GM loses US$49,000 on each Volt it builds: Analysts
General Motors Co sold a record number of Chevrolet Volt sedans in August – but that probably isn’t a good thing for the automaker’s bottom line.
Nearly two years after the introduction of the path-breaking plug-in hybrid, GM is still losing as much as US$49,000 on each Volt it builds, according to estimates provided to Reuters by industry analysts and manufacturing experts.
Cheap Volt lease offers meant to drive more customers to Chevy showrooms this summer may have pushed that loss even higher. There are some Americans paying just US$5,050 to drive around for two years in a vehicle that cost as much as US$89,000 to produce.
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 said Monday the “estimate of the current loss per unit for each Volt sold is grossly wrong.” The company said it allocates Volt development costs across lifetime volume, not across the current number of Volts sold.
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 models have been in increasing demand.
GM’s quandary is how to increase sales volume so that it can spread its estimated US$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 US$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.
Some are put off by the technical challenges of ownership, mainly related to charging the battery. Plug-in hybrids such as the Volt still take hours to fully charge the batteries – a process that can be speeded up a bit with the installation of a US$2,000 commercial-grade charger in the garage.
The lack of interest in the car has prevented GM from coming close to its early, optimistic sales projections. Discounted leases as low as US$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.
The weak sales are forcing GM to idle the Detroit-Hamtramck assembly plant that makes the Chevrolet Volt for four weeks from Sept. 17, according to plant suppliers and union sources. It is the second time GM has had to call a Volt production halt this year.
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.
“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.
It currently costs GM “at least” US$75,000 to build the Volt, including development costs, Munro said. That’s nearly twice the base price of the Volt before a US$7,500 federal tax credit provided as part of President Barack Obama’s green energy policy.
Other estimates range from US$76,000 to US$88,000, according to four industry consultants contacted by Reuters. The consultants’ companies all have performed work for GM and are familiar with the Volt’s development and production. They requested anonymity because of the sensitive nature of their auto industry ties.
Parks declined to comment on specific costs related to the Volt.
The independent cost estimates obtained by Reuters factor in GM’s initial investment in development of the Volt and its key components, as well as new tooling for battery, stamping, assembly and supplier plants – a price tag that totals “a little over” US$1 billion, Parks said. Independent estimates put it at US$1.2 billion, a figure that does not include sales, marketing and related corporate costs.
Spread out over the 21,500 Volts that GM has sold since the car’s introduction in December 2010, the development and tooling costs average just under US$56,000 per car. That figure will, of course, come down as more Volts are sold.
The actual cost to build the Volt is estimated to be an additional US$20,000 to US$32,000 per vehicle, according to Munro and the other industry consultants.
The production cost estimates are considerably higher than those for the Chevrolet Cruze, the Volt’s conventional gasoline-engine sister car, which Munro estimates at US$12,000 to US$15,000 per vehicle.
The Volt costs more to build for several reasons, mostly related to the car’s richer content, complex technology and still-low sales and production volumes.
Some of GM’s suppliers also impose cost penalties on the automaker because the Volt’s production volume remains well below projections.
Still, as the company wrestles with how to drive down costs and increase showroom traffic, Parks said the Volt is an important car for GM in other respects.
“It wasn’t conceived as a way to make tons of money,” he said. “It was a big dip in the technology pool for GM. We’ve learned a boatload of stuff that we’re deploying on other models,” Parks said. Those include the Cruze and such future cars as the 2014 Cadillac ELR hybrid.
The same risky strategy – gambling on relatively untested technology – drove massive investments by Toyota Motor Corp in the Prius hybrid and Nissan Motor Co in the Leaf electric car.
Toyota said it now makes a profit on the Prius, which was introduced in the United States in 2000 and is now in its third generation. Sales of the Prius hybrid, which comes in four different versions priced as low as US $19,745, have almost doubled so far this year to 164,408.
Other such vehicles haven’t done nearly as well. Nissan’s pure-electric Leaf, which debuted at the same time as the Volt and retails for US$36,050, has sold just 4,228 this year, while the Honda Insight, which has the lowest starting price of any hybrid in the U.S. at US$19,290, has sales this year of only 4,801. The Mitsubishi i, an even smaller electric car priced from US$29,975, is in even worse shape, with only 403 sales.
Toyota’s unveiling of the original Prius caught U.S. automakers off guard. GM, then under the leadership of Rick Wagoner and Bob Lutz, decided it needed a “leapfrog” product to tackle Toyota and unveiled the Volt concept to considerable fanfare at the 2007 Detroit auto show.
With files from Paul Lienert and Ben Klayman
You may have heard recently about Metro Vancouver cities applying for a grant from the Province to install charging stations for electric vehicles .
Again…its OUR tax dollars , whichever way you split it.
Again, our clueless politicians jump all over themselves on the shallow and surficial “touchy feely” “save the planet “koom bay ya ” without really looking at the often costly path from A -to -Z to get there.
I am never one to dive into new expensive concepts, I let others be the guineau pigs.
We are not claiming that conventional gas or diesel powered vehicles don’t “pollute”, but our society has evolved to accept and embrace the modern automobile.
Here we have manufacturers chasing a dream, aka building an affordable electric powered vehicle. We do have such vehicles as smart cars high MPG on fossil fuels, but they never seem to have caught on. This electric powered vehicle has been an objective sought for years. Perhaps it is simply not achievable. IMHO, the lingering issue is the reliability, people inherently know that all batteries die ,( and eventually wear out and cannot store power), and have fears of being stranded in the most inconvenient places.
In addition, how will these cars be disposed of…..when they run out their lifespan…..we are talking large batteries that need to be recycled. In other words, if all factors are accounted for, electric cars may have bigger impact on the environment than conventional ones.
Perhaps one should take advantage of the hugely subsidized opportunities offered to drivers as noted in the article.
Finally , I caught wind of this story via the fact GM was near bankruptcy, yet engaged in such risky ventures which could take the company down,….and the ripple effect of that to workers and shareholders. The inference was perhaps that Gov’t loans were tied to GM pursuing this dead end agenda. Stick to what you know, and do that well.
There is a point that trying to re-invent the wheel is found to be futile, ……but how many more chasing windmills are these parties prepared to go ? Billions are being funneled into this “Go Green” agenda with little if any payback except cheap politics.