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Monday, September 10, 2012

Report: GM LOSES $49k On Every Volt it Builds

Proving once again what happens when the government tries to pick winners in the marketplace, a new report shows that General Motors loses $49,000 on each Chevy Volt it manufactures. The reports were base on estimates given to Reuters by industry analysts and manufacturing experts.

Those numbers may be on the conservative side because there are leasing deals offered this summer where customers are paying a little over $5K for a two year lease on the Volt which costs as much as $89K to build.

And while the loss per vehicle will shrink as more are built and sold, GM is still years away from making money on the Volt, which will soon face new competitors from Ford, Honda and others.

GM's basic problem is that "the Volt is over-engineered and over-priced," said Dennis Virag, president of the Michigan-based Automotive Consulting Group.

And in a sign that there may be a wider market problem, Nissan, Honda and Mitsubishi have been struggling to sell their electric and hybrid vehicles, though Toyota's Prius range has been in increasing demand.

GM's quandary is how to increase sales volume so that it can spread its estimated $1.2-billion investment in the Volt over more vehicles while reducing manufacturing and component costs - which will be difficult to bring down until sales increase.

But the Volt's steep $39,995 base price and its complex technology — the car uses expensive lithium-polymer batteries, sophisticated electronics and an electric motor combined with a gasoline engine — have kept many prospective buyers away from Chevy showrooms.
Remember as part of the deal to save GM, the president pushed production/introduction of the car earlier because of his belief in "global warming."  Consumers have not been warming up to the Volt despite the fact the government has been subsidizing their purchases.

The lack of interest in the car has prevented GM from coming close to its early, optimistic sales projections. Discounted leases as low as $199 a month helped propel Volt sales in August to 2,831, pushing year-to-date sales to 13,500, well below the 40,000 cars that GM originally had hoped to sell in 2012.

Out in the trenches, even the cheap leases haven't always been effective.

A Chevrolet dealership that is part of an auto dealer group in Toms River, New Jersey, has sold only one Volt in the last year, said its president Adam Kraushaar. The dealership sells 90 to 100 Chevrolets a month.

GM acknowledges the Volt continues to lose money, and suggests it might not reach break even until the next-generation model is launched in about three years.

"It's true, we're not making money yet" on the Volt, said Doug Parks, GM's vice president of global product programs and the former Volt development chief, in an interview. The car "eventually will make money. As the volume comes up and we get into the Gen 2 car, we're going to turn (the losses) around," Parks said.
That's all well and good till you realize the company is losing OUR money as based on the deal to save GM the federal government owns a big chunk of the company.
"I don't see how General Motors will ever get its money back on that vehicle," countered Sandy Munro, president of Michigan-based Munro & Associates, which performs detailed tear-down analyses of vehicles and components for global manufacturers and the U.S. government.
A normal company would cut its loses and stop producing the car. Sadly for General Motors, this is not a normal company, it takes its orders from Washington DC, who doesn't mind wasting taxpayers money.


Ignorance is Bliss said...

A normal company would cut its loses and stop producing the car.

This is certainly the impression you get from reading the article, because the article was written to give that impression. However, that's not reality. If you read deeper, you find that the marginal cost of each car produced is in the $20,000 to $32,000 range. They are making a profit off of each additional car sold. It will just take a very large volume of cars sold to pay off the already sunk costs of design and tooling up the manufacturing process.

The Opinionated Bastard said...

My volt is awesome. Sure development costs divided by the number of vehicles is high, but you're missing the point. The Volt is a platform that the next generation of GM cars can be built on. They're already introducing new models of GM cars based on Voltech.

I'm up to 620 MPG as of today. I'm still on my original tank of gas.

The development costs for the first iPhone were expensive too I'm sure.

I bought a Volt for purely economic reasons because we've reached a tipping point where gas plus maintenance over five years is $15,000 less on the Volt then on a Hybrid. With that plus $9k back from the government, the volt is quite the deal.

P. Aaron Jones said...


Thucydides said...

The sad thing is Toyota pioneered this technology without government subsidy and built the Prius brand over three generations, while GM can't even make a warmed over copy (despite some very deceptive press releases, the Volt is not a serial electric vehicle as was initially implied, but a parallel hybrid like the Prius, with different control logic. Once a plug in Prius is available, car hackers can mimic the Volt's performance profile if they wish).

The bailout insulates GM workers and management from the market, they have no motivation to build any good products (The Chevy Malibu is promising to become another sales disaster for this very reason).

turtle said...

There is a theory called, "Disruptive Technology". It states: When technology is cheap enough, people adopt it, even if only marginally effective.