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.