"At last leakage, GM is saying now the Volt may need a sticker price of $45,000." $45K for a Volt? It will be DOA for commoners.
What Is GM Thinking?
Less violently, a sudden shift in taste for smaller, more fuel-efficient cars amid the recession of 1958 helped doom the Edsel.
The 1950s also happen to be the last time GM's share price sank as low as $11 per share. Two morals must be drawn.
One is that GM's ability to avoid bankruptcy has again become doubtful in the minds of investors. The 1950s comparison indeed overstates the company's well-being today. In inflation-adjusted terms, today's share price is closer to $1.50 in mid-1950s dollars.
Secondly, any forecast calling for a "permanent" shift in auto tastes based on a quantum as volatile as the price of gasoline is nuts.
GM's leaders are not nuts, and yet to pour hundreds of millions into a race to launch an electric car, the Chevy Volt, guaranteed to lose money on every unit sold, begins to seem a peculiar strategy for a company in dire liquidity straits.
With each hectic advance in the development process, the expected sticker price to consumers has gone up. Reportedly, off-the-shelf electrical fixtures, such as headlights and taillights, won't suffice because they draw too much power. At last leakage, GM is saying now the Volt may need a sticker price of $45,000.
At best, the Volt will be an affluent family's third car. It will have to be plugged in for six hours a day ? i.e., it will be a car for a suburbanite with a sizeable garage wired for power. It won't be a car for a city dweller who parks on the street or in a public lot. It will travel 40 miles on a six-hour charge. After that, a small gas motor will kick in to recharge the battery while you drive. Some reports claim the Volt will get 50 mpg in this mode, but that's hallucinatory: If using a gasoline engine to power an electric motor were so efficient, the streets would be full of such vehicles. (Our guess: The car will be lucky to get 15 mpg under gasoline power.)
Notice that, even today, some people continue to buy SUVs capable of hauling eight passengers, the dog and groceries, though they spend most of their time in the car driving alone. Customers value flexibility in their vehicles. For a car with the Volt's narrow usability to sell would require an unlikely revolution in consumer behavior, especially if gasoline prices aren't going to $10 a gallon.
And for those who think the Volt's justification is greenhouse emissions, notice that electric cars play Three Card Monte with energy inputs: It all depends on where the electricity is coming from. (Ditto, by the way, GM's long-range faith in hydrogen fuel cells ? it all depends on where you get the hydrogen from.) On the other hand, if you replaced the world's coal plants with nuclear plants, it would have a huge impact on greenhouse emissions regardless of what cars people are driving. If curbing CO2 is your goal (however quixotic), power plants, not cars, should be your focus.
Never mind. GM executives are not nuts. They justify the costs and risks of the Volt as a way of changing GM's image in the minds of consumers and politicians. To commit a pun, the Volt is GM's vehicle for making a bailout of GM politically acceptable.
The company has already started signaling it expects Washington to provide a whopping $7,000 tax credit to Volt purchasers. In Europe and the U.S., under whatever fuel economy and emissions regulations prevail, GM also expects special favoritism for the Volt. The goal is to re-enact the flex-fuel hoax, in which GM receives extra credit for making cars that can burn 85% ethanol, even if they never see a drop of such fuel.
CEO Rick Wagoner last week laid out the case to Barack Obama personally for turning GM into a ward of the state, by way of direct and indirect subsidies to support a transition to "alternative" fuel vehicles. GM has done yeoman's work getting its structural costs (i.e., labor) in line, but shareholders should note that a big part of the company's turnaround gamble consists also of eliciting favor once again from Washington after a period in which the domestic auto makers were nothing but whipping boys on Capitol Hill.
This year, Ford designers are working to make the iconic Mustang look smaller, though it won't be any smaller. Ford recognizes, apparently, that there's a taste component to consumer demand for small, unprepossessing cars as well as an economic motive. GM is making the same bet, on a much bigger scale. It's betting the Volt will trigger a change in Washington's taste for bailing out a domestic car maker.