The Amount of Loss per Chevy Volt Sold is in Dispute but what is Not Disputed is that Each Volt Sold Loses Money

Posted by PITHOCRATES - September 16th, 2012

Week in Review

Some number crunching shows the Chevy Volt to be a disaster.  A Reuters’ article (see below) puts the loss per Volt sold as high as $49,000.  Which GM disputes.  Even former GM vice chairman Bob Lutz wrote an article in Forbes disputing this.  Criticizing the authors of the article for dividing the total Chevy Volt investment by the number of Volts sold to date.  And not the projected sales over the 5 year life of the vehicle.  But if you crunch the numbers over this 5 year period they still aren’t good.  And show a loss that may never be recovered (see Insight: GM’s Volt: The ugly math of low sales, high costs by Bernie Woodall and Paul Lienert and Ben Klayman posted 9/10/2012 on Reuters).

Nearly two years after the introduction of the path-breaking plug-in hybrid, GM is still losing as much as $49,000 on each Volt it builds, according to estimates provided to Reuters by industry analysts and manufacturing experts. GM on Monday issued a statement disputing the estimates…

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…

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…

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…

It currently costs GM “at least” $75,000 to build the Volt, including development costs, Munro said. That’s nearly twice the base price of the Volt before a $7,500 federal tax credit provided as part of President Barack Obama’s green energy policy…

The car entered production in the fall of 2010 as the first U.S. gasoline-electric hybrid that could be recharged by plugging the car into any electrical outlet. The Obama administration, which engineered a $50-billion taxpayer rescue of GM from bankruptcy in 2009 and has provided more than $5 billion in subsidies for green-car development, praised the Volt as an example of the country’s commitment to building more fuel-efficient cars…

Before GM resorted to discounting Volt leases, sales were averaging just over 1,500 cars a month. A huge part of that reason was consumer push back over the price, according to Virag of Automotive Consulting.

GM forecasted selling 40,000 cars per year over 5 years.  Before the discounting leases they were selling only 1,500 per month.  At that pace that comes to 18,000 cars per year over 5 years.  If you divide the $1.2 billion by 200,000 (40,000 X 5) cars sold that comes to a projected investment recovery of $6,000 per car sold.  If you divide the $1.2 billion by 90,000 (18,000 X 5) cars sold that comes to a projected investment recovery of $13,333 per car sold.  So the projected loss on their investment based on the current pace of sales over 5 years is $7,333 per Volt sold.  Or a profit margin of NEGATIVE 18.3%.  And that’s without adding any production losses.  The longer it takes to meet sales projections the greater the losses climb.  And the less likely they will ever make money on the Volt.  Even with all the subsidies and tax credits.

The big question is what do the taxpayers get for this massive investment into a car that can’t sell?  It’ll help GM advance technology for the next generation of hybrid car?  But isn’t that something car companies are supposed to be doing anyway?  And should a company that is coming out of bankruptcy protection be experimenting in exotic new technology instead of focusing on selling what people are buying to return to profitability?  So they can raise their stock price so the government can sell their shares of GM stock without a loss to repay the American taxpayer?  GM, and the American taxpayer, would be better off if GM focused on selling their more profitable trucks and SUVs until they repay their taxpayer debt.  Then once they were on more steady financial ground they could explore the exotic technologies.

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