Reuters: GM Is Still Losing As Much As $49,000 On Each Volt It Builds (Update:GM Responds)

5 years ago by Jay Cole 21

Chevrolet Volt Waits Patiently For Software Patch Before Being Ok'ed For Sale

While reporting on the record August sales of the Chevrolet Volt (GM sold 2,831 cars), a trio of Reuters reporters came to the conclusion that GM is losing $49,000 on every copy that GM sells, and that the company may not actually want to sell the car, saying that selling a lot of cars “probably isn’t a good thing for the automaker’s bottom line.”

Seriously?

“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.

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.”

Reuters - Spreading Some 'Truths'

Ignoring the fact that the $7,500 federal government incentive is also gobbled up in lease transactions, they move on; undeterred by facts or reason.

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.

One wonders where the Reuter’s writing trio got the chestnut in their head that GM was losing money on every car they sell today in the first place?  From a casual GM quote, naturally:

“It’s true, we’re not making money yet” on the Volt, said Doug Parks, GM’s VP of global product programs and the former Volt development chief, in an interview. The car “eventually will make money. As the volume comes up and we get into the Gen 2 car, we’re going to turn (the losses) around,” Parks said.

"Please Don't Buy Our Cars, We Are Losing Almost 50K A Pop"

Alright, so how did they come to the conclusion that GM spends “up to $88,000” per car to build the Volt from this quote?

First, they took Doug Park’s estimate that GM has spend “a little over” 1 billion dollars in developing the car, and then rounded that up to $1.2 billion (with the help of experts).

Then Reuters divided that number by the 21,500 cars GM has sold in the US since it started production in December of 2010 (let’s forget about those pesky Canadian and European Ampera/Volt sales), and assume they won’t sell anymore.

Responsible journalism at its best.

In a related news item, I heard that Ford has delivered the first dozen C-Max hybrids, and it cost the company about $500 million to develop the program, and therefore Ford is losing $41,666,667 on every copy they sell.

Tucked inside this 1,000+ word essay on why their outrageous headline makes sense, is this admission by their experts:

“The actual cost to build the Volt is estimated to be an additional $20,000 to $32,000 per vehicle (nice range estimate), according to Munro and the other industry consultants.”

So, given that the $1.2 billion $1.0 billion is all in a one-time development cost to begin an entirely new breed of automobile, and will be amortized over whatever the end result of production will be (perhaps in the hundreds of thousands), this figure has nothing to do with the ongoing cost of producing the Volt at all, and their statement that selling new Volts “probably isn’t a good thing for the automaker’s bottom line,” or that GM is “losing as much as $49,000 on each Volt it builds”  is total nonsense.

In actual fact according to their experts, GM may be making $7,000 to $19,000 for every new sale the company logs.  That is the story they should have written.

Now, if you want to talk about if GM makes money on the Volt after they pay for all the advertising and marketing of the vehicle they do, that is another story…but Reuters is out to lunch on this one.

If you enjoy being frustrated at poor journalism, might I suggest reading Reuters original story here, there is lots more good stuff.

 

UPDATE (Sept 9th, 2012 @11.30AM):  The story has gotten large enough that GM has responded to the theory that the company be losing as much as $49,000 per Volt sold:

DETROIT – Reuters’ estimate of the current loss per unit for each Volt sold is grossly wrong, in part because the reporters allocated product development costs across the number of Volts sold instead of allocating across the lifetime volume of the program, which is how business operates. The Reuters’ numbers become more wrong with each Volt sold.

In addition, our core research into battery cells, battery packs, controls, electric motors, regenerative braking and other technologies has applications across multiple current and future products, which will help spread costs over a much higher volume, thereby reducing manufacturing and purchasing costs.  This will eventually lead to profitability for the Volt and future electrified vehicles.

Every investment in technology that GM makes is designed to have a payoff for our customers, to meet future regulatory requirements and add to the bottom line.  The Volt is no different, even if it takes longer to become profitable.

GM is at the forefront of the electrification of the automobile because we are developing innovative technologies and building an enthusiastic – and growing – customer base for vehicles like the Volt.

Link to GM’s official response here

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21 responses to "Reuters: GM Is Still Losing As Much As $49,000 On Each Volt It Builds (Update:GM Responds)"

  1. Mark H says:

    You have reported this story before in response to the same nonsense and it was worth reporting again as long as others keep reporting. I wonder how hard it would be to track the payola of the journalist that wrote that? Not too hard to find a Haliburton check stub.

    I can not comment on how the research money was spent, but I have worked in numerous auto factories as a metrology contractor as well as seen the Volt with the body removed. From that point of view, you can see that $20,000 -$32,000 is leaning more toward the $20,000 to produce. It is a great auto which all of us who own one would attest to.

    Such articles will fuel the oil minions for awhile, but it will do nothing to stop this brilliant technology. Test drive one. Compare the acceleration, compare the cornering, compare the added technologies, compare the fuel savings that allows you to make the same monthly payment. Do this and you will get up every morning enjoying your commute most likely more than you ever have before.

  2. Marc Lee says:

    Agreed the real story here is the $20k-32K cost to build each additional Volt. Would be interesting to see how they came up with that number.

    1. Stuart22 says:

      I wonder why this estimate is so inexact – $12k is a pretty big window IMO. Suggests to me they are making an uneducated guess…

  3. ClarksonCote says:

    As a blogger referenced on GM-Volt.com, 8 months ago the Volt was losing $250,000 for every copy made, now it’s a quarter of that? It’s clear both numbers are bogus, and the Reuters people failed their basic accounting classes.

    1. Anthony says:

      I’d argue they’ve never taken basic accounting classes, otherwise they wouldn’t try amortizing the development costs of E-REV technology that should last us 25 years and apply it over 2 years of production. (though I shouldn’t talk too much trash, I’m three weeks in to my MBA degree myself, I’ve only been in my accounting class for a short time).

      That said, the 20-32K to produce one unit is incredible to me. Even if a Volt only took 25K to produce a copy, there are still other costs (shipping, warranty work, dealer bonuses, etc) that are covered in that up-front purchase price.

    2. Dr. Kenneth Noisewater says:

      And how much of that R&D and tooling money was stuck to Motors Liquidation Co. and written off in the bankrupcy?

  4. Schmeltz says:

    I think it was Ed Whitacre that made the intital remark about the cost of the Volt shortly before it was announced, and he had said at that time that they (GM) would have a small profit in the beginning. (Lyle probably recalls that conversation). So, not knowing the calculus used to make that assessment, I have been under the impression that GM was making a small profit on the Volt. Numbers can be spun so many diffeerent ways, so it’s really difficult to determine whose be truthful.

  5. Bonaire says:

    Heck, even if the *entire* story were true – how about we use the Volt to save the USA money? It does cost about $1 Million per service troop member to keep them in Iraq, Afghanistan or other places abroad – per year. The Volt can make the USA oil independent within North America. Unless we invate Canada and Mexico, I look at the Volt as a money saver even if these uninformed, fact-less stories were to be true.

    Those treasonous authors of the story need to be left in an oilfield in Iraq to be with the wonderful oil that they so treasure.

    1. Delta says:

      How I wish I could +1 your comment over and over again.

  6. Jackson says:

    Reuters was founded as a news-gathering/transmitting organization. Now, like most other “news” agencies, unfounded news-making has become the order of the day.

    Quoting of this misinformation on Right-wing radio in … 3 … 2 … 1 …

  7. James says:

    Every car has R&D costs, and the Voltec platform is set to spread to other GM products, like the forthcoming Caddy, so it will be harder and harder to pinpoint where the costs are spread in 5 years. Sloppy journalism, if you can even call it that. Hardly rises above a blog post and belongs on Drudge.

  8. GeorgeS says:

    Good rebuttal by GM.

    Jay, Good article as usual but just one question about grammar. (and I’m not trying to be critical I’m just curious cuz you know engineers can’t write to GOOD anyway,

    You wrote: “That is the story they should have wrote.”

    Shouldn’t it be:
    “That is the story they should have written.”

    1. Jay Cole says:

      You are probably right…you picky bastard, (=

      /fixed

      1. koz says:

        too right or not to write

  9. Bonaire says:

    The US economy loses about $20K per incoming Toyota Prius over buying something locally-made. Our citizens would also be better off buying a Chevy Cruze at $20K and driving 40mpg than spending $25K and buying a Prius and driving at 45-50mpg. The payback is years and you’re supporting another country by buying the Prius. (same argument as they use against buying a Volt).

  10. Shawn Marshall says:

    If GM can build a Volt for 20k – forget development costs – then they are missing one whale of an opportunity. That’s as funny as the Reuters mistake.
    Reuters is usually left leaning in their news coverage so all the vitriolic reaction to their “oil lust” is just as misplaced as Reuter’s unbalanced cost analysis.When employed by a power company, I learned that reporters never got the simplest facts correct about voltage, current or kilowatt-hours.
    Experts are a dime a dozen, just look at global warming, and few of them know what they are talking about.

    1. Herm says:

      $20k over the cost of a normal car, presumably a comparably equipped Cruze or Verano, minus the automatic transmission.. my guess the automatic transmission costs GM about $1k

  11. James says:

    “…GM may not actually want to sell the car…”

    RIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIGHT – This is why whilst watching CNN this afternoon – every other ad break was a Volt testimonial ad….. This is why whilst perusing WIRED Magazine the other day at the grocers – I came upon a TWO-PAGE SPREAD with a picture of a Volt at a huge gas station with the ad title, “Why Is An Electric Car At This Gas Station?”….This is also why a quick check of Popular Science and Popular Mechanics mags also resulted in full page ads for Volt…

    Hmmmm….GM surely doesn’t want to sell this car!

    RECHARGE! ,

    James

    P.S. – I’m seeing a lot more Volts in my neck of the woods in W. Washington State.

  12. koz says:

    ***BREAKING STORY****

    By the math used in Reuters story “GM Is Still Losing As Much As $49,000 On Each Volt It Builds”, GM will have made $18,000 on every Volt sold buy September 2014.

    Fine print: Based on $1.2B development cost, $20K unit build cost, sales continuing to increase at the same pace in 2013 and 2014 as they have in 2011 and 2012.

  13. Frank says:

    All of this negative reporting is just political b.s! This is just being done to drive up the ‘click counters’ on websites because it enrages both sides, lovers and haters. Most people who hate on the car have never even been in one or driven one. I own a Dodge diesel truck and a Volt, for what it costs to fill up my dodge ~100.00 I have driven my Volt 6000 miles! Just like the prius, one day the Volt will be seen as what it is, a brilliant solution. Hopefully after the election is over all of this political b.s. will stop…

  14. MrEnergyCzar says:

    The first Prius cost one Billion. What a waste of money….lol

    MrEnergyCzar