GM's Volt - The ugly math of low sales, high costs

[ALS]

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.

Bernie Woodall And Paul Lienert And Ben Klayman - REUTERS - Sept 10, 2012

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.

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 $5,050 to drive around for two years in a vehicle that cost as much as $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'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.... [Read More]

[Right Lane Cruiser]

Same comment as in the GM thread earlier today:

I'm confused by this repeated reference to spread of investment across sold vehicles to date. If that was a relevant measure no manufacturer would ever introduce new technology because it would be "too expensive."

[ALS]

I'm pretty sure GM was expecting to be selling 25K Volts a year by now. This is why there is a major problem in house with the Volt and the amount of money that has been invested into the vehicle.

Every year their Monopoly on this type of vehicle shrinks and the competition is selling their new plug in versions for five to ten thousand less, and that is where the problem lies.

Sure you can get them off the lots with cheap leases but two to three years down the road those leases get turned in. Then you have 15 Volts, 10 that came off lease and 5 new ones filling up your dealership lot when you're lucky to sell one to two a month.

[priusCpilot]

Wow so much car for the money! The next Volt is going to get hit hard with lower quality stuff which will impact reliability im sure. Seems like this is the Volt to buy! High quality engineering went into the car from what I can see.

I wounder what year the Prius broke even?

[Carcus]

Don't get me started.

[herm]

Originally Posted by priusCpilot

Wow so much car for the money! The next Volt is going to get hit hard with lower quality stuff which will impact reliability im sure.

It has happened before, but usually just decontenting, does not affect quality. GM can also reduce the size of the battery buffer as they collect more data on existing cars and how the battery is holding up. They recently just increased the buffer so perhaps they learned otherwise.

[priusCpilot]

Wait what about sales of the Ampera (which I LOVE the front end on)?? Is that not counted in these totals?

[herm]

whatever happened to all those GE fleet Volt sales that were promised?.. Obama needs to call his buddies over at GE and prod them, another Obama failure like Isaac.

Perhaps the Feds should only buy Volts, after all they own a large portion of GM.

[herm]

Bob Lutz responds:

http://www.forbes.com/sites/boblutz/...ms-volt-costs/

" I was surprised to read Ben Klayman’s piece on alleged astronomical per-unit losses on the Chevrolet “Volt.” Ben is usually a solid professional who checks his facts.

The statement that GM “loses” over $40K per Volt is preposterous. What the “analyst” in whom poor Ben Klayman placed his faith has done is to divide the total development cost and plant investment by the number of Volts produced thus far. That’s like saying that a real estate company that puts up a $10 million building and has rental income of one million the first year is “losing” 9 million dollars, or several hundred thousand per renter.

Listen, Ben and Micheline: that’s not how car business cost accounting works.

Let me provide a look at how a car company tracks profitability of a product program: measured are material cost and labor, and these are deducted from the selling price. The positive difference is called “gross margin.” Then, one allocates per-unit “fixed cost” (advertising, general overhead, etc.) plus per-unit depreciation and amortization of the initial investment, based on the TOTAL NUMBER TO BE PRODUCED OVER THE LIFETIME of the product. If the margin, after all deductions, is still positive, then we call it a “fully accounted profit,” and the car is a winner.

The Volt “variable cost” (labor and materials, without revealing any confidential GM information), looks very roughly like this: A Li-Ion battery today runs about $350 per KWh. The Volt’s is 16KWh, so that’s roughly $6000. Add $4,000 for the battery pack structure, the cooling, the high-voltage wiring, the motor and the power electronics. So, that’s the electric portion. Add about 20 hours of assembly labor which we’ll round to a very generous $1000. The dealer net price is, say, $37,000. We now have $26,000 left for the rest of the car, which, cost-wise, is about equal to a Chevy “Cruze” which sells for around $22,000 retail! (And the Volt has no costly conventional transmission.) Thus, the “Volt”, by my estimate, is either close to “variable break-even” or may be on the cusp of a positive gross margin. Deduct the per-unit allocation for all fixed cost, depreciation and amortization and it is, surely, still “under water”….but not by much, and less and less so as the volume builds and other, higher-margin GM cars, like the Cadillac ELR, piggy-back off of the Volt’s initial investment.

Maybe the Volt, a first-generation technology masterpiece and the most-awarded car in automotive history, will never make a really decent profit."

[ItsNotAboutTheMoney]

The piece was junk.