GM doesn't lose $49,000 on each Chevy Volt

Falsehoods about the Chevy Volt just keep on coming. Earlier this year Fox News and Charles Krauthamer lied about non-existent fires in Volts.

Now renewable energy haters, global warming deniers, and the anti-Obama crowd are crowing about a Reuters story that claims GM loses as much as $49,000 on each Chevy Volt it builds.

Problem is, this isn't true.

Reuters admits that it divided the billion dollars or so in development costs by the number of Volts sold through August. That's crazy. After someone sent me an email about this supposedly shocking news, I replied to him with:

Somebody makes a widget that cost $100,000 to get into production. They sell 10 of them in the first week for a profit of $100 each. Then someone claims, "They're losing $9,900 on each widget!" (because they've made $1,000 and they put $100,000 into development: $99,000 divided by 10 equals $9,900.) That claim is absurd, because they've just starting selling the widget. Whoever says that doesn't know how business works.

As GM says, and I've read, there will be a Volt 2 in a few years. The Volt technology almost certainly will be used in other cars. The Volt has won North American and European Car of the Year awards. It's a success. This is more disinformation from people who don't want to admit that the United States auto industry is alive and well, while Osama Bin Laden is dead. Very unpatriotic, in my opinion.

Aside from my political asides, this is pretty much how GM responded to the misleading Reuters story. 

Reuters’ estimate of the current loss per unit for each Volt sold is grossly wrong, in part because the reporters allocated product development costs across the number of Volts sold instead of allocating across the lifetime volume of the program, which is how business operates. The Reuters’ numbers become more wrong with each Volt sold.

In addition, our core research into battery cells, battery packs, controls, electric motors, regenerative braking and other technologies has applications across multiple current and future products, which will help spread costs over a much higher volume, thereby reducing manufacturing and purchasing costs.  This will eventually lead to profitability for the Volt and future electrified vehicles.

Every investment in technology that GM makes is designed to have a payoff for our customers, to meet future regulatory requirements and add to the bottom line.  The Volt is no different, even if it takes longer to become profitable.  

GM is at the forefront of the electrification of the automobile because we are developing innovative technologies and building an enthusiastic – and growing – customer base for vehicles like the Volt.

My wife and I own a Volt. We love it. (Here's the reasons why.)

When our three-year lease is up in June 2015 we're looking forward to getting a second generation "Volt," whose technology probably will be available in other GM models by then. According to Consumer Reports, the Volt had the highest customer satisfaction of any car sold in America. It's a huge success story.

The Obama administration, of course, had nothing to do with development of the Chevy Volt. The production design model was unveiled in September 2008, before Obama was even elected. Yet somehow right-wingers believe that disparaging the Volt, an all-American car, will reflect poorly on Obama.

That's bad politics.

Ohio, where the Volt is built, is vital to Romney's election chances. But Ohio is trending in favor of Obama, in no small part because of Romney's willingness to let GM go under. Bad-mouthing the Volt isn't going to help the G.O.P. cause in Ohio and other states where lots of jobs have been preserved by saving the auto industry.

I also don't understand how anyone can expect GM to make money from the Volt in the first year or two of production. The Volt is part of a long-term GM automotive strategy. In the same way as Amazon loses money on each Kindle tablet that it sells, but is happy to do so, so is GM planning to make money on the Volt. It'll just take a while longer.

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.

Lastly, so what if some of the government's auto bailout money is considered to be supporting GM's Volt losses? We're talking hundreds of millions of dollars, at most, given that the entire cost of Volt development was around a billion dollars.

New energy-related technologies always have gotten government aid.

The oil and gas industry has fed at the taxpayer trough for many, many years, eating up many more billions than electric car subsidies have. Thus the outrage of conservatives who decry federal support for renewable energy and alternatives to conventional car technology is misguided. 

Comments

[DaneM]

Sorry but Romney never said to let them go under. His statement was that they should go through the bankruptcy process which they did with a lose of tax payers and employees money. If the government had stayed out of it the lose would have been to the employees and not included the tax payers.

[tucson]

Blogger Brian wrote: "When our three-year lease is up in June 2015 we're looking forward to getting a second generation "Volt,"

--Wouldn't it be more environmental to keep the old one rather than causing another to be built and the resulting contribution to carbon emissions, a diseased planet and coastal flooding?

My friend finally put his '73 Suburban up on blocks. He has steadfastly refused to get sucked into the 'buy a new car every few years merry-go-round'. But now he can't afford the gas. His new "car"? A 1978 50cc Honda scooter...up to 150 mpg.

[Brian Hines]

tucson, you make a reasonable point. I guess the way we see it, someone else who wants a Volt, and is happy with a lower cost used Volt, will take our car. So it isn't as if our current Volt will be thrown on the trash heap and wasted. It will continue to be used, just as your friend's '73 Suburban was for a long time.

[Brian Hines]

Dane M, do some more research on the state of the auto industry after the Bush-caused financial meltdown. Here's a place to start, an article by the lead adviser to the task force that saved the American auto industry:
http://www.nytimes.com/2012/02/24/opinion/delusions-about-the-detroit-bailout.html

He knows what would have happened if Romney had gotten his way and GM plus Chrysler went bankrupt. The auto industry would have died. So I stand by my statement. Romney wanted the auto industry to die, because that's what would have happened if his approach had been implemented.

Here's an excerpt:
---------------------
As a presidential aspirant, Mr. Romney evidently hasn’t felt a need to be consistent or specific as to what should have been done to address the collapse of the auto industry starting in late 2008. But the gist is that the government should have stayed on the sidelines and allowed the companies to go through what he calls “managed bankruptcies,” financed by private capital.

That sounds like a wonderfully sensible approach — except that it’s utter fantasy. In late 2008 and early 2009, when G.M. and Chrysler had exhausted their liquidity, every scrap of private capital had fled to the sidelines.

I know this because the administration’s auto task force, for which I was the lead adviser, spoke diligently to all conceivable providers of funds, and not one had the slightest interest in financing those companies on any terms. If Mr. Romney disagrees, he should come forward with specific names of willing investors in place of empty rhetoric. I predict that he won’t be able to, because there aren’t any.

Without government financing — initiated by President George W. Bush in December 2008 — the two companies would not have been able to pursue Chapter 11 reorganization. Instead they would have been forced to cease production, close their doors and lay off virtually all workers once their coffers ran dry.

Those shutdowns would have reverberated through the entire auto sector, causing innumerable suppliers almost immediately to stop operating too.

Despite the relative health of its balance sheet, even Ford would have been forced to close temporarily, because critical parts would have become unavailable. And service providers — trucking companies, restaurants and more — would have been severely affected.

More than a million jobs would have been lost, at least for a time. Michigan and the entire industrial Midwest would have been devastated.

[tucson]

Brian,
By purchasing a new Volt you are increasing demand and this results in more cars being built. The byproducts of such manufacture cause a "diseased planet and coastal flooding". You are making Romney and Republicans very happy by buying all these cars!!

[tucson]

Brian,
You stated: "Romney wanted the auto industry to die, because that's what would have happened if his approach had been implemented."

--Why would Romney want the auto industry to die? Doesn't it contribute to a "diseased planet and coastal flooding".

These Republicans are a bad lot. Gotta get rid of 'em. I mean wanting the auto industry to die AND a "diseased planet and coastal flooding"? That's worse than Stalin, Hitler, Idi Amin, Ghengis Khan, George Bush, and Kim Jong Mentally Il all rolled into one.

The rhetoric in this campaign is sick. It comes down to this:

Do we want, (A) a government centered heavy entitlement society or, (B) a market centered society that relies on initiative, opportunity and free enterprise to address the problems and issues of our time.

[AC Points]

The Prius saw a lot of the same type of bogus cost arguments 15 years ago. It took 4 years for it to become profitable and begin to recoup the development costs. Now 15 years later they've sold 4M units.

But this is 15 years later and the electric/hybrid landscape has changed. Where in the past the decision to purchase an electric/hybrid was as much a social/political statement as anything, it is increasingly becoming a practical economic decision. In that light and given the price point and configuration of the Volt, its hard to see how its going to be much of a success. That doesn't mean it will be a huge loser, but they'll have to do 100,000 units to get back to even. And in the meantime its going to have to compete with a lot of cheaper more practical options including GM's own light hybrid e-assist models. The payback period for the Volt is just not going to make practical sense for most consumers. A regular hybrid will be much more attractive.