GM offers big discounts to boost Volt sales

Associated Press Modified: September 24, 2012 at 9:15 am •  Published: September 24, 2012
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DETROIT (AP) — General Motors rolled out the Chevrolet Volt two years ago with lofty sales goals and the promise of a new technology that someday would help end America's dependence on oil.

So it seemed like a good thing in August when sales of the $40,000 car set a monthly record of 2,800. But a closer look shows that things aren't what they seem for the cutting-edge car.

Sales rose mostly because of discounts of almost $10,000, or 25 percent of the Volt's sticker price, according to figures from TrueCar.com, an auto pricing website. Other pricing services gave similar numbers, and dealers confirmed that steeply discounted Volts are selling better than a few months ago.

GM's discounts on the Volt are more than four times the industry's per-vehicle average, according to TrueCar estimates. Edmunds.com and J.D. Power and Associates say they're about three times the average. Discounts include low-interest financing, cash discounts to buyers, sales bonuses to dealers, and subsidized leases.

Americans have been slow to embrace electric cars. But the Volt's August sales show they're willing to buy if prices are low enough. Even so, electrics have a long way to go before they enter the mainstream and make money for car companies. Electrics and gas-electric hybrids account for just 3.5 percent of U.S. auto sales this year. GM is losing thousands of dollars on every Volt, raising the question of how long it can keep eating the steep losses.

For the foreseeable future, carmakers will have to cut prices to move electric vehicles off dealer lots. The nonpartisan Congressional Budget Office says the cost of electric cars must drop to be competitive with gasoline-powered ones.

GM executives have conceded from the start that they were losing money on the Volt, and that was before the big discounts.

Now the losses could be even higher. It costs $60,000 to $75,000 to build a Volt, including development, manufacturing and raw materials, estimates Sandy Munro, president of Munro & Associates, a Troy, Mich., a company that analyzes vehicle production expenses for automakers. Much of the cost comes from an expensive combination of two power systems — electric and gasoline. With a sticker price of $40,000, minus the $10,000 the company pays in incentives, GM gets roughly $30,000 for every Volt. So it could be losing at least $30,000 per car.

"It certainly wasn't a rousing success," Carter Driscoll, senior analyst for CapStone Investments who follows electric cars, says of the Volt.

GM confirmed there are incentives on the Volt and that the company loses money on the car. But the automaker declined to give figures for the discounts or the losses. The figures exclude a federal tax credit that goes to buyers.

The automaker says Munro's estimate is high because it doesn't spread the Volt's costs far enough into the future, when more Volts will be sold. Automakers typically spend $1 billion or more to develop a car, and sometimes don't recoup the investment and start making money until late in its life. Also, Volt technology will be used in future cars and trucks, eventually leading to profits, the company says.

GM spokesman Jim Cain says most of the Volt discounts come in the form of lease deals, which account for about two-thirds of sales. In some markets, Volts can be leased for $249 per month with $2,400 down.

"We're trying to create a market for a brand-new technology," Cain says.

NO SPARK AT THE START

The Volt, a four-seat compact, was rolled out in a few states in December 2010 with a starting price of $41,000.

GM had high hopes. The car's features stacked up well against the Nissan Leaf, a pure electric car that debuted about the same time and is the Volt's closest competitor. The Volt goes about 35 miles on battery power, then a gasoline-powered generator can take over, giving it the same range as a car with a gasoline engine. And the battery can be recharged in 10 hours from a standard home electrical outlet for about $1.50.

But the timing of the launch was poor. The pricey car hit showrooms when many buyers were reeling from the bad economy and turned off by the government's $50 billion bailout of GM.

"Let's face it, over $40,000 is asking a lot for a compact car," says Bob Lutz, a retired GM vice chairman who led the development of the Volt.

Even a $7,500 federal tax credit, which dropped the Volt's sticker price to $33,500, did little to promote sales. The car cost $7,000 more than the Leaf, and $13,000 above a well-equipped compact with a gas engine.

As it reached more dealers in 2011, the Volt had to overcome more than a high price and recession-weary Americans. The government found that the battery could catch fire after crash tests. In California, a key market because of its tech-savvy population, another roadblock emerged. Volt drivers traveling alone weren't allowed to use carpool lanes because the car didn't qualify for a state exemption. Drivers of the Toyota Prius hybrid, meanwhile, could use those lanes, thanks to the exemption for lower-polluting vehicles.



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