Welcome Chevy Volt, GM’s Next Flop

By Justin Rohrlich  APR 01, 2010 2:15 PM

Why Toyota, Honda, and Nissan will be the only ones to benefit from General Motors' latest flub.


While full production won’t get underway until November, GM’s first Chevy Volt will roll off the line at the Detroit-Hamtramck plant today.

The New York Times said that, if the electrically powered Volt succeeds, it “could put the troubled company on a whole new path after 10 decades tethered to the internal-combustion engine.” 

On the other hand, if it doesn’t, it “could drag GM, and perhaps the entire struggling American auto industry, even further behind Asian competitors,” like Toyota (TM), and Honda (HMC).

Things don’t look hopeful for GM.

”The first year’s [sales] volume, by GM’s own calculations, is 10,000 units, and you can’t save a company with that,” says John Wolkonowicz, an auto industry analyst at IHS Global Insight. “That’s chicken feed. You’d need a vehicle that sells 400,000 units.”

Car buyers in today’s economy, save, perhaps, Ed Begley Jr. or Sheryl Crow, aren't likely to pay the price required to put themselves behind the wheel of a Volt.

GM Vice Chairman Bob Lutz told David Letterman the Volt’s sticker price would be $40,000, but an available federal tax rebate of $7,500 would bring that down to $32,500.

Setting aside the irony of a government rebate from the entity that owns GM -- the government -- Charlie Vogelheim of automotive analysis group IntelliChoice said $30,000 “is a threshold automakers can't go over” if they expect to push a car into the mainstream.

Johan de Nysschen, president of Audi’s US arm, says, “No one is going to pay a $15,000 premium for a car that competes with a Corolla. So there are not enough idiots who will buy it.”

A look at the math shows that GM might consider refocusing its demographics of potential Volt drivers to better target idiots.

Jeremy J. Michalek, an assistant professor of mechanical engineering and public policy at Carnegie Mellon University and the co-author of a study titled Impact of Battery Weight and Charging Patterns on the Economic and Environmental Benefits of Plug-In Hybrid Vehicles tells Minyanville that “the Volt [may] appear less expensive to consumers because the taxpayer is buying part of it for them.”

Over the lifespan of the car, which, in this case, is 12 years and 150,000 miles, Michalek says there “aren’t enough savings in fuel cost to make up for the battery cost, even under highly optimistic scenarios.”

“In our study, we started with the assumption that the Volt’s battery pack would cost $16,000, or $1,000 per kilowatt hour, which GM told us was too high,” Michalek says. “So, we halved that price to $8,000, then halved that to $4,000 -- $250/kWh -- which still doesn’t make economic sense.”

According to Michalek, this is because, if one were to drive a Volt using electricity only (the battery lasts only 40 miles, after which a 1.4 liter gasoline engine kicks in to power a generator, which supplies electrical current to recharge the battery pack but never actually turns the wheels), the Volt driver’s total fuel savings, adjusted for inflation, would come to approximately $3,500.

“Therefore, paying more than $3,500 above what a traditional car costs, won’t lead to any savings at all,” he says.

None of this is to say that GM flubbed the Volt any worse than Nissan (NSANY) or Ford (F), neither of which saves consumers money, either -- unless one plans on driving the same car for the next 20 years or so.

A Wall Street Journal report showed that, at $27,625 for a Ford Fusion hybrid, “it would take about 15 years of fuel savings to make up for the Fusion hybrid’s price premium over the base model.”

The $26,650 Nissan Altima hybrid fared even worse, with a break-even point of 22 years.

Of course, if price is no object, pick up a Tesla Roadster, the pet project of Elon Musk, who founded PayPal, which he later sold to eBay (EBAY) for $1.5 billion. It does 0-60mph in 3.9 seconds and has a top speed of 125mph, but will set you back $130,000.

Funny enough, price should be no object for the Chevy Volt’s first customer -- the US government.

The White House said today it will “purchase the first 100 plug-in electric vehicles to roll off American assembly lines” before the end of the year.

Question is, will they be getting their $7,500 rebates?
No positions in stocks mentioned.

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