Chevy stops Volt production (temporarily ...)

Yep its clear your not a financial analyst.
After recognizing that that R&D care already sunk, you then include them in the per-car computations of "profit" .

If the current per-car costs are, as the article states, 20-32K, then the per-car gross margins are positive and they "make money", not loose money, on each car sold. If they stop now, the unrecovered R&D costs are a loss. If they keep selling more cars, the gross margin on each car sold helps reduce the prior losses and gets closer to overall profitability. The Volt overall, has not made a net profit, but each car sold gets them closer to profit.

And the article, and most of the discussion here, has ignored the fact that some of the R&D costs were pre-bankruptcy, hence have been largely written off the books (the bondholders lost there.. and that is why some people are so bitter).

Also the article ignored the "halo" and marketing value. Don't forget, that in 2011, GM spent $4.48 billion on advertising. what is the value of the volt awards and image and halo-pull, per year, in such a marketing budget.

 

What's with the extreme? No one said kill. In fact, I have over and over again pointed out that a second more realistic model should be offered, one that's targeted for middle-market.

Acknowledge need. Something must be produced for the masses. What will mainstream consumers seeking improved emissions & efficiency purchase?

 

There's a lot more to it that just that though. It seemed their business model was far too dependent on having large sales of high margin (before incentives) SUVs and trucks. Not being able to sell them or having to slap on big incentives hurts.

There were a TON of other issues though (e.g. becoming too dependent on incentives, UAW related issues such as the stupid jobs bank (where people were paid not to work), Rick Wagoner not willing to make the tough decisions (e.g. axing Pontiac), poor internal financial controls, massive debt, etc.)

From Behind the scenes with Steven Rattner, Obama's 'Car Czar' - Oct. 21, 2009

I posted lots more at The 1st Volt: Off the Assembly Line Today | Page 3 | PriusChat, long ago.

 

Lose the "SNIP" in your voice and in the reading of my posts.

Actually read what I've written before coming to your conclusion. I believe most people with business experience would agree the decision on whether to continue making the Volt doesn't turn on whether they recoup the R&D costs, but on the other two factors I noted. It has to make money, operationally, within the timeframe of their business plan or it has to serve another purpose. The latter could include advancing the "halo" I noted in my posts.

I've got to agree it is worthy noting the pre-bankrupcty position of certain of the R&D costs. Either way, it wouldn't factor into pricing if R&D costs are all sunk costs, I suppose, but to someone running a business, making projections and paying bills, those numbers still would matter.

How much of the R&D costs are pre-bankruptcy? It makes me wonder why the GM VP still allowed that R&D costs were "a little bit more" than $1 billion. Perhaps the actual R&D was considerably higher. It also could be that the GM business model was built around recapture of those costs, anyway, and their pricing still reflects that fact. It still seems odd, though. I'd think they'd remove that factor and lower the costs to boost sales.

 

Have you read Lutz's book? Saying the Volt was foisted on the public for a political agenda is unsupported by the facts. Unless by the political agenda, you means CAFE standards and bush-era Alternative Fuel programs and other programs intended to reduce dependency on foreign oil.

GM started and announced the Volt long before I heard of Obama.. Saying the Volt was driven by politics is an insult to the engineers that design and built it for GM.

I'm not defending GM, which had lots of poor business processess, but don't make the bailout about the Volt, that was far more about the UAW than the volt.

 

Sorry if you don't like my snipping, but I wanted to focus on the final statements, especially your statement

But your own analysis in the 2 paragraphs before the end suggested that, ignoring R&D costs, they were making a positive margin of $15,500, hence per car they are not lossing money and therefore the would not "stop loosing money by halting production". If each car is paying off $15,500 of R&D costs, they should keep going to reduce their loss (if looking at R&D as non-sunk), or to increase their profit (if R&D is viewed as sunk).

Now if you had included a discussion of opportunity costs (how many volt buyers might have left in the more profitable Cruze.. that would be a more interesting direction). Or if you had argued that the gross margin per car was still currently slightly negative, your conclusion might follow from your own argument.

Once the R&D cost is accrued, the decision to continue should be based on the product line margin (and possibly opportunity costs). It is true that long-term accounting needs to account for R&D costs over the lifetime of its use, but is mostly accounting for taxes and process improvement for long-term planning.

 

...nor am I a big fan of "foisting" but that's the basic purpose of Congress. In more diplomatic terms, it is the job of Congress to define the rules of how the US free market operates. If they say gasoline must contain 10% ethanol, and next thing is electrons have the next 10% of the gasoline market, that sets the boundaries within which the free market operates. I met with a legislation writer once, this is my take away. The key objective in new legislation is always to create new business carve outs to create more jobs.

I am not predicting Volt failure, seems like a nifty car to me. Sort of like buying a Porsche years ago. GM has made a bold first step in response to Toyota's leadership. All of the manufacturers are doing so, I guess in response to Toyota Prius, but also in response to the US+Int'l gov't supports, the atuos can leverage EV/Hybrid development.

 

I am about as likely to take seriously Lutz's writing on the Volt, as I am Bush's writing on the Iraq war.

While it is true that GM had a poster mock-up of the Volt from 2006 IIRC, definite plans to produce the car took hold when it became clear the Volt would help GM win a bailout. President Obama has always been pro EV and anti hydrogen. GM followed the money.

 

I'm simply asking you to fully read what I've written. Please stop a moment to look at what I'm attempting to express.

The first time you ignored what I'd written. This time you've either misconstrued or misunderstood it.

Yes, I provided a quick mathematical analysis to show the positive margin of $15,500 -- but ONLY if GM sells 56,000 MORE Volts during the next 28 months. Also, this math was based on the lowest estimate of per-car production costs of $20,000. If I had chosen the highest number, it would have more than wiped out the pre-R&D margin, providing no opportunity for the car to make an operational profit.

Here are the relevant portion of the two paragraphs to which you'd referred:

I thought if I was going to be taken to task for this analysis it would be coming from those who would prefer to look at the high end of Volt costs, not the low end.

In my earlier post I had mentioned the halo effect and the other reasons GM might continue to produce the Volt even if the attributable finances didn't support the decision. I did argue that the gross margin was not just slightly negative but significantly negative in the current position.

Still, you don't have to take my word for it on the question of whether GM is losing money on the Volt. I also mentioned this a bit earlier in my post:

I was willing to give the Volt more opportunity than that, as I offered that in the event GM is going to lose money on the production of the car, it still could offer as justification for continue production "either or both: a) consumer demand [meaning a read of the market that demand is increasing at a rate justifying the continued build]; b) GM commitment to further development of the Volt project [for "halo" or other non-Volt production benefits to GM]."

 

Let's apply KLutz guessing to the PiP:

$23k for the base car wholesale;
$350*4 = $1400 for the battery


Presto, a $24,400 PiP before tax credit that is as profitable as a regular Prius, sold at $26,400 to give the dealer $2000 profit. Anybody believe me ?

 

I felt like I was having 'deja vu' all over again . . . in a familar way:

The outline of this article could have been borrowed from similar reports from 1997-2004 . . . about the Toyota Prius. Low volumes, high development costs, this was one of the themes of the notorious CNW Marketing report, "Dust-to-Dust." But this is also the 'admission ticket' price GM tried to avoid for a decade. I don't fault the accuracy of this report as much as it fits a company that came to the party late and is trying to play catch-up.

So let's use Toyota's model history to see what insights it may provide for the GM Volt:

• NHW10 (1.5L sedan) - small size but "world shaking," it delivered exceptional performance. However, the early battery format, transmission internals, and subsystems, meant it was not ready for a world-wide sales. Sad to say, the Volt shares many of these characteristics.
• NHW11 (1.5L sedan) - small size, still, the first prismatic battery, improved transmission, and greater power made it a world-wide car . . . barely. No one reported it made a profit.
• NHW20 (1.5L hatchback) - full size, improved prismatic battery, transmission, greater power, Toyota reported it to be profitable.
• ZVW30 (1.8L hatchback) - larger, better battery modules (reported), improved power, improved temperature, and optimized control laws. This is the base for the "Prius v" and "Plug-In" Prius. Lessons learned were applied to the small, commuter "Prius c".

Had GM hybridized and 'Volted' the Chevy Cruze, I think they would have fast-tracked to a successful vehicle. Had they kept the Saturn family, that too would have been a good family to hybridize. But that didn't happen and GM remains a decade late to the party. At least they finally arrived and we'll see if they leave early.

Everything in the article could have been lifted from similar analysis of the first generation, Prius. Compared to their early efforts, the Volt is 'less bad' but I would prefer to see not "gen 2" but "gen 3" and that is at least six and more likely twelve years away . . . if GM can stay the course.

Bob Wilson

 

Could it be GM does not have the financial depth that Toyota has?

DBCassidy

 

Ad hominem is a poor engineering practice and one of the reasons the first satellite and manned space missions were by the Communists instead of the 1950s Republicans.

There are solid engineering reasons for remaining skeptical about both technologies:

• EV - battery energy density is a fraction of what gasoline burning air and discharging gases achieve even today. With rare exception, batteries today still carry all of the reactants, chemically changed, but not ingested from the air and dumped overboard. Put the same burden on an engine, carry the air/oxygen in one tank and hold the combustion products in another, and suddenly batteries look very attractive.
• hydrogen - remains a fraud. There are better, groups of light, energetic metals to fuel an air-metal battery. Some have chemically inert oxides and I would have no problem with these oxides (aka. iron or aluminum oxide) being 'dumped overboard.' However, it makes more sense to return them for reduction.

As Bill Clinton said at the recent convention, balancing the budget only requires "arithmetic." Good engineers use it. Others use personality and rumor . . . making stuff up like Romney/Ryan when reality and truth prove to have 'a Liberal bias.'

Bob Wilson

 

I'm being dense I suppose -- what do you mean ?

 

Yes, and that is why the car has to carry the $40k price when the Prius was able to be sold for $20k (about 30k-ish in today's dollars). when it was released.

 

If GM could get US govt to finance their R&D for free, eventually they will start making money on cars.

 

Yet you accept an Oxycontin addicts decree that the Volt is an "obama car".

I saw the concept at the 2007 Dallas Auto Show. I still have those pictures on my main P.C., and uploaded to photobucket. I remember telling the GM execs at that show that I would buy one if they built it. Apparently, I was not the only one that begged them to build the car, as a couple of months later, GM announced that it was going to be built. GM chose to be very transparent over the development of the car, and I followed it from announcement to market. The FACT of the matter is that the car was being developed two full years ahead of a communist wannabe getting elected to office.

The Volt exists DESPITE a major currency devaluation, an economic depression, and a bankruptcy. The fact that it is getting the sales that it is, IS a success, and the car has enjoyed a steady increase in sales every month.

 

The car exists because of a (is it 70 ?) Billion $ bailout. Does that explain your reference to a "communist" president ?

If you really think every Volt detractor is a Limbaugh (RL) fan, you are living in a fantasy world. I e.g. know that RL is a Volt detractor because I have read it here on PC; I personally would never waste my time listening to him. And despite my obvious objections to bailing out GM, or my rejection of the Affordable Healthcare act, I think President Obama is the best president in my living memory. I mention my opinions mostly to try and persuade you to think past silly ad hominems.

Actually, I am having trouble following your ad homimen arguments. President Obama saved the reeking armpit of a company called "GM," but you cast him as a "communist" (presumably an insult) ?

 

Hmm.. "definate plans" after the bailout. That's not the timeline I recall or have been living under.


Here is the timeline, easily verfied via google and/or the wayback machine.

​

• *The Volt was first announced by General Motors (GM) in January 2007 as a concept car. That same month GM-volt.com was formed and and I signed up for the Volt waiting list at #158 on gm-volt.com. (Wait List Data.) Thousands of people signed up.. hoping to push GM to actually make the Volt. Lots of speculation insued.
• June 8, 2007, Rick Wagner announces that GM has awarded contracts to Compact Power for Li-Ion Battery work (Compact power later acquired by LG-Chem) necessary for the Volt. Contentential auto system (using A123 cells) was also given a contract for R&D development of battery packs.
• In April 2008 the CPI lithium-ion battery pack was placed in Malibus mules, fitted with the Volt powertrain, to be used as test mules for further real-world testing. battery packs from CPI and Contentential (using A123 batteries) also began agressive testing for durability.
• On June 3rd, 2008, GM CEO Rick Wagoner announced that the board of GM approved moving the Volt to production.
• In July 2008 General Motors confirmed that a non-turbocharged, 1.4-liter 4-cylinder engine would be used as the range extender, and that the intention was to build it in Flint Mich.
• On September 16th 2008, GM unveiled the production version Chevy Volt to the world. Having lost some of the style of the 2007 concept it was more areo and less attitude. More speculation begins..

​

All of those dates are pre-crash/pre-bailout. But post crash, work progressed

• October 22 (post crash, pre bailout talks) GM chose LG-Chem (who bought Compact Power) as the battery supplier.

Can you provide data supporting your claim that the "definite plans" did not happen until after the bailout?
I would agree that if they bailout had not happened the Volt would likely been delayed, but it would have likely survived a bankruptcy if the receivers were able to get a DOE funding (like the 5.9Billion (with a B) that Ford got for advanced vehicle research,or the 500M to tesla or Fisker.

 

Nice piece over at plugincars.com
Reuters Uses Fuzzy Math to Report on Chevy Volt Profitability | PluginCars.com

It starts with...

So some industry folks agree with BobWillsion, that the parallels are strikingly similar. And probably for some of the same reasons.. disruptive technology is threatening to some people that want to find a way to kill it, combined with outlets/writers that want to make a name for themselves and controversial statements consistent with a their political agenda can help them do that.