Chevy Volt: Game Changer Or Electric Edsel ?

General Motors, and Barack Obama, are betting the future on a car that may be nothing more than an electric lemon.

Last week, President Obama went to Michigan to tout what he claimed was the success of the G.M. and Chrysler bailouts and, stake center stage was G.M.’s newest gamble, the $ 41,000 Chevy Volt:

President Obama went on a short Chevy Volt test drive while visiting General Motors’ Hamtramck, Mich., plant where the Volt will be manufactured.

It wasn’t a very long test drive.

“Some of you saw me drive the Volt about 12 inches; they don’t let me drive much these days,” he says.

Obama is in Detroit defending his decision to invest more than $50 billion to save GM and Chrysler last year, when both automakers were on the brink of failure. He visited a Chrysler plant and a GM plant in the Detroit area. The decision to let the automakers go into bankruptcy and then support them when they emerged was controversial, and still up for debate in many corners.

“It’s estimated we would have lost another million jobs had we not stepped in,” Obama said.

While the Volt has been in development for years, it is the centerpiece of the government-run bailout that was put into place last year:

In developing the Volt, General Motors is seeking to fulfill its promise to Congress during the government bailout to move beyond gas-guzzlers.

The Obama administration has put its weight, and billions of dollars, behind an effort to develop electric cars and batteries in the United States. During the 2008 presidential campaign, then-Sen. Barack Obama pledged to put 1 million plug-in vehicles on the road by 2015. Whether he succeeds could depend in part on whether the Leaf and the Volt are priced low enough to be quickly embraced by consumers.

The president has expressed optimism that automakers will be able to lower the price tags of electric vehicles, suggesting that major reductions in battery costs are on the horizon.

“Because of advances in the manufacturing, [battery] costs are expected to come down by nearly 70 percent in the next few years,” Obama said earlier this month at the site of a planned battery factory in Michigan. “That’s going to make electric and hybrid cars and trucks more affordable for more Americans.”

An electric — or at least party-electric car — it sounds like something we’ve been waiting for for decades, America’s answer to the Toyota Prius. As Edward Niedermeyer noted in Friday’s New York Times, however, the Volt is really nothing more than an electric boondoggle:

General Motors introduced America to the Chevrolet Volt at the 2007 Detroit Auto Show as a low-slung concept car that would someday be the future of motorized transportation. It would go 40 miles on battery power alone, promised G.M., after which it would create its own electricity with a gas engine. Three and a half years — and one government-assisted bankruptcy later — G.M. is bringing a Volt to market that makes good on those two promises. The problem is, well, everything else.

For starters, G.M.’s vision turned into a car that costs $41,000 before relevant tax breaks … but after billions of dollars of government loans and grants for the Volt’s development and production. And instead of the sleek coupe of 2007, it looks suspiciously similar to a Toyota Prius. It also requires premium gasoline, seats only four people (the battery runs down the center of the car, preventing a rear bench) and has less head and leg room than the $17,000 Chevrolet Cruze, which is more or less the non-electric version of the Volt.

In short, the Volt appears to be exactly the kind of green-at-all-costs car that some opponents of the bailout feared the government might order G.M. to build. Unfortunately for this theory, G.M. was already committed to the Volt when it entered bankruptcy. And though President Obama’s task force reported in 2009 that the Volt “will likely be too expensive to be commercially successful in the short term,” it didn’t cancel the project.

Nor did the government or G.M. decide to sell the Volt at a loss, which, paradoxically, might have been the best hope for making it profitable. Consider the Prius. Back in 1997, Toyota began selling the high-tech, first-of-its-kind car in Japan for about $17,000, even though each model cost $32,000 to build.

By taking a loss on the first several years of Prius production, Toyota was able to hold its price steady, and then sell the gas-sippers in huge numbers when oil prices soared. Today a Prius costs roughly the same in inflation-adjusted dollars as those 1997 models did, and it has become the best-selling Toyota in the United States after the evergreen Camry and Corolla.

Instead of following Toyota’s model, G.M. decided to make the Volt more affordable by offering a $350-a-month lease over 36 months. But that offer allows only 12,000 miles per year, or about 33 miles per day. Assuming you charged your Volt every evening, giving you 40 miles of battery power, and wanted to keep below the mileage limit, you would rarely use its expensive range-extending gas engine. No wonder the Volt’s main competition, the Nissan Leaf, forgoes the additional combustion engine — and ends up costing $8,000 less as a result.

If all of this had been done with the money of General Motors investors, it would be a stupid business decision perhaps, but we’ve lived through stupid business decision. This time it’s a gamble on questionable technology with a car that is less energy efficient and more expensive than the forthcoming Nissan Leaf and the hugely popular Toyota Prius, and the only reason to buy it is if you want to endorse an auto industry bailout that never should’ve happened in the first place:

The future of General Motors (and the $50 billion taxpayer investment in it) now depends on a vehicle that costs $41,000 but offers the performance and interior space of a $15,000 economy car. The company is moving forward on a second generation of Volts aimed at eliminating the initial model’s considerable shortcomings. (In truth, the first-generation Volt was as good as written off inside G.M., which decided to cut its 2011 production volume to a mere 10,000 units rather than the initial plan for 60,000.) Yet G.M. seemingly has no plan for turning its low-volume “eco-flagship” into a mass-market icon like the Prius.

Quantifying just how much taxpayer money will have been wasted on the hastily developed Volt is no easy feat. Start with the $50 billion bailout (without which none of this would have been necessary), add $240 million in Energy Department grants doled out to G.M. last summer, $150 million in federal money to the Volt’s Korean battery supplier, up to $1.5 billion in tax breaks for purchasers and other consumer incentives, and some significant portion of the $14 billion loan G.M. got in 2008 for “retooling” its plants, and you’ve got some idea of how much taxpayer cash is built into every Volt.

In the end, making the bailout work — whatever the cost — is the only good reason for buying a Volt.

I don’t know about you, but that’s not a good enough reason for me.

FILED UNDER: Barack Obama, Economics and Business, Politicians, US Politics, ,
Doug Mataconis
About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May 2010. Before joining OTB, he wrote at Below The BeltwayThe Liberty Papers, and United Liberty Follow Doug on Twitter | Facebook

Comments

  1. Dave Schuler says:

    I think the Nissan Leaf is a better product at a lower price.  Or at least it would be lower without the heavy subsidies the Volt is receiving.  At some point a decision will need to be made whether we’re more interested in subsidizing the retirements of GM workers or electric automobiles.

     

    For me scalability of production is the elephant in the room.  If no sales materialize we won’t get to test that.  However, if sales do materialize and neither Chevy nor Nissan can fill orders on a timely basis, it won’t be a bit surprising.  Toyota has had experience somewhat along those lines.  Note that the Prius continues to have a wait list.  Why?

  2. Pete says:

    “It’s estimated we would have lost another million jobs had we not stepped in,” Obama said.
    Isn’t this the same guy who said unemployment would peak around 8% and then improve? Obama has no business experience and he was fed a diet of Delong and Krugman who have been right occasionally, but mostly wrong. I am in the camp that believes the auto bailouts were solely to save union jobs.
    Dave, the Prius is favored by the kool aid drinking tree huggers and other deluded dreamers. Toyota knows this and therefore limits production because thankfully there aren’t that many of them and when the next “Edsel” comes out (the Volt?), the tree huggers will abandon the Prius. And of course, as the world sinks further into economic malaise, oil prices will decline opening the way for Hummers to make a comeback.

  3. john personna says:

    For a while I was really into energy/environment issues and I read widely on those related subjects.
     
    Based on that reading and a bit of thinking, I’d answer “Chevy Volt: Game Changer Or Electric Edsel ?”  With “Neither.”

    The Chevy (and the Leaf) may or may not be useful intermediate improvements but they depend on further innovation.  I guess the interesting thing is that the innovation could be technical or social.  Either electric cars will improve enough to appeal to current purchasers of gasoline cars, or those buyers will change their preference.

    Neither of those two things are likely in the short term.  In the next 5 years batteries will still be seen as expensive and gasoline will be seen as cheap enough.  Global warming won’t matter enough to spur more than a 5 or 10% fleet conversion amongst the most-concerned.

    FWIW, I’d kind of like the Leaf plus a 4×4 truck as a two-car solution.  I’d use electrics for commuting, and fossil fuels for camping.  That’d be pretty fun actually, a Leaf plus a beater truck.

  4. john personna says:

    Pete, you are an imbecile.  That would be one of Dave’s dreaded ad hominems if you hadn’t demonstrated your imbecility so completely in your Prius smear.
     
    My 5 year old Prius still gets me 48 mpg, every week.  No car on the US market can do that.  And oh yeah, 5 years ago I paid 22k cash for the car.  There is no cheaper midsize car on the planet, bar none.  It’s a pleasure to drive, and it gets me almost everywhere I want to go.
     
    (It has only truly FAILed once, when an icy road got to steep and the chains couldn’t get a bite … to much weight to the rear.)
     

  5. john personna says:

    “no cheaper” … call it total cost to own, over 100k miles, at $3/gal
     

  6. john personna says:

    Actually, I double checked myself and the Volt is a “midsize” (SAE J1100-EPA class), and yes I think it can beat 48 mpg in normal use.  Of course, at $41K we might be looking at the cost of the Leaf plus that beater truck.
     

  7. Eric Florack says:

    Game changing technology doesn’t require government involvement.  In fact, as a rule, government involvement is a sure fire indicator that the technology isn’t worth bothering with.
     
    The New York Times raised over the lector car saying it was cleaner quieter and more reliable.
    Of course, this was in 1912.
     
    what we have here, people, is a $40,000.00 golf cart.

  8. Eric Florack says:

    Oh, and the jobs in the automotive sector that the president has been touting ?  You may want a look at where the batteries for this thing are being created.  South Korea.  Reason?  The stuff they’re made with is extraordinarily toxic.

  9. Tano says:

    “In fact, as a rule, government involvement is a sure fire indicator that the technology isn’t worth bothering with.”
     
    Huh? Is that a competitor for the dumbest question ever? The exact opposite is true. The government has had a crucial involvement in the development of almost all successful hi-tech innovations.
     
    “what we have here, people, is a $40,000.00 golf cart.”
     
    Oh, another entrant.
    I get it – its an electric car,,,,like a golf cart…ha ha ha..
    you a funny guy.

  10. Tano says:

    in general, I think this post is deeply misguided. As mentioned, but not emphasized, the Volt has been in development for many years. It has been touted as the flagship of a new generation of cars long before the financial crisis, or GM’s crisis.
     
    It is NOT some proposal of the Obama administration to put forward the Volt. What I sense here is an attempt to politicize the Volt – to make it into Obama’s car, because,,,well, I guess because that is what political pundits do. Insist that everything be filtered through the political lens.
     
    “And though President Obama’s task force reported in 2009 that the Volt “will likely be too expensive to be commercially successful in the short term,” it didn’t cancel the project.”
     
    Because a) they left the running of the company to the people at GM, and b) because they were thinking of the long term – itself a major innovation in the American automotive industry…
     
    “This time it’s a gamble on questionable technology with a car that is less energy efficient and more expensive than the forthcoming Nissan Leaf”
     
    The Leaf has no gas engine. Why would anyone in their right mind buy one for anything other than driving to and from the commuter lot?
     
    “and the only reason to buy it is if you want to endorse an auto industry bailout that never should’ve happened in the first place”
     
    The bailout has prevented my state (MI) and surrounding states from entering into a generations-long depression. The costs of doing nothing to the national economy would have also been enormous.

  11. Zelsdorf Ragshaft III says:

    If there was a market for the electric car, government would not have to have invested billions of tax dollars for its development.  When all the costs to the tax payers are included, these things will cost us about $81K each.  GM expects to lose money on each unit.  In California, we have a system where the private sector is supporting the public sector at a higher rate of pay than what is available in the private sector.  That includes all phases of pay and benefits.  That is not sustainable.  Just like GM producing a vehicle on which it cannot make a profit.  Watch and see how long Volt is produced after the GOP regains contol of the wallet.  You want to know what this mini car costs?  Got to Hot Air blog where they have an analysis of the full cost.  Prius must be special.  Datsun made a car in 72 which got better milage so did VW however government regulations ended that era.  Government has not business in this country telling business what to do, what to produce or what price it should sell it at.

  12. Russ says:

    General Motors started development of the Volt when they were the largest auto company in the world and I liken this whole Volt thing to back when GM was going to game change the RV industry with their motor home.
    http://www.gmcmotorhome.com/faq/what.html
    and what happened was they failed. The inside baseball attitude regarding electric vehicles is more we’ll show them than we” sell them. Nissan is looking to promote themselves rather than look to make money. I sell Fords and you can’t give away a Fusion Hybrid right now and the Volt is endemic of GM’s corporate attitude of we’ll do what we want and not what we should and don’t tell us different!

  13. john personna says:

    Zelsdorf, the thing to watch out for, in mileage comparisons, is whether one person is talking “best mpg I ever got” and the other is talking “mileage I get every day.”
     
    There were cars in the 80’s, which were lighter (before enhanced crash safety) which could get 50 mpg on those special all-freeway trips.  The thing is, a Prius gets 48 mpg on every tank.  That is a big difference.
     
    My best tank ever was 65 mpg on a road trip following my friend’s U-Haul truck.  That was 600 miles on one tank, but I don’t quote it as “my mileage.”
     
    BTW, the interesting thing with respect to government investment and technology is that our country arguably did develop the hybrid, with some 1970’s initiatives.  Toyota probably developed the Prius because they thought we were serious and would follow through.  We didn’t though.  We did this weird split where we sold everyone and SUV and pretended at the same time that hydrogen was the future.  Remember those, hydrogen cars?  BS, but they kept the gasoline flowing, which was the point.  They held off MPG requirements.

  14. wr says:

    ZR — If there was a market for electriciy, the government wouldn’t have had to pay all that money to electrity the rural South. The TVA? Obviously a boondoggle. Because if consumers wanted power that badly, they would have paid to put up their own powerlines or just bought generators.
    Let me know if your ideology and reality actually meet. I’d hate to see the explosion — kind of a matter/anti-matter thing.
    Like you screaming about parasites while living off the government.

  15. JKB says:

    TVA isn’t really a good example since the New Dealers waged a legal campaign against the regional power companies and TVA was part of an “understanding.”  Fact is there wasn’t much of a market for power in the rural areas.  The government power boards ran their own appliance shops and electricity use campaigns well into the 1970s.  Ironic since today the “progressives” are lamenting the massive use of electricity and the fact people can live comfortably outside the urban core.  BTW, just the other day I read a quote in a story about preps for the electric vehicles:

    Tennessee Valley Authority officials have acknowledged losing power demand to diminishing manufacturing, energy-saving homes and appliances, windmills and solar roofs, but they foresee potentially huge power demand for quick car charges.

    BTW, the power stations for E-cars is not something the private sector is interested in wasting money own.  But the feddies are eager to dump $114 million for just five states.  So a linear extrapolation would be $1.2 billion for a 50 state plan to install charging stations in private facilities?  Nice use of public funds for private profit.

    The five-state project is funded with $114 million from DOE and matches from technology company Ecotality and similar outfits to total more than $200 million.
    It will rely on location “partners” such as chain groceries and big-box department stores, public libraries and large employers.

  16. Drew says:

    “Pete, you are an imbecile.”

    Cool.  See, JP, you gotta mix it up some times.

    Best line:  “what we have here, people, is a $40,000.00 golf cart.”

    The real story:  As a professional investor who is subject to come ons all the time – without subsidy this is a flat damned loser.  Anyone with any commercial sense knows it.