Chevy Volt Update for 07-18-11

Among the predications I’ve made regarding Chevy’s Volt is that its costs, in general, render it ridiculously uneconomical. Not only does its sky-high MSRP of $41,000 ($33,500 with the federal tax credit) place it outside the consideration of most the population which must buy the car in large numbers in order for it to make the slightest profit, the replacement cost of its battery pack, the life of which no one knows, is at least $8000.00 and possibly more. It’s highly likely to be the most expensive part in any dealer’s parts inventory.

For those interested in reading my scribblings on the Volt, merely enter “Chevy Volt” in the site search window on the CY home page and it will pull up every article and mention. Incidentally, I saw my first Volt a few days ago in its native habitat. It was actually being driven and was apparently owned by an actual person. This is significant in that I live in the Dallas/Ft. Worth Metroplex, an area--due to its high year-round temperatures--ideal for electric vehicles. It’s also an area with a very large and mobile population, a population whose work commute can easily exceed 100 miles a day. I’ve seen one Volt. Not a good sign for Chevy, particularly considering the likelihood that even at $41,000, Chevy is losing money on every Volt it builds.

But now comes interesting news from Green Auto Blog (here) about a Volt belonging to Cars.Com. It seems that Cars.Com’s long-term test Volt (sounds odd—“test Volt”--no?) was in an accident. And it cost $14,187 to repair. That’s right, nearly half its post-federal tax rebate cost.

Why would it cost so much? We all know that auto repair, and particularly body repair costs are very high, but even more so with the Volt. The Volt requires multiple heat exchangers, engine control electronics far more expensive that those in other vehicles, and a variety of other expensive differences that stuck the vehicle in the repair shop for nine weeks—more than two months. I'm sure that such things are far more expensive due to their rarity as well. It simply costs much more to manufacture 10 items than ten thousand.

Those driving the vehicle at the time of the accident are indeed fortunate that the battery pack was not damaged (apparently it wasn’t; there is no mention of this in the article). Lithium-ion batteries contain substances that must be separated at all times. If they are allowed to combine through even a pinhole, fire and even explosion are the rapid and inevitable consequences. In addition, the battery contains a great deal of electrical power such that it is actually dangerous, even potentially deadly, to the occupants of a wounded Volt, or to unwary first responders. This is true even for mechanics without the proper tools, safety equipment and training.

Hmm. If I was an actuary for an insurance company, I suspect I’d be advising my company to greatly increase the price—and greatly increase the deductible--of any Volt policy. Wouldn’t you?

So to recap:

(1) The Volt sells for $41,000, and as much as $65,000, yet Chevy makes no profit at all on the vehicle.

(2) Some dealers are applying for the $7500 tax credit themselves and selling essentially brand new Volts as used vehicles, for as much as $65,000.

(3) The Volt’s weak gasoline engine requires premium fuel and achieves less fuel economy than a great many conventional vehicles with more flexible and powerful engines that burn regular fuel (Fun Fact: Federal regulations prevent the importation of small, clean burning diesel engines that get 50 MPG or more. Such engines are common in European cars).

(4) Now we learn that repair costs for the Volt greatly exceed conventional vehicles in the same general class.

(5) The Volt’s real world electric range in real world driving conditions is apparently about 25 miles. No one knows how long a Volt battery will last or precisely how much it will cost.

(6) As I reported in prior posts, because of the ridiculously high purchase price, even if the Volt managed 200 MPG in a combination of electric/gas-powered driving, it would be virtually impossible for anyone to break even in fuel savings when compared with the cost of even high-end conventionally powered high mileage vehicles. With more realistic mileage figures, it would take about two decades. When one considers that at least one battery replacement would be mandatory in that time frame, breaking even on operating costs would be impossible. When one considers that very few people ever keep a car for its entire lifetime—and that life span is usually far less than even 10 years—breaking even or saving money is absolutely impossible.

But other than that, the Volt is a great car that will change the world, and everybody should buy one. Hey, if the Federal Government can make you buy a specific light bulb and health insurance, why not a specific car? And as long as the FG actually owns a substantial chunk of Chevy, why not the Volt? As Joe Biden would likely say, it’s the patriotic thing to do!

Added Note: A commenter on my last post on the Volt noted that he has ordered one and expects to be very happy with it, considering it to be superior to the BMW he is currently driving.

I thanked him for his comments, and replied :

"I care not what anyone else drives; they're free to buy what pleases them. This is one of the great things about America. What I am concerned about is the choices made by a company in which I am--through no choice of my own--part owner. In that case, I expect that company to build cars that make a profit. The Volt does not and will not, unless the government so regulates and mandates the free enterprise system that it will no longer be free and none of us will have the choice to buy whichever vehicle pleases us. I suspect that the Volt is part of the vanguard of that Socialist revolution.

By all means, buy one if you please and I hope you enjoy it. But my point remains: The Volt makes no economic sense for virtually all of the American public. No car company can remain in business manufacturing a product like that. The question remains: Why is GM manufacturing a car that not only makes no profit, but probably costs it money, and does not have the infrastructure--which is also ridiculously expensive--to make it even remotely viable? It would seem to have nothing to do with free enterprise and individual choice, would it?"

And this is the primary problem with the Volt. GM is far from sustainably profitable, having avoided a normal bankruptcy proceeding that would have allowed it to reorganize and would have allowed it to renegotiate its union contracts so that it could once again be profitable. Preserving union power and cash, was of course, Mr. Obama's main concern. Preserving the rights of shareholders and creditors and supporting the free enterprise system were not.

The result of this is that people who had legitimate financial stakes in the company were stiffed, wealth was not only not created but thrown away, and the American public will almost certainly take a bath to the tune of tens of billions that GM will never pay back. That and we, the taxpayers, still own $2.1 billion of preferred GM stock and 61% of its common equity. As an unwilling stockholder, I'm a bit concerned by a company building a car that makes not a dime of profit, and probably loses money. Shouldn't every owner of GM be concerned about that?