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Political flap over price to manufacture 2012 Chevy Volt

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Tags: Chevy Volt »»»» EV Politics

The pattern of kicking the Chevy Volt continues. On Monday, Sept 10, 2012, Reuters published an article with weak justification claiming the Chevy Volt cost $89,000 to produce, hence the company was losing $49,000 per Volt. (see (www.reuters.com) Insight: GM's Volt: The ugly math of low sales, high costs) Since then there's been blog posts and articles back and forth over the issue.

Insight: GM's Volt: The ugly math of low sales, high costs

(www.reuters.com) http://www.reuters.com/article/2012/09/10/us-generalmotors-autos-volt-idUSBRE88904J20120910

This was the originating article .. and the reasoning goes like this.

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. GM on Monday issued a statement disputing the estimates.... a vehicle that cost as much as $89,000 to produce... while the loss per vehicle will shrink as more are built and sold, GM is still years away from making money on the Volt... GM's quandary is how to increase sales volume so that it can spread its estimated $1.2-billion investment in the Volt over more vehicles while reducing manufacturing and component costs

The Reuters article cites "independent analysts" who studied the costs to provide the estimate of the per-Volt cost for GM. The costs "factor in GM's initial investment in development of the Volt and its key components, as well as new tooling for battery, stamping, assembly and supplier plants" for a total of $1 billion to $1.2 billion.

With sales of 21,500 Volts so far that works out to just under $56,000 per car. As more Volt's are sold, the initial development costs are amortized over more vehicles, and the cost per Volt shrinks. Then the actual cost to build the Volt itself is in the range of $20,000 to $32,000 per vehicle.

The "analysis" is flawed .. as Bob Lutz put it in a TV interview, say you're a real estate developer, build a building for $10 million, and in the first year collect $1 million in rent, does that mean you've lost $9 million on the deal?

In truth it took years for Toyota to pay off the development cost of the Prius. Ditto for all other cars.

GM Response to Reuters Story on Chevrolet Volt Development Costs

(media.gm.com) http://media.gm.com/media/us/en/gm/news.detail.html/content/Pages/news/us/en/2012/Sep/0910_volt.html

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.

Like I said in the previous section - the cost of developing a car gets amortized over the whole lifetime of the project, not over the first years sales.

The Real Story On GM's Volt Costs

Bob Lutz's response at (www.forbes.com) http://www.forbes.com/sites/boblutz/2012/09/10/the-real-story-on-gms-volt-costs/

The statement that GM "loses" over $40K per Volt is preposterous. What the "analyst" in whom poor Ben Klayman placed his faith has done is to divide the total development cost and plant investment by the number of Volts produced thus far. That's like saying that a real estate company that puts up a $10 million building and has rental income of one million the first year is "losing" 9 million dollars, or several hundred thousand per renter.

He goes on to describe how a car company counts profitability of a car program

selling price minus material cost and labor == gross margin

then there is a per-unit fixed cost, (advertising, general overhead, etc.) plus per-unit depreciation and amortization of the initial investment. The per-unit fixed cost is amortized over the whole lifetime of the program.

Bob Lutz goes on to explain the "first generation Volt" will probably never make much of a profit. However, the technology developed for that car is being rolled into and upgraded for other cars such as the Cadillac ELR and the Gen 2 Volt.

Chevy Volt a major money-loser? GM calls Reuters report 'grossly wrong'

(www.freep.com) http://www.freep.com/article/20120910/BUSINESS0101/120910052/general-motors-chevrolet-volt-nissan-leaf-toyota-prius-ford-focus

GM has acknowledged it's losing money on the Volt, but won't say how much. But GM argued that its investment will pay off over time as Volt sales accelerate and the cost of the extended-range electric/generator powertrain comes down and is offered in other models over time.

Reuters Uses Fuzzy Math to Report on Chevy Volt Profitability

(www.plugincars.com) http://www.plugincars.com/reuters-uses-fuzzy-math-report-chevy-volt-profitability-124322.html

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