GM denies report of Chevy Volts rolling away with $49,000 loss on each
A new report by Reuters finds that General Motors may have lost $49,000 on every Chevrolet Volt sold to date, thanks to the collision of high sticker prices and unrealistic expectations of demand for plug-in hybrids. The story touched off another wave of tut-tuting over the GM bailout -- and a stronger reply from GM this morning calling the story "grossly wrong." The truth: What matters more isn't how much GM might have lost on the Volt so far, but when it will be profitable -- if ever.
No car has ever been stuck in the kind of political miasma that surrounds the Chevy Volt, which has turned into the rolling representation of the Obama Administration's $50 billion rescue of GM. With that bailout now firmly at the heart of a presidential campaign following the Democratic National Convention and the bumper-sticker slogan of Vice President Joe Biden that "Bin Laden is dead and GM is alive," that cloud has spread to cover even routine business choices at GM. Last week, a few critics questioned whether GM had political motives for scheduling its third-quarter earnings release on Oct. 31 -- the same week as Ford and Chrysler.
Based on interviews with industry experts, Reuters estimated it costs GM between $75,000 and $88,000 today to build each Volt. Most of that -- $56,000 -- comes from the cost to develop the Volt's unique power system, a combination of gas engine, electric motors, massive lithium-ion battery pack and a complicated transmission, all powered by custom GM software that controls how the car starts, stops and recharges. The rest of the cost comes from the raw material, labor costs and other overhead.
While GM had expected to sell 60,000 Volts a year by now, it's only moved 21,000 over the past two years. Sales in August set a record at 2,831 -- but even at that rate, Volts remain far below target, incurring even higher costs from suppliers who were guaranteed business. And there's evidence GM may have gambled on future losses to move Volts now by offering lease deals of $199 a month for two years, raising the spectre that the Volt may never reach profitability.
After Reuters posted the story last night, GM responded forcefully this morning, calling the piece "grossly wrong," and that the calculations "become more wrong with each Volt sold." The reason: Automakers don't account for product development costs per unit sold, but over several years of expected production.