yes. at a certain level. with him it was mainly aesthetic he really didn't care h good the car was. certainly i would say the world's finest switzerlander passes everyone, the chairman of the volkswagen group, i guess now nonexecutive chairman. >> rose: right. hhe had it? >> oh, he had i and he has it. i mean, his instincts on creating new products are almost infallible. he is truly the pope among car guys. not that i would like to work for him, i understand he is very unpleasant. >> rose: you could handle him. >> ha spurlock, former manager at chrysler. currently the ceo ofvolkswagen i think is a terrific car guy and somewhere in the ranking of the top ten, i would modally put myself. >> rose: you should be there. maybe i said that. but you care both about the engineering and the design? >> and also -- >> and frankly abt the financial results. i mean i don't do it just for the love of the object. but my thesis is, if you do highly desirable car that not only looks great, drives great, has good fuel economy and is a pleasure to drive, you will make muchore money on that car, even though you spent more. here is an interesting fact during my time at gm, i probably added close to $1,000 worth of costs per car, which had the bean counters tearing their hair out, but we built cars to a cost target, then the public didn't like them, and we had to spend 4,000 dollars in incentives, or even 5,000, and now with these better cars, the incentives are way down and the average transaction prices are way up, so on average, the last time i checked, gm's average transaction prices on average were up over $5,000 and the cost is up about $1,000. so what finance guy wouldn't accept that, youknow, 1,000 in and 5,000 back. it is usually a pretty good deal. >> rose: a good deal. so gm today does very well in china, yes? >> yes. >> rose: t buick a the cadillac. >> and the chevrolet is growing very rapidly in china, and the crews, the same crews that are number one selling car in the united states. >> rose: the ze. >> is ao a best seller in china. and requires more capacity. >> rose: china biggest auto market in the world. >> yes, by far. >> rose: by far. >> and the gap is growing. >> rose: because they are developing a bigger middle class that wants cars. >> and the whole prosperity moving inland from the coast. so i don't think it is going to be more than four or five more years, the chinese auto market is going to be 30 million a year and bigger than europe and the u.s. combined. >> rose: and how many of those will be sold by chinese auto companies? >> it is a good question, i don't think anybody knows right now, i think the bulk of them will be sold by western companies, that is, volkswagen, audi, gm, in conjunction with the chinese partner. but there are some of the chinese, native chinese companies that are starting to build-up, up ahead of steam and starting to ok for technical alliances with western producers. so i would say maybe in five or six years it will be about 50-50. and see, that is what makes china different from korea and japan. china when they developed their auto industry they welcomed partnerships with western companies. especially american ones. the japanese and the korean were absolutely mercantileistic and kept everybody out unl their industry was big and powerf, that's why i like china, well aren't you afraid of the chinese? well i am not afraid of the chinese because the chinese automobile industry develops, general motors is one of the biggest players there. >> rose: what is the status, speaking of all of this, of the development of batteries and the improvement in batteries? >> well,. >> rose: electronic vehicles -- >> electronic vehicles, of course they are here nowut we still don't have enough energy density in lithium ion and there is a lot of research going on both in the government labs and at the universities and at the companies making batteries, looking at chemistries, like lithium sulfur and lithium air, which are great for energy storage, but currentlytill have some reliability and thermal problems, which in my judgment will get solved over the next ten years. >> rose: will be solved in the next -- >> will get solved. lithium ion was very problematic for a long time, and it took at least ten years to get lithium ion to a commercial level, but these new -- these new chemistries will have like ten times the energy density of today's lithium ion, so that a battery like the size we have got in the chevrolet volt, which is good for about 40 miles of electric driving that same size battery at some point is going to be, is going to be able to store 400 miles. at that point, range anxiety goes away and the electric car is just as convenient as a gasoline powered car except once a week you have to remember to musplug it in. >> rose: you know this question is coming. suppose you got this idea 15 years ago and said we have an emission problem here in the united states. we have a climate issue in the united states. and around the world. >> >> rose: i know where you come from, you don't believe it is man-made. >> no, absolutely not. >> rose: and you have the science on your side which makes you -- >> yes, increasingly because there is more and more scientists that are stink off the bus and if you look at the ipc -- >> rose: would you come to the table and debate this? >> i sure will. >> rose: we will do that. i don't want to get waylaid by that. >> wouldn't we have been better if we had electric vehicles? >> no. because there would have been no market for them and the technology wasn't -- >> rose: there was no market, we just accomplished that there was no market for an "own and ipod. >> but people wanted an i-phone. >> rose: they didn't know they wanted an i-phone, think want and, they wanted an i-phone because -- >> an electric car, gm did one. they did theery first one. the ev 1. >> rose: yes. and what happened to that, by the way? >> you know what, they cost like 250 some odd thousand each to produce. we couldn't sell them. >> rose: not an economic mol. >> nobody wanted them so we had leave, lease them out for $300 a month and it was a huge money making proposition and what you had is a very narrow, almost at that matt tall fan base, and mostly, fanatical fan base, mostly in hollywood and california, that gave rise to who killed the electric car conspiracy theory. >> rose: we are going to take a look at that moment in a moment, let's look at the cars around the world today. so when you look at toyota .. are they back? i mean, what is the realistic view of what happened to them, how big of a hole they are in and what it takes them to begin once more, if they can, the number one car company in the world? >> well, they will -- they may in terms of size become the number one car company in the world again, although it is tough for them, because her not that well received in china. interestingly, even general motors in the bad old days was running circles around toyota in china. i think if you ask people in toyota, and i have, what you hear is, we got carried away by our own success, and we started believing all of the press clippings about we are better than anybody else, we are the world's bes we ahe world's smartest, you know, et cetera. >> ros right. >> it was kin of pride goes before the fall. so because of their relatively modest participation in china and gm and volkswagen's huge presence in china, as that market froze rapidly, volkswagen and general motors are just going to walk away from toyota, because they are not present, not really present in the world's -- >> rose: what