Featured 2016 Chevy Volt Attack Ads target LEAF, Prius!

must have been local?

 

The target was for December 2010 and the marker for mainstream (high volume sales) is still $30k.

 

Let's say GM can get the Volt to ~$30k MSRP in 2-3 years when it's entirely likely the 200k federal subsidy wall will be hit (Volt +Bolt). Some early adopters were willing to pay $40k (minus ~$10k in federal and state subsidies) for Volt 1.0. When these subsidies are gone or markedly reduced, how many Volt Gen 2's will be sold? To move unit sales to the mainstream/high volume, GM will have to get the Volt way under $30k for an entry level model. Don't see that happening for many more years.

 

I'm trying to unpack what you are saying here....

If Lutz's price target that he stated in 2007 was intended to be valid in 2010 and today's 2016 Volt MSRP would have been worth $30,400 in 2010 then we are just a few hundred $$ away from the Volt hitting the $30,000 MSRP goal. Do you agree with the accuracy of my last sentence?

Okay, switching topics slightly, you say the marker for mainstream is still $30,000 in today's dollars. That doesn't really make any sense unless you think that car prices have defied inflation. Why would the mainstream target be $30,000 in 2010 dollars but still be $30,000 in 2015 dollars when general consumer price inflation makes those 2010 $$ now be more like $32,750 in today's dollars. Your "$30,000" target seems arbitrary.

 

To clear up some inflation issues, vehicle sale prices historically do not keep up with inflation. Vehicles have a long term trend significantly under inflation. In some ways they behave more like consumer electronics than say food, gasoline, commodities...

 

Almost 9% inflation over 5 years is roughly 1.7% annual inflation which is below the historical average and below the Federal Reserve's 2% inflation target.

 

Vehicle new sales inflation is much less than "headline" inflation.

For example if I were to use the case of my first vehicle, a brand-new 1995 Honda Civic LX that I purchased for $16,000, if we go with headline inflation, a new 2015 Honda Civic LX should sell for $25,000.

Of course it's a lot more affordable than that. To boot, it comes with significantly more impressive features in every category (power, safety, fuel efficiency,...).

Really the only major component of inflation in new vehicles for the last few decades has been with features and that consumers have more discretionary income now and buy more expensive vehicles on average.

 

the other problem is income isn't rising, even if inflation is low.

 

It's plausible that car prices have trailed general price inflation over the longer term but probably not nearly to the extent of consumer electronics. I don't know offhand.

In any case, I looked up the "New Vehicle" subcomponent of consumer inflation and it appears to have gone up around 6.75% between September 2010 and today. That number is already adjusted for effects like changing expectations of standard vehicle equipment (so-called hedonic adjustments). It's complicated and there is a building full of statisticians at the Labor Dept. that keep track of it all.

That would make a $30,000 mainstream target in 2010 be equivalent to $32,000 today meaning that the Volt's $33,170 MSRP needs to come down by $1,200, I guess.

 

That seems an awfully rigid connection.
$30k price point in no way gaurentees high volume sales.
And if you still define mainstream (high volume sales) as 60k sales/year, there are cars with price points above $30k that sell in those numbers.

PR estimates of sales numbers certainly didn't hold up, that is true.
Lots of companies miss sales targets, it doesn't mean their car is a failure. It just means they guessed incorrectly. Probably because they missed some aspect of the market, or were wrong in assumptions they made.

Plugin vehicle sales are growing more quickly than hybrids did. The Volt is at the head of the pack, along with the Leaf and Model S.
GM is well positioned to take advantage of that. Will they? We don't know for sure, but they are in a good position to do so.

 

A lot of that is a recession bounce. The long term trend is closer to 0%:



https://www.aei.org/wp-content/uploads/2014/07/carscpi.jpg
Economic Research - St. Louis Fed

 

The income of people who buy $30,000 cars is rising. It's the income of people who generally buy $12,000 cars (or used $2,000 cars) that isn't keeping up.

 

Interesting. Thanks for chart!

However, it's largely irrelevant to the issue at hand which is that there has been significant new vehicle inflation during the 5-8 year period in which Lutz made his comment.

 

Volt's target was ordinary mainstream consumers, hence trying so hard to overcome niche status. Clearly, that has changed.

Ordinary buyers of vehicles like Malibu, Cruze, and Equinox had been the intended audience after moving beyond the early-adopter phase.

MSRP is too high to reach that goal still.

 

As an auto executive, Lutz must have known that for a couple decades new vehicle inflation was essentially zero when he made the comment which was before the recession inflation rebound occurred.

Regardless, your inflation adjustment of 6.75% is fair to apply in this particular scenario.

Still, even using the new vehicle inflation CPI adjustment, we are here 5+ years after the initial $30k target and still not at goal. In my book, that's a pretty bad call, especially when hedonic/feature inflation historically will eventually graduate you there.

 

Even if you apply the new vehicle subcomponent of the general US consumer price inflation index, the price of the Volt has still dropped over $9,750 between the 2011 model year and the 2016 model year when the price is adjusted to today's dollars.

 

I think some folks here are being somewhat unfair to Lutz.

Lutz (I mean let's) get real..... Car makers normally announce prices on cars a few months before they go on sale. Those cars are usually very conventional with only incremental changes and improvements and by then all of the part supplier contracts have been finalized.

In the case of the Volt, Lutz was speculating in 2007 on the price of a car with lots of new parts and technology several years before it would go on sale and we all knew at the time that he was doing it in that context. Battery prices were a key component and GM was in the beginning of a battery supplier technology bake-off between A123 and LG and likely did not have committed battery cell prices in hand nor had GM yet fully priced out and built their own new battery pack assembly plant.

Lutz (I mean lots) of unknowns.... Somewhat similar issues apply for the Volt's transmission. At the time that they started talking about the Volt having a series hybrid design they did not have a transmission design completed and the engineering risks related to developing a new and unique EREV transmission were quite real. Toyota certainly wasn't opening their kimono about the Prius design or price targets back in 1995 during an equivalent design timeframe. GM's essentially unprecedented openness during the Volt's design inherently resulted in some of these moving targets.

Would we have preferred that they follow the usual protocol and keep everything secret until the last moment like the Prius or the Nissan LEAF teams did?

I sure appreciated the relative openness. The insights into the general design and GM's seriousness about it gave me the confidence to buy one of the first Volts off the assembly line (officially manufactured in November 10, 2010).

 

Assuming that is true, then we should adjust for new vehicle consumer price inflation from the time that he made the comment projecting a $30,000 or less price until today. That adjustment would be more like 8.5% than 6.75%. I would have to pin down the exact month in 2007 when he first made that prediction.

So, $30,000 at 8.5% inflation is $32,550 which means we have to drop the MSRP of the 2016 Volt by $620 in order to match the target. As I said earlier, GM has roughly met that 2007 goal.

 

To carry this economic analysis further, we can't even really use new vehicle inflation in this situation. We would need to use the PHEV/BEV subsegment.

The BLS does not report this subsegment, but that is ok, because we can still make accurate generalities. That is to say, we know categorically that the Leaf, Volt, PiP, etc, have deceased in price for the last 5 years (or to the date of their existence).

In fact, the PHEV segment has negative inflation rates. At that rate, the Volt may not ever hit an inflation adjusted $30k mark!

It will be hard to find those to defend the Volt on this Prius site and the converse is also true. Fan boys abound on both sites.

PHEVs like the Volt, whose total price is in large part related to the price of the battery behaves even more like consumer electronics, and hence its negative inflation rate at this stage of their technology cycle. This is why not hitting the target is so embarrassing.

 

But Lutz couldn't have known any of that when he spoke in 2007 so this non-existent BLS consumer price index subcategory (which would have non-existent hedonic adjustments) is irrelevant to the discussion at hand.

Regardless, I think we can both agree that John's original statement that there has only (!) been a $6,000 price drop for the base price of the Volt over the last 5 years and that the price would have to drop a further $4,000 to meet Lutz's "$30,000" goal was far off the mark. Right?