In the wake of harsh criticism from President Obama and his administration last week, GM is building a case that it’s taking the steps needed to make its planned plug-in hybrid, the Chevrolet Volt, a commercial success.

Last week, President Obama said that GM had failed to present a convincing plan to turn around its decline, and he warned that the automaker may face bankruptcy. Part of the problem, according to a report by his administration, is that the company is not producing the right mix of vehicles to compete with other automakers. For example, the Volt, the company’s attempt to overcome Toyota’s lead in green vehicle technology, “is currently projected to be much more expensive than its gasoline-fueled peers and will likely need substantial reductions in manufacturing cost in order to become commercially viable,” the report said.

But the Volt is central to GM’s plans for the “reinvention of our company,” said Tony Posawatz, the vehicle line manager for the Volt, in a conference call with reporters last week. The car can be recharged by plugging it in, and will allow people to drive 40 miles without using any gasoline. For longer trips, an onboard generator that runs on gasoline or ethanol will recharge the battery to extend the car’s range. GM plans to use the basic platform for the Volt in a range of vehicles. Indeed, it has already announced two derivatives of the car, one a Cadillac and the other a plug-in hybrid for Europe.

Posawatz acknowledged that the first-generation version of the Volt, due out at the end of 2010, will be more expensive “than one would want.” But he said that the company is already developing the second generation of the car, which could be thousands of dollars less expensive. The company has also been working with local governments and utilities to help it sell more cars by creating various incentives.

One way to save money is by improving the battery system. For the first version of the Volt, GM has taken extra pains to make sure that the battery will last, Posawatz said. A dedicated heating and cooling system will prevent the temperature extremes that can quickly degrade a battery. In addition, because discharging the battery completely can also shorten its life, control systems keep the battery from being discharged more than about 50 percent. But these measures could be overkill, Posawatz noted. “We have put in place a lot of extra fail-safe engineering solutions,” he said. “So there are some opportunities [to reduce costs] as we refine the design.”

Indeed, tests on similar batteries by the Electric Power Research Institute have shown that they can last for more than 10 years even if discharged over 75 percent. Using more of the energy in the batteries would reduce the number of cells needed. Posawatz said that the dedicated heating and cooling system might also be unnecessary.

Another way to save money will be to create battery manufacturing in the United States. Posawatz said that GM has to spend hundreds of dollars per battery pack just for shipping the cells that make up the pack from overseas suppliers. Funds in the recent federal stimulus package passed in February and other legislation could help bring such battery cell manufacturing to the United States.

Posawatz said that GM has been talking with utilities about the possibility of a market for the batteries after their useful life in the car is over. The batteries are designed to last 10 years in a car, at which time they may store only three-quarters of their original capacity and the car may no longer get its full 40-mile electric range. But he said that the battery could still be useful for another 10 years for storing electricity for utilities. It could, for example, store energy from wind turbines during the night for use when there is demand for power during the day. If utilities agreed to buy the batteries, that could lead to financing arrangements that take this into account and lower the cost of the car, according to Felix Kramer, founder of CalCars, a nonprofit organization that promotes plug-in hybrids.

GM is also working with local governments to create incentives that may make more people interested in buying the car. These could include preferential parking, access to car-pool lanes, and publicly available charging stations. In some cases, utilities may offer free services to install dedicated outlets–like the dedicated outlets for clothes dryers or ovens–to allow for fast charging. San Francisco is working on codes that would require new buildings to be equipped for such circuits. GM already has the benefit of a big incentive from the federal stimulus package, which provides a $7,500 tax credit for buying cars such as the Volt.

Such efforts to create incentives could be important because ultimately, what will make the vehicle more affordable is increasing the scale of production, Posawatz said, which will attract more suppliers, creating competition and driving down costs. He expects that the costs for battery chargers, for example, which don’t require very complex technology, could fall by two-thirds if there were more qualified suppliers.