Chevy Volt: Why production was halted and what it means

March 6, 2012

GM announced that it would temporarily cease production of its much-hyped electric vehicle. The Associated Press reports:

General Motors Co. is suspending production of its Chevrolet Volt electric car for five weeks amid disappointing sales.

A GM spokesman said Friday that the company will shut down production of the Volt from March 19 until April 23, idling 1,300 workers at the Detroit-Hamtramck assembly plant.

The Volt was rolled out with great fanfare in late 2010 but has since hit bumps in the road. Sales have fallen short of expectations, and its reputation was bruised by an investigation into a possible fire risk.

It carries a high price tag — around $41,000 before a U.S. tax credit of up to $7,500. Rising gasoline prices should boost the Volt’s appeal, but there are plenty of other less-expensive cars that also get good mileage.

GM sold 7,671 Volts last year, below its original goal of 10,000 cars. The company stopped publicly announcing sales targets last year. It sold 1,023 Volts in February and 603 in January.

“The fact that GM is now facing an oversupply of Volts suggests that consumer demand is just not that strong for these vehicles,” said Lacey Plache, chief economist for auto information site Edmunds.com.

GM spokesman Chris Lee said the company was “taking a temporary shutdown” of the assembly line.

“We’re doing it to maintain our proper inventory levels as we align production with demand,” he said.

Why has the Volt failed to catch on? Brad Plumer writes:

GM executives have said the recent frenzy over a Volt battery fire in crash tests has hurt sales. On the merits, the fires weren’t a huge concern — the Volts only caught fire days or weeks after extreme lab testing, and according to a government investigationthey’re no more likely to catch fire than gas-powered automobiles. Still, panicky headlines ensued. Conservatives started denouncing the company (Rush Limbaughcalled GM “a corporation that’s trying to kill its customers”). And GM needed to retrofit new vehicles. Add that up, and GM sold only 603 Volts in January, down from 1,520 in December.

But the scare over batteries is only a partial explanation. After all, Volt sales rebounded in February to 1,023 vehicles sold, and it looks like the fire scare is slowly subsiding. But neither the pre-panic nor post-panic numbers were anywhere near the rate needed to meet GM’s goal of 45,000 Volt deliveries this year.

A more likely explanation is that the Volt is just far too expensive for many customers. The car gets about 94 miles per gallon, according to the EPA, but it starts at $39,195, and only upper-income buyers with a big tax bill can qualify for the $7,500 federal tax credit. As auto blogger Jonathan Welsh writes, “Even if you never used gasoline in the Volt, you’d wait about 12 years before you saved enough on gas to make up for the Volt’s price premium.” (The Volt has a gas engine that kicks in when the battery runs out.)

Shortly after its announcement about the Volt, GM said it will reveal a new plan to boost its Europe division. Bloomberg News reports:

General Motors Co., the world’s largest automaker, said it will take two to three months to announce a restructuring plan for its money-losing European operations.

Karl-Friedrich Stracke, head of GM Europe and chief executive officer of Opel, told reporters at the Geneva motor show that the automaker sees “high urgency” to fix its operations in the region, which lost $747 million last year before interest and taxes. The Detroit-based automaker’s plan until November was to break even in Europe.

“Two to three months I think we need, for sure, before we can speak more precisely on further details,” Stracke said. “We need to engage every stakeholder in the next two to three months to prepare for any decisions.”

Comments
Show Comments
Most Read Business