Forbes September 10, 2012 by Bob Lutz
I was surprised to read Ben Klayman?s piece on alleged astronomical per-unit losses on the Chevrolet ?Volt.? Ben is usually a solid professional who checks his facts.
Let me provide a look at how a car company tracks profitability of a product program: measured are material cost and labor, and these are deducted from the selling price. The positive difference is called ?gross margin.? Then, one allocates per-unit ?fixed cost? (advertising, general overhead, etc.) plus per-unit depreciation and amortization of the initial investment, based on the TOTAL NUMBER TO BE PRODUCED OVER THE LIFETIME of the product. If the margin, after all deductions, is still positive, then we call it a ?fully accounted profit,? and the car is a winner.
The Volt ?variable cost? (labor and materials, without revealing any confidential GM information), looks very roughly like this: A Li-Ion battery today runs about $350 per KWh. The Volt?s is
16KWh, so that?s roughly $6000. Add $4,000 for the battery pack structure, the cooling, the high-voltage wiring, the motor and the power electronics. So, that?s the electric portion. Add about 20 hours of assembly labor which we?ll round to a very generous $1000. The dealer net price is, say, $37,000. We now have $26,000 left for the rest of the car, which, cost-wise, is about equal to a Chevy ?Cruze? which sells for around $22,000 retail! (And the Volt has no costly conventional transmission.) Thus, the ?Volt?, by my estimate, is either close to ?variable break-even? or may be on the cusp of a positive gross margin. Deduct the per-unit allocation for all fixed cost, depreciation and amortization and it is, surely, still ?under water??.but not by much, and less and less so as the volume builds and other, higher-margin GM cars, like the Cadillac ELR, piggy-back off of the Volt?s initial investment.Maybe the Volt, a first-generation technology masterpiece and the most-awarded car in automotive history, will never make a really decent profit.
But succeeding generations of the same technology will.
Full article at link.
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Re: Bob Lutz: The Real Story On GM's Volt Costs
Great article, thanks for sharing it.
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Re: Bob Lutz: The Real Story On GM's Volt Costs
I'm not in love with Bob Lutz as so many are but I'm very gratified to see that he will still stand up "yellow" journalism on GM's behalf. That, and I know he has a lot of personal capital tied up in Voltec. I think he wants it to define his career and I would if I were he. I'm convinced that, as it develops, Voltec will spread through many vehicle lines and finally make a sizeable dent in the amount of oil being used, both here and in other nations. A proportionate reduction in CO2 emmissions into the atmosphere can't hurt either, no matter what as individual thinks of global warming. That can't be bad.
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Re: Bob Lutz: The Real Story On GM's Volt Costs
Bob is just saying what any first year economics student knows....
...and any journalist reporting on economic subjects worth their salt should know... and do in fact know... but choose for their own reasons to ignore.
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Re: Bob Lutz: The Real Story On GM's Volt Costs
Volt is a funny spot. The enviro-left hates it because it's not a pure electric, and for no better reason that it's a GM product, and decades ago GM built the Corvair and was mean to that nice Mr. Nader.
The right hates it because of the perception - arguable, but probably not correct - that it was built as a sop to the left in exchange for the bailout of GM and the favoritism shown UAW in the bankruptcy.
And now Reuters is channeling all of that anger through an economically illiterate reporter whose method of calculation bears no resemblance to economic reality. Indeed, his way of thinking would damn any product that requires heavy up-front investment in engineering and production capital.
The good news, though, is that Volt despite its perception handicaps, is slowly winning in the marketplace over its pure electric rivals. And it's expanding to European models and Australian models and to a global - we hope - Cadillac model.
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