GM offers big discounts to boost Volt sales

The Morning Sun ^ | 09/23/12

[equaviator]

DETROIT (AP) — General Motors rolled out the Chevrolet Volt two years ago with lofty sales goals and the promise of a new technology that someday would help end America’s dependence on oil.

So it seemed like a good thing in August when sales of the $40,000 car set a monthly record of 2,800. But a closer look shows that things aren’t what they seem for the cutting-edge car.

Sales rose mostly because of discounts of almost $10,000, or 25 percent of the Volt’s sticker price, according to figures from TrueCar.com, an auto pricing website. Other pricing services gave similar numbers, and dealers confirmed that steeply discounted Volts are selling better than a few months ago.

GM’s discounts on the Volt are more than four times the industry’s per-vehicle average, according to TrueCar estimates. Edmunds.com and J.D. Power and Associates say they’re about three times the average. Discounts include low-interest financing, cash discounts to buyers, sales bonuses to dealers, and subsidized leases.

Americans have been slow to embrace electric cars. But the Volt’s August sales show they’re willing to buy if prices are low enough. Even so, electrics have a long way to go before they enter the mainstream and make money for car companies. Electrics and gas-electric hybrids account for just 3.5 percent of U.S. auto sales this year. GM is losing thousands of dollars on every Volt, raising the question of how long it can keep eating the steep losses.

For the foreseeable future, carmakers will have to cut prices to move electric vehicles off dealer lots. The nonpartisan Congressional Budget Office says the cost of electric cars must drop to be competitive with gasoline-powered ones.

GM executives have conceded from the start that they were losing money on the Volt, and that was before the big discounts.

Now the losses could be even higher. It costs $60,000 to $75,000 to build a Volt, including development, manufacturing and raw materials, estimates Sandy Munro, president of Munro & Associates, a Troy, Mich., a company that analyzes vehicle production expenses for automakers. Much of the cost comes from an expensive combination of two power systems — electric and gasoline. With a sticker price of $40,000, minus the $10,000 the company pays in incentives, GM gets roughly $30,000 for every Volt. So it could be losing at least $30,000 per car.

“It certainly wasn’t a rousing success,” says Carter Driscoll, senior analyst for CapStone Investments who follows electric cars, discussing the Volt.

GM confirmed there are incentives on the Volt and that the company loses money on the car. But the automaker declined to give figures for the discounts or the losses. The figures exclude a federal tax credit that goes to buyers.

The automaker says Munro’s estimate is high because it doesn’t spread the Volt’s costs far enough into the future, when more Volts will be sold. Automakers typically spend $1 billion or more to develop a car, and sometimes don’t recoup the investment and start making money until late in its life. Also, Volt technology will be used in future cars and trucks, eventually leading to profits, the company says.

GM spokesman Jim Cain says most of the Volt discounts come in the form of lease deals, which account for about two-thirds of sales. In some markets, Volts can be leased for $249 per month with $2,400 down.

“We’re trying to create a market for a brand-new technology,” Cain says.

NO SPARK AT THE START-

The Volt, a four-seat compact, was rolled out in a few states in December 2010 with a starting price of $41,000.

GM had high hopes. The car’s features stacked up well against the Nissan Leaf, a pure electric car that debuted about the same time and is the Volt’s closest competitor. The Volt goes about 35 miles on battery power, then a gasoline-powered generator can take over, giving it the same range as a car with a gasoline engine. And the battery can be recharged in 10 hours from a standard home electrical outlet for about $1.50.

But the timing of the launch was poor. The pricey car hit showrooms when many buyers were reeling from the bad economy and turned off by the government’s $50 billion bailout of GM.

“Let’s face it, over $40,000 is asking a lot for a compact car,” says Bob Lutz, a retired GM vice chairman who led the development of the Volt.

Even a $7,500 federal tax credit, which dropped the Volt’s sticker price to $33,500, did little to promote sales. The car cost $7,000 more than the Leaf, and $13,000 above a well-equipped compact with a gas engine.

As it reached more dealers in 2011, the Volt had to overcome more than a high price and recession-weary Americans. The government found that the battery could catch fire after crash tests. In California, a key market because of its tech-savvy population, another roadblock emerged. Volt drivers traveling alone weren’t allowed to use carpool lanes because the car didn’t qualify for a state exemption. Drivers of the Toyota Prius hybrid, meanwhile, could use those lanes, thanks to the exemption for lower-polluting vehicles.

U.S. Volt sales totaled just 7,700 in 2011, short of GM’s goal of 10,000 and a fraction of the 136,000 for the Prius hybrid, the world’s best-selling alternative fuel vehicle. Volt sales have climbed to more than 13,000 this year. But at their current pace, sales will still miss the company’s 2012 target of 60,000 worldwide.

MOVING THE NEEDLE

Faced with disappointing sales, GM began toying with discounts. In June of 2011, the company knocked $1,000 off the Volt’s starting price, but it didn’t help. So early this year, GM started offering many more discounts, which soared to $10,000 per car in August.

The Volt is now the top-selling electric car in the U.S. — 7,400 ahead of the Prius Plug-in. Nissan’s Leaf is a distant third, and analysts say Volt sales could reach 20,000 this year.

Spikes in gas prices also have helped sales, especially when incentives rise at the same time. The national average price of gasoline rose at least 24 cents a gallon in March and August. Those were the Volt’s two best sales months.

Other changes have helped boost the car’s appeal. Engineers figured out that the Volt fires were the result of a coolant leak that caused electrical shorts after side-impact crash tests. GM retrofitted the car with more steel to protect the battery. No fires were ever reported on real-world roads.

The carpool problem, which had cost sales on the West Coast, also was resolved. California has 1,500 miles of freeway lanes that can be used only by cars carrying two or more people. But there are exceptions allowing lower-pollution vehicles with one person. Initially, the Volt didn’t qualify because its gasoline-powered generator didn’t meet the pollution standards.

But engineers eventually cut the generator’s pollution, and the Volt won an exception in late February, immediately boosting sales in a state where one-quarter of all Volts, or about 3,400, were sold this year.

Before the cheap leases and the carpool exemption, Bunnin Chevrolet in Culver City, Calif., was selling three to five Volts per month. The dealership sold 36 last month, mostly leases, and it is struggling to keep Volts in stock, says sales manager Chad Kelman.

“It definitely helps to discount,” Kelman says. “The market in L.A. is fiercely competitive.”

Gas in Los Angeles, which now runs more than $4 per gallon, was the big reason that Donald Keller traded in his 2007 Lexus ES350 for a 2012 Volt in July. But he might not have bought it without $5,000 in discounts from Bunnin Chevy.

Keller, 82, who volunteers to take senior citizens to the grocery store and medical appointments, says he’s driven more than 1,100 miles in his Volt, and hasn’t bought any gasoline.

Charging the car has boosted his electric bill by about $40 per month, but he used to spend $200 a month on gas for the Lexus.

“I don’t go to the (gas) station and I don’t have to worry about the price,” he says.

AIMING FOR THE MAINSTREAM

While the Volt isn’t helping GM’s bottom line, it’s not in danger of being canceled anytime soon.

GM can subsidize the Volt’s cost from profits on other cars, says CapStone’s Driscoll. But eventually GM will have to get closer to breakeven or make money, he says. GM earned almost $2.5 billion overall in the first half of this year.

Discounting the price should help Volt sales expand beyond early adopters, says Michael Lew, an energy efficiency analyst for the Needham & Co. investment firm. That’s important because if sales increase, GM will have more negotiating power with parts suppliers to cut costs and stanch losses, he says.

GM says that the Volt has helped the company, even if it never makes a dime. The car has pulled in customers from rival brands, and helped Chevy wrestle at least part of the environmental halo from Toyota’s Prius, executives say. It also will help GM meet tough government fuel economy standards.

GM’s Cain says the company wants all cars and trucks to be profitable, but some take longer than others.

“Its prime purpose was to introduce a new generation of technology,” says Lutz, the former vice chairman. “And at the same time ... demonstrate to the world that GM is way more technologically capable than the people give it credit for.”

[equaviator]

Cancel the Volt and publish all "lessons learned".

[SERKIT]

A teaching moment for Government Motors and CEO Barry Soetoro: Trying to lower costs to increase volume? Great idea, but only if the product is good.

In that same vein, lowering tax rates increases the amount of money into the nation's coffers, except you have to believe that lower taxes increases hiring so more people CAN pay taxes.

Will the new CEO of Government Motors learn from this lesson? I think not.

[pepsionice]

The truth is that it’s a product twenty years ahead of its time. Unless you live within ten miles of your place of employment and have at least one other gas-run car...it’s best to pass on this. I’m also wondering about the issue of when the batteries finally fail and how much trouble you have with the local dealer in getting “new” batteries, and how much they charge to dispose of the old ones.

[fella]

How many of those 2,800 sales in August were to the government? I've heard stories of city agencies getting Volts through directed Federal grants, driving them for a few weeks then parking them and going back to what they were driving before.

[Steven Tyler]

Gotta call BS, the lexus out to 1100 miles on 110 dollars of gas
Further, the cost of electricity is maybe 100 to go that distance

[Cringing Negativism Network]

If they’re going to lose money on each one sold, why stop there?

Why not cut another $20K and sell the car for $20K.

Which is about where I believe the technology is worth right now.

They’d be successful at selling them at $20K.

[bert]

-—— I’m also wondering about the issue of when the batteries finally fail——

The next sales pitch will include a coupon for a free second battery

[taildragger]

This is real simple....

Ford is coming out with the Fusion "Energi" and it's Lincoln Counterpart real soon.

The Lincoln if my memory is correct has no pricepoint difference for the Hybrid.

Now, with the for-mentioned 3rd Drivetrain coming, a Plug in Version of their Hybrid drivetrain Called Energi, rumors are out their of it's plug-in only range mileage being way more than the Volt, and with the price point of the Lincoln Hybrid below the Volt, GM is in Deep Doo Doo IMHO.

They are gonna have to deep discount them, just to stay in the game....

[central_va]

Ugly car.

[trebb]

As soon as they start giving them away for free and offering a $10K rebate on top of it, I might consider getting one to put my Republican candidate bumper stickers on...

[SERKIT]

The truth is that it’s a product twenty years ahead of its time.

Absolutely, but it may be actually more than 20 years. You can't take a concept car directly to market based on political ideology and expect the free market to embrace it. No product succeeds when it it artificially forced onto the market or so heavily subsidized as to be phony.

[RegulatorCountry]

The car has nice lines and is very well detailed for an American car, no matter which drivetrain is chosen. I don't know what happened, whether the best young automotive design talent coming out of the Art Center has been being snapped up by foreign manufacturers or what, but US makes have gotten sort of clumsy looking by comparison in the past decade or two.

This Fusion appears to change that, with a subtle, well accented “face” reminiscent of certain Aston-Martins, sweeping cleanly back to a nice, more open greenhouse with good proportions (no claustrophobic armored car look with gunslits for windows on this one), ending in a tail with a built in aerodynamic lip that keeps it all looking thoughtful, purposeful and pulled together. It meets or exceeds anything Korean from Hyundai or Kia in the visual appeal department. I know that sounds odd, but those two have taken the design lead. I suspect Ford has had the design team benchmark Hyundai, there are some similarities between the Elantra, a striking, tautly drawn compact sedan, and Ford's newer compacts.

The “Energi” hybrid system sounds like it's poised to be an industry leader, too. I hope the numbers are real world and not just gaming the EPA cycle as so many have learned to do, but it beats the Prius and it beats the Volt in “MPGe” while offering a lot more control and flexibility. Want gas only, conserving battery power? You can control that. Electric only? You can control that, too. Or, automatic hybrid, switching back and forth as the onboard computer system determines. It has a twenty mile range from a standing start in electric only mode, and you can plug it in to have a full charge every morning.

Sounds like a home run by Ford. Looks like one heck of a great midsize car. Good for them.

http://fordfusionstory.com/latest/index.php/2012/08/15/2013-ford-fusion-and-c-max-show-that-not-all-plug-in-hybrids-are-created-equal/#1

[ThunderSleeps]

That its not a bad looking car IMHO. I could see me driving that. I wouldn’t drive a volt if gm gave me one for free.

[SandRat]

The Volt, as popular as the Yugo.

[hinckley buzzard]

“We’re trying to create a market for a brand-new technology,” Cain says

If the technology doesn't sell itself, then you are just pushing a rope. That doesn't work. I notice too the new deceit of combining leases with sales. And ignoring artificial sales to government motor pools.

Volt has a long way to go.

[ZOOKER]

Give Obama some time.

He's done everything he can to increase the cost of a gallon of gas. With bans on oil leases, moratoriums on drilling in the Gulf and on both coasts, and the Keystone pipeline fiasco, he's doubled the price in 3 years. We're on the way to an all-out war in the ME with his help. When gas hits $8 or $10 electrics will get much more desirable.

Trouble is, he's also closing power plants at record pace. How you gonna take your leaf to work when you can't charge it?

He's working on that too, though - you won't have a job to go to anymore.

The perfect eco-friendly car - one that uses no gas or electricity because it never moves. And the UAW still profits.

[central_va]

For the foreseeable future, carmakers will have to cut prices to move electric vehicles off dealer lots.

This is shocking....

[central_va]

There is a small Chevy dealer in central va that has a volt on their lot. They like to move it around the lot to look like it is being sold and replaced. It is the same car. I am starting to learn the pattern, like on Wednesdays it is by the entrance, etc.

[upchuck]

So it seemed like a good thing in August when sales of the $40,000 car set a monthly record of 2,800.

I read somewhere, that the Fed Gov leased a ton of Volts in Aug. I don't have the specific link, but this link says the Pentagon is buying 1500 Volts.

Sales figures for September and October should be interesting.

[Iron Munro]

Volt has a long way to go.

Volt is one of the reasons GM wants the federal government to sell their GM stock and let GM run the business for the benefit of GM, not for the benefit of Obama and the UAW.

1 - VOLT is a humongous loser and money pit. GM wants to stop propping up the VOLT but Obama wants it to continue so he can spin it as a green success story.

2 - GM is on the way back to bankruptcy and needs to have a huge layoff. But Obama can't afford to let them lay off hundreds or thousands of union workers this close to the election.