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General Motors Losing $49,000 on Every Chevy Volt Built

There's been no denying the fact that the Chevy Volt is an amazing technological feat that's come with a massive cost to taxpayers.  Last month, General Motors (GM) announced the idling of a Volt plant due to slow demand, despite August being the vehicle's best sales month.  The bigger issue is non-existent consumer demand, which is present at many automakers that sell gas-electric hybrids, outside of Toyota.  The problem for GM is that each Volt produced generates a loss of $49,000.

The Chevy Volt faces a problem with its high price and poor image.  The auto bailout was not popular in 2008, despite Democrats claiming that President Obama single-handedly saved GM and Chrysler.  The Volt was GM's first big move after they entered bankruptcy, leaving many to believe that the White House, to appeal to radical environmentalists, pushed ahead with the Volt, despite little to no consumer demand - certainly not at a level that confirmed a successful product launch, particularly when the stakes were so high.

Here are additional details from Reuters on the Volt:

Nearly two years after the introduction of the path-breaking plug-in hybrid, GM is still losing as much as $49,000 on each Volt it builds, according to estimates provided to Reuters by industry analysts and manufacturing experts. GM on Monday issued a statement disputing the estimates.

Cheap Volt lease offers meant to drive more customers to Chevy showrooms this summer may have pushed that loss even higher. There are some Americans paying just $5,050 to drive around for two years in a vehicle that cost as much as $89,000 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 over-engineered and over-priced," 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 models have been in increasing demand.

GM's quandary is how to increase sales volume so that it can spread its estimated $1.2-billion 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 $39,995 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. Plug-in hybrids such as the Volt still take hours to fully charge the batteries - a process that can be speeded up a bit with the installation of a $2,000 commercial-grade charger in the garage.

The article continues to discuss how the Volt's costs are expected to decrease as sales increase, but with the latter not happening, its cost remains a loser for GM.  This is the result of government intervention in the business cycle.  The auto bailout for GM was intended to pay back the United Auto Worker (UAW) labor union thugs, as the company entered bankruptcy despite the bailout.  With the government owning a sizable piece of GM, the White House was able to influence products.

It's telling that only Toyota's Prius hybrid is making an impact on the market.  There are many reasons, but its biggest strength was being the first realistic hybrid that could comfortably fit a family.  There's much more to the Prius, particularly in terms of marketing, but the point is that the Volt couldn't be expected to compete.  Instead, GM has been pushing a product and wasting billions of taxpayer dollars that consumers don't want and that the market isn't prepared for.

No matter how much government intervention, the White House can't change consumer demand and that's the biggest problem facing the Volt - at least at this point in time, but if Obama gets another term, anything is possible.

Cliff Levine is a contributing editor for Habledash.

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