Volt Jolt

During the recent Democratic National Convention, we heard a lot about how General Motors is back, thanks to its government bailout.  Now Reuters has a report that reveals, again, that things aren’t all that great at GM.

The report addresses the economics of the Chevy Volt.  Using information from industry analysts and manufacturing experts, Reuters estimates that GM could be losing as much as $49,000 on each Volt it sells.  The Reuters piece concludes that the Volt uses complex technology and expensive components and notes that analysts say it is “over-engineered and over-priced.”  GM says the Reuters report is “grossly wrong” because it doesn’t allocate product development costs over the lifetime of the Volt program — but even GM concedes that it is losing money on the car.

Volt sales are poor.  GM forecast that it would sell 40,000 Volts this year; through the first eight months of the year it had sold only 13,500 — and that’s even with an incentive program that allows a Volt buyer to get a two-year lease for as low as $199 a month.  GM has had to halt Volt production lines twice this year due to low sales, and some people question whether American consumers will ever want a plug-in car that takes hours to recharge its battery.

Politicians can argue about whether the bailout and government-sponsored bankruptcy were the best way to handle GM’s struggles and saved hundreds of thousands of jobs or instead simply locked in excessive labor costs and inept management.  Those debates shouldn’t affect a clear-eyed appraisal of GM now, four years later, with American taxpayers having invested billions of dollars in the company.  Let’s not kid ourselves:  successful companies don’t market products that are sold at less than cost.  The Reuters analysis of the bad economics of the Volt helps explain why GM’s stock price is in the doldrums, and why we should all be concerned about the company’s future rather than engaging in empty cheerleading.

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Calling With Another Update On That GM Investment

Hello, Mr. Webner.  It’s one of your friendly securities analysts at the Treasury Department.  Hot enough for you?  Ha, ha!

What?  Oh, no!

Yes, Mr. Webner.  It’s me again.  Time for you to get another update on that GM investment.  This time, I’ve got good news and bad news.  Which would you rather hear first?

The bad news, I suppose.

Well, I’m sorry to say that GM’s stock price has hit another new low.  GM has lost more than one-third of its market value since it went public less than two years ago.  We’re shocked.  We thought those great commercials with likable folks talking about how smart they were to buy Chevy Volts would really cause a boom in sales.

So, how much have we lost?

Between the plummeting value of our GM stock and the tax breaks we’ve given the company to try to help it recover from decades of mismanagement, bad decisions, and short-sighted labor contracts, we’re out $35 billion.

$35 billion?!?!  But I thought my Senator was boasting about what a smart move it was to bail out GM?

He’s saying it saved jobs, Mr. Webner.  They just happen to be jobs that have been heavily subsidized by your tax dollars.

Wait — you said you had bad news and good news.  What’s the good news?

Oh, yes!  Right now, it looks like President Obama, the Democrat-controlled Senate, and the Republican-controlled House won’t be able to agree on an extension of the Bush era tax cuts.  So, after the end of the year everyone’s taxes will probably increase, and we’ll have even more of your money to invest!

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Smugrolet

In the “life imitates South Park” category, the latest commercial for the Chevy Volt is a pretty strong contestant.  South Park, you may recall, had a memorable episode about the “smug” emitted by Prius drivers.

You may have seen the ad, which has been running during the NCAA Tournament games.  It features an earnest if devilish looking guy who appears to be wearing a bowling shirt talking about his Volt.  He professes to wake up every morning “thinking about the future.”  He thinks his car is cool, but also “makes a statement at the same time.”  He’s happy to explain that people “don’t totally understand how the Volt works”; he doesn’t ever worry about running out of battery power because his car will just switch over to gas when needed.  He doesn’t need to gas up much, either.  At one point, the commercial actually says about the guy:  “He is smart.”

This commercial just radiates smugness, and the dripping condescension of Mr. Smarty-Pants as he explains how his car works to the knuckle-draggers in the unlettered masses is insufferable.  I guess we’re just lucky the guy doesn’t also remind us that buying a Volt also is smart because the car is subsidized by the federal government — which means that the rest of us doltish taxpayers who are driving standard, unsubsidized internal combustion cars are helping him feel good about himself each morning when he thinks about the future again.

Bolting The Volt

It hasn’t been easy for the Chevy Volt.  Announced with great fanfare as the electric hybrid, alternative energy car of the future, the Volt has had problems getting traction with consumers.

The most recent news is that some Chevrolet dealers don’t want to take their allotment of Volts.  The sales of the car have been disappointing — only 7,671 were sold last year — and there have been some concerns about the risk of fires in the Volt’s battery packs, which led to a government investigation that concluded the cars weren’t at a greater fire risk.  Whatever the reason, dealers are balking at accepting lots of Volts and devoting precious showroom and on-the-lot space to a car that most consumers apparently don’t want.

Some people hoped that the Volt would lead General Motors back to profitability.  The Volt hasn’t filled that role.  And dealers are pretty reliable barometers of consumer demand.  If hordes of potential buyers were flooding dealerships demanding a Volt, the dealers would be perfectly happy to sell them.  The fact that dealers don’t want even a modest allotment of the cars is a strong indication that America isn’t quite ready to be an electric car nation.

 

Calling To Update The Report On That GM Investment

Mr. Webner, this is your securities analyst from the Treasury Department.  I wanted to give you an update on your investments.

You again?

Yes, Mr. Webner.  We’re closing in on the end of another banner year, and we just wanted to share the good news with you.

Good news, eh?  Well, what is it?

We’re happy to report that we’ve only had to increase the estimate of our loss on our auto industry investment by $9 billion.

Wait . . . did you say you are increasing the estimate of our loss by $9 billion?

That’s correct.  Unfortunately, GM’s stock price has taken a beating lately.  But let’s not get mired in details, Mr. Webner!  What’s important is that we originally thought we would lose far more money than we now think we’ll lose — so you really can look at what we have done as a gain!

So you’re trying to take credit for a disastrous investment that just might not be as disastrous as many people expected?

That’s correct, Mr. Webner.  And in the meantime, you’ve supported the development of groundbreaking technology like the Chevy Volt!  How do you like the Volts you’ve seen on the streets?  Sweet, aren’t they?

Actually, I’ve never seen a Chevy Volt on the street.  I don’t know anyone who owns one.

Well, take my word for it, Mr. Webner.  That car is poised, in a state of cat-like readiness, to take the country by storm!  Now, can I take just a few more minutes of your time to talk about our terrific investments in Fannie Mae and Freddie Mac and Solyndra?

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Calling To Report On That GM Investment

Calling To Report On That GM Investment

“Mr. Webner, this is one of your securities analysts over at the Treasury Department calling to discuss the status of your investments.”

I beg your pardon?

“Yes, this is one of your analysts over at Treasury.  You’ll recall that we decided to invest $50 billion in tax dollars from you and other taxpayers in General Motors.”

Who is this, really?

“It’s the Treasury Department, Mr. Webner.  Don’t make me read your Social Security number over the phone.  I’m calling you today to report on the GM investment.  You see, we’ve decided to sell our holdings of GM stock this summer.”

Okay . . . so, how did the investment do?

“Mr. Webner, I’m very pleased to report that, if we sell at current prices, we’re likely to lose only about $11 billion.”

Wait a minute — did you say we are going to lose 11 billion dollars?!?

“Yes, that’s right.  It means we’ve only lost a bit over 20 percent of the investment!  Of course, prudence compels me to point out that the loss could be greater if the share prices fall.”

How is the stock doing, then?

“I’m sorry to say the current stock price has fallen to below the initial public offering price.”

Why?

“Well, Mr. Webner, have you been to the gas station lately?  With gas prices increasing every day, consumers surprisingly aren’t motivated to buy those huge GM pickup trucks.  And during the first part of this year, GM had to offer big sales incentives and rebates to get people to buy those quality cars that your tax dollars helped to manufacture.  Oh, and there’s been some management turnover, too.  Of course, gas prices could go down before summer, Mr. Webner.  And those Chevy Volts could start flying off the showroom floors.”

So, you are telling me that we are likely to lose even more than $11 billion unless gas prices go down and the Chevy Volt takes the country by storm?

“That’s about it, Mr. Webner.  Now, can I talk to you about our planned investments in green technology companies?”

Click.


Volt Buying

Recent car-buying statistics tell a sobering tale about car sales.  The federal government has purchased 25 percent of the Chevy and Ford hybrids that have been sold since President Obama took office — at least 14,584 hybrids in the last two years.  Auto manufacturers no doubt are happy about the government’s decisions, because consumer demand for the vehicles is falling — for the third year in a row.

In the meantime, the government has committed to buy the first 100 Chevy Volts that roll off the assembly line.  Who else is buying the Volt?  GE, for one.  It can’t resist the chance to get a $7,500 per vehicle rebate, funded by the federal government.  Other big corporations that have corporate fleets are expected to follow suit.

Whatever you think of the merits of a Volt (and the car is viewed by some as too expensive, too small, and too limited in its range, among other issues) it is just wrong for the government to subsidize the sale of particular cars — especially when the cars are built by a manufacturer that is largely owned by the government.  In this instance, the subsidies also are benefiting large corporations like GE that don’t need taxpayer assistance, and will allow them to curry favor with the Obama Administration and its “green initiatives” at a discount.  GE is making billions of dollars in profits.  Why are taxpayers helping GE buy cars?  And shouldn’t the Chevy Volt succeed or fail on its own merits?  Why should the federal government subsidize a car that could turn out to be a lemon?