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Volt success costs GM big bucks

2012-09-25 09:28

COSTING GM A FORTUNE: The Chevrolet Volt is costing General Motors a fortune to build while selling at a loss despite its sales increase in 2012.

DETROIT, USA — General Motors rolled out the Chevrolet Volt in 2010 with lofty sales goals and the promise of new technology that would help end the US dependence on oil.

So it seemed like a good thing in August 2012 when sales of the $40 000 (R329 980) car set a monthly record of 2800. A closer look at the vehicle's production costs shows things aren't what they seem for the cutting-edge electric ride.

Sales rose mostly due to discounts of almost R82 000 or 25% of the Volt's price, according to figures from TrueCar.com, a vehicle pricing website.


Other pricing services showed similar figures and dealers confirmed that steeply discounted Volts were selling better than earlier in 2012.

GM's discounts on the Volt are more than four times the industry average, according to TrueCar estimates. Edmunds.com and J.D Power and Associates say they're about three times the average. Discounts include low-interest financing, cash discounts to buyers, sales bonuses to dealers and subsidised leases.

Americans have been slow to embrace electric cars but the Volt's sales show they're willing to buy if prices are low enough.

Even so, electrics have a long way to go before they enter the mainstream and make money for car companies. Electric and petrol hybrids account for only 3.5% of US vehicle sales so far in 2012.

GM is losing thousands of dollars on every Volt, raising the question of how long it can maintain steep losses. For the foreseeable future, automakers will have to cut prices to move electric vehicles from showrooms. The US Congressional Budget Office says their price must drop to be competitive with petrol/diesel vehicles.

It costs about $65 000 to build a Volt, including development, manufacturing and raw materials. According to Sandy Munro, president of Munro & Associates, a vehicle production analyser, it costs far more to produce the Volt than its retail price.

It costs the equivalent of R495 000 to R578 000 to build a Chevrolet Volt so, priced at R330 000 (minus incentives), General Motors could lose R248 000 per vehicle.

The automaker says Munro's estimate is high because it doesn't spread the Volt's costs far enough into the future, when more Volts will have been sold. Automakers typically spend R8-billion or more to develop a car and sometimes don't recoup the investment and start making money until late in into its life cycle.

GM says Volt technology will be used in future cars and trucks, eventually leading to profits.

GM spokesman Jim Cain says most of the Volt discounts come in the form of lease deals, which account for about two-thirds of sales. In some markets, a Volt can be leased for the equivalent of about R2000 per month.

Cain says, "We're trying to create a market for a brand-new technology."


GM had high hopes for its Volt in 2010. The vehicle's features stacked up well against the Nissan Leaf, a pure battery car that debuted about the same time and is the Volt's closest competitor. The Volt is capable of traveling about 60km on battery power before its petrol generator takes over. The battery can be recharged in 10 hours from a standard electrical outlet.

The timing of the launch was poor as the pricey hybrid hit showrooms when many buyers were reeling from the bad economy and turned off by the government's R412-million bailout of GM.

Bob Lutz, a retired GM vice chairman who led the development of the Volt, said: "Let's face it, over R330 000 is asking a lot for a compact car." 

As it reached more dealers in 2011, the Volt had to overcome more than a high price and recession-weary Americans. The government found that the battery could catch fire after crash tests. In California, a key market because of its tech-savvy population, another roadblock emerged.

Volt drivers traveling alone weren't allowed to use carpool lanes because the vehicle didn't qualify for a state exemption. Drivers of the Toyota Prius hybrid, meanwhile, could use those lanes, thanks to the exemption for lower-polluting vehicles.

US Volt sales totaled just 7700 in 2011, short of GM's goal of 10000 and a fraction of the 136 000 for the Prius, the world's best-selling alternative fuel vehicle. Volt sales have climbed to more than 13000 in 2012.

At its current rate, sales will fall short of the automaker's 2012 target of 60 000 worldwide.


While the Volt isn't helping GM's bottom line, it's not in danger of being canceled anytime soon.

GM can subsidise the Volt's cost from profits on other cars, says CapStone's Driscoll.

Driscoll says GM will have to get closer to breakeven or turn a profit. GM earned almost R20-billion in the first half of 2012.

GM says that the Volt has helped the automaker, despite costing a fortune. The vehicle it claims has pulled in customers from rival brands and helped Chevrolet wrestle at least part of the environmental halo from Toyota's Prius.

It also will help GM meet tough government fuel economy standards.

The five best-selling electric cars in the US 2012:

Chevrolet Volt: 13 497
Toyota Prius Plug-in: 6082
Nissan Leaf: 4228
Mitsubishi i-MiEV: 403
Ford Focus Electric: 169

Fisker Automotive says it has sold more than 1000 Karma sports sedans in the US since December 2011 but would not say how many were sold in 2012.

Read more on:    mitsubishi  |  chevrolet  |  toyota  |  ford  |  nissan  |  us

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