All-electric and hybrid car sales so far account for just 3.5 percent of total vehicle sales in the U.S. this year. Not exactly what their makers expected when they launched these models.
At a first glance, the situation is improving for General Motors, as its Volt extended-range hybrid sold a record 2,800 units last month. Year-to-date Volt sales have so far reached 13,000 units, which certainly compares very well to the 7,700 cars that were sold in 2011.
For example, before the discounts, Bunnin Chevrolet in Culver City, California was selling three to five Volts per month. Last month it shifted 36 cars, mostly leases, and sales manager Chad Kelman told The Detroit News that the dealership is having a hard time keeping enough units in stock.
A closer look, though, reveals that last month’s spike was due to Chevrolet dealers cutting the Volt’s sticker price by as much as 25 percent, or US$10,000 according to auto pricing site TrueCar.com.
J.D. Power and Associates and Edmunds estimate that this equals to three times the average industry discount, whereas auto pricing site TrueCar.com raises that figure to about four times the normal discount offered for other models.
Said discounts included low-interest financing, subsidized leases, direct price cuts to buyers and sales bonuses to dealers.
However, GM is now facing the paradox of increasing its losses in an effort to boost sales. The problem is that the high sticker price puts off most buyers who prefer a conventionally powered car.
Sandy Munro, president of Munro & Associates, which analyzes production expenses for automakers, told The Detroit News that the Volt costs US$60,000-70,000 to build, mostly due to the expensive petrol-electric hybrid powertrain.
“Let’s face it, over US$40,000 is asking a lot for a compact car”, said no other than former GM vice chairman and the man behind the Volt’s development, Bob Lutz.
The much-publicized crash tests that resulted in fires due to coolant leaks didn’t help the situation, either.
Recently, Reuters claimed that each Volt costs US$89,000 to make, causing GM to lose US$49,000 on each car it sells – so with the added discounts, last month this ballooned to almost US$60K.
GM responded that the report was grossly" inaccurate as it didn’t take into consideration the development of technologies which would be used in other models as well. Though it conceded that it lost money on each Volt sold, it did not disclose a sum.
One would imagine that, in such turbulent times, the Volt’s future is, at the very least, uncertain.
This is not the case. Needham & Co. investment firm analyst Michael Lew explains that increasing sales gives GM the power to negotiate with parts suppliers for lower prices, thus cutting its losses.
Lutz agrees that, even if it's very expensive and won’t deliver profits to its maker, the Volt is a success: “Its prime purpose was to introduce a new generation of technology, and at the same time demonstrate to the world that GM is way more technologically capable than the people give it credit for.”
By Andrew Tsaousis