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.
Nearly two years after the introduction of the pathbreaking plugin hybrid, GM is still losing as much as US$49,000 (RM152,000) 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.
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| The Volt. |
There are some Americans paying just US$5,050 (RM16,000) to drive around for two years in a vehicle that cost as much as US$89,000 (RM277,000) 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 overengineered and overpriced," 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.
GM's quandary is how to increase sales volume so that it can spread its estimated US$1.2bil(RM3.7bil) investment in the Volt over more vehicles while reducing manufacturing and component costs which will be difficult to bring down until sales increase.
But the Volt's steep US$39,995 (RM125,000) base price and its complex technology the car uses expensive lithium-polymer batteries, sophisticated electronics and an electric motor combined with a gasoline engine have kept many prospective buyers away from Chevy showrooms.
Some are put off by the technical challenges of ownership, mainly related to charging the battery. Plugin hybrids such as the Volt still take hours to fully charge the batteries a process that can been speeded up a bit with the installation of a US$2,000 (RM6,200) commercial-grade charger in the garage.
The lack of interest in the car has prevented GM from coming close to its early, optimistic sales projections. Discounted leases as low as US$199 (RM618) 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.
A Chevrolet dealership that is part of an auto dealer group in Toms River, New Jersey, has sold only one Volt in the last year, said its president Adam Kraushaar. The dealership sells 90 to 100 Chevrolets a month.
The weak sales are forcing GM to idle the Detroit-Hamtramck assembly plant that makes the Chevrolet Volt for four weeks from September 17, according to plant suppliers and union sources. It is the second time GM has had to call a Volt production halt this year.
GM acknowledges the Volt continues to lose money, and suggests it might not reach break even until the nextgeneration model is launched in about three years.
"It's true, we're not making money yet" on the Volt, said Doug Parks, GM's vice president of global product programs and the former Volt development chief, in an interview. The car "eventually will make money. As the volume comes up and we get into the Gen 2 car, we're going to turn (the losses) around," Parks said.
"I don't see how General Motors will ever get its money back on that vehicle," countered Sandy Munro, president of Michigan-based Munro & Associates, which performs detailed teardown analyses of vehicles and components for global manufacturers and the US government.
It currently costs GM "at least" US$75,000 (RM233,000) to build the Volt, including development costs, Munro said. That's nearly twice the base price of the Volt before a US$7,500 (RM24,000) federal tax credit provided as part of President Barack Obama's green energy policy.
Other estimates range from US$76,000 to US$88,000 (RM236,000 -RM273,000), according to four industry consultants contacted by Reuters.
The consultants' companies all have performed work for GM and are familiar with the Volt's development and production. They requested anonymity because of the sensitive nature of their auto industry ties.
Parks declined to comment on specific costs related to the Volt.
The independent cost estimates obtained by Reuters factor in GM's initial investment in development of the Volt and its key components, as well as new tooling for battery, stamping, assembly and supplier plants a price tag that totals "a little over" US$1bil, Parks said.
Independent estimates put it at US$1.2bil, a figure that does not include sales, marketing and related corporate costs.
Spread out over the 21,500 Volts that GM has sold since the car's introduction in December 2010, the development and tooling costs average just under US$56,000 (RM174,000) per car. That figure will, of course, come down as more Volts are sold.
The actual cost to build the Volt is estimated to be an additional US$20,000 to US$32,000 (RM62,000-RM99,312) per vehicle, according to Munro and the other industry consultants.
The production cost estimates are considerably higher than those for the Chevrolet Cruze, the Volt's conventional gasoline-engine sister car, which Munro estimates at US$12,000 to US$15,000 (RM37,242-RM46,553) per vehicle.
Production costs typically include such items as parts, material, labour and the cost to run the factory, according to manufacturing expert Ron Harbour, who heads the North American Automotive Practice at Michiganbased consultant Oliver Wyman.
The Volt costs more to build for several reasons, mostly related to the car's richer content, complex technology and still low sales and production volumes.
The basic model has a higher level of equipment and features than the Cruze, which is assembled in Lordstown, Ohio, and has a starting sales price of US$17,925 (RM55,630).
The Volt also has a number of unique parts, including the battery pack, the electric motor and the power electronics.
Some of GM's suppliers also impose cost penalties on the automaker because the Volt's production volume remains well below projections.
Still, as the company wrestles with how to drive down costs and increase showroom traffic, Parks said the Volt is an important car for GM in other respects.
"It wasn't conceived as a way to make tons of money," he said.
"It was a big dip in the technology pool for GM. We've learned a boatload of stuff that we're deploying on other models," Parks said. Those include the Cruze and such future cars as the 2014 Cadillac ELR hybrid.
The same risky strategy gambling on relatively untested technology drove massive investments by Toyota Motor Corp in the Prius hybrid and Nissan Motor Co in the Leaf electric car.
Toyota said it now makes a profit on the Prius, which was introduced in the United States in 2000 and is now in its third generation. Sales of the Prius hybrid, which comes in four different versions priced as low as US$19,745 (RM62,000), have almost doubled so far this year to 164,408.
Other such vehicles haven't done nearly as well.
Nissan's pure electric LEAF, which debuted at the same time as the Volt and retails for US$36,050 (RM112,000), has sold just 4,228 this year, while the Honda Insight, which has the lowest starting price of any hybrid in the US at US$19,290 (RM60,000), has sales this year has sales this year of only 4,801.
The Mitsubishi, an even smaller electric car priced from $29,975 (RM93,000), is in even worse shape, with only 403 sales.
-Reuters