Bob Lutz on the real cost to make the Chevy Volt, Reuters article "preposterous"

  • Thread starter Thread starter JimR-OCDS
  • Start date Start date
Status
Not open for further replies.
Chevy Volt derangement syndrome is nearly at the levels of Bush or Obama Derangement Syndrome and for similar reasons. Take your emotions out the the issue for a moment and the facts aren’t hard to recognize.
  1. NOBODY in ANY manufacturing environment measures profit/loss by loading up all the R&D cost on the first couple years of production. Accounting 101, no even before the 101 level recognizes that you amortize the R&D over the lifecycle of the product. Anybody NOT doing that is an irresponsible jerk with an axe to grind (OK that last line is opinion, not fact).
  2. The Volt is NOT comparable in class to a Cruze. Anybody who says so must not recognize the difference between a Camry and a Lexus ES either. If you must compare it, the Buick Verano is a closer basis in features (minus the obvious feature of electric propulsion!)
  3. Cutting edge technology commands a premium in product markets. I’ve yet to hear a Volt critic lambast buyers of Mercedes cars for paying too much for what they are getting (and they’d have a much better case there, IMO). Electric propulsion is a cool technology and some people are willing to pay for it. Why does that invoke fear and loathing in so many people? You’d think the devil sold it or something…
  4. Battery costs. Prius batteries are now a known quantity. It’s about $2,800 to have the pack replaced. That’s similar to getting a remanufactured transmission from an OEM dealer (Go look at Odyclub.com, Honda wants more like $4.5k for an Odyssey transmission - rebuilt, not new). Mind you hybrids and electrics ALSO have transmissions, so you might need THAT someday as well. Nobody likes getting repair bills like this, but it can happen with ANY sort of car. If Volt sales catch on like Prius sales did, you can expect similar results for their batteries. The CEO of my employer’s parent company has a Volt with a high cap charger here at work. He commutes 65 miles round trip each day and uses about 4 gallons of gas a month. Will it pay for itself? Probably not. But he likes the novelty and can afford it. God bless him, it’s no worse than blowing twice the Volt price on a Mercedes S Class, now is it?
  5. Subsidies. I don’t like them. But I don’t like all the subsidies we put into gas prices either. Reliance on oil for our needs seems to require about a 1 trillion dollar Middle East war every 10 years or so. We don’t roll that into the price of gas, so it’s a subsidy. We should either be consistent and subsidize alternatives to oil too or STOP subsidizing oil and amortize the cost of oil related wars into the price gas and diesel cost at the supplier level. Either way makes electric cars close to competitive with gasoline. But we SHOULD get consistent with our policy.
 
manualman said:
Chevy Volt derangement syndrome is nearly at the levels of Bush or Obama Derangement Syndrome and for similar reasons. Take your emotions out the the issue for a moment and the facts aren’t hard to recognize.
  1. NOBODY in ANY manufacturing environment measures profit/loss by loading up all the R&D cost on the first couple years of production. Accounting 101, no even before the 101 level recognizes that you amortize the R&D over the lifecycle of the product. Anybody NOT doing that is an irresponsible jerk with an axe to grind (OK that last line is opinion, not fact).
  2. The Volt is NOT comparable in class to a Cruze. Anybody who says so must not recognize the difference between a Camry and a Lexus ES either. If you must compare it, the Buick Verano is a closer basis in features (minus the obvious feature of electric propulsion!)
  3. Cutting edge technology commands a premium in product markets. I’ve yet to hear a Volt critic lambast buyers of Mercedes cars for paying too much for what they are getting (and they’d have a much better case there, IMO). Electric propulsion is a cool technology and some people are willing to pay for it. Why does that invoke fear and loathing in so many people? You’d think the devil sold it or something…
  4. Battery costs. Prius batteries are now a known quantity. It’s about $2,800 to have the pack replaced. That’s similar to getting a remanufactured transmission from an OEM dealer (Go look at Odyclub.com, Honda wants more like $4.5k for an Odyssey transmission - rebuilt, not new). Mind you hybrids and electrics ALSO have transmissions, so you might need THAT someday as well. Nobody likes getting repair bills like this, but it can happen with ANY sort of car. If Volt sales catch on like Prius sales did, you can expect similar results for their batteries. The CEO of my employer’s parent company has a Volt with a high cap charger here at work. He commutes 65 miles round trip each day and uses about 4 gallons of gas a month. Will it pay for itself? Probably not. But he likes the novelty and can afford it. God bless him, it’s no worse than blowing twice the Volt price on a Mercedes S Class, now is it?
  5. Subsidies. I don’t like them. But I don’t like all the subsidies we put into gas prices either. Reliance on oil for our needs seems to require about a 1 trillion dollar Middle East war every 10 years or so. We don’t roll that into the price of gas, so it’s a subsidy. We should either be consistent and subsidize alternatives to oil too or STOP subsidizing oil and amortize the cost of oil related wars into the price gas and diesel cost at the supplier level. Either way makes electric cars close to competitive with gasoline. But we SHOULD get consistent with our policy.
Click to expand...
So you’re saying people who don’t like the Volt or electric cars in general are over-egging the pudding?
 
JimR-OCDS said:
Well, being we the taxpayers are the investors, you’d think we’d all be talking it up, rather than trying to knock it down?

Jim
Click to expand...
  1. I own Ford stock.
  2. It’s called “sunk cost.” We are never getting out money back. Thanks GM.
 
I’ve never made pudding, so the comparison is lost on me!

People are, of course, totally free to like or dislike hybrids and electrics. I like manual transmission cars and I’m living hand to mouth, so I’m not buying either one myself. But what I don’t get is the strange need some people have to actively deride the Volt in particular and very nearly label as idiots anyone who chooses to buy one. THAT, I just don’t understand. I think they’re cool toys. Buy one if you like it and can afford it. Don’t if you don’t or can’t. Just like all the other car choices out there!
 
He_Man said:
The owner of a car manufacturer giving one of its flagship cars five stars? That’s like Karl Keating giving two thumbs up to Catholic Answers at Angie’s List. Really meaningful.
Click to expand...
So you’re trying to tell us that the government suspended it’s standards in order to give the Volt 5 Stars? :rolleyes:

Jim
 
JimR-OCDS said:
While we’re complaining about the government bailing out GM, keep in mind that China heavily supports new technology in various areas, especially in solar energy, to the point that they destroyed US solar power manufacturing and development.

Using the arguments here, China should not be investing in new technology of private industries.

However, their success tells a different story.

Jim
Click to expand...
Can I see China’s debt clock before I respond?
 
He_Man said:
Sure, why wouldn’t they? :rolleyes:
Click to expand...
Because they’d be sued by the other manufacturers for forcing them to hold to the same safety standards and the cars safety would not be trusted in foreign markets.

Jim
 
manualman said:
  1. NOBODY in ANY manufacturing environment measures profit/loss by loading up all the R&D cost on the first couple years of production. Accounting 101, no even before the 101 level recognizes that you amortize the R&D over the lifecycle of the product. Anybody NOT doing that is an irresponsible jerk with an axe to grind (OK that last line is opinion, not fact).
Click to expand...
I agree. Our company’s model is that if we don’t recoup the R&D costs within the first 5 years, the project isn’t worth doing. Also, our minimum sales margin is 200% (i.e. the minimum sales price for those first 5 years must be at least 2x the cost of manufacturing).

Now, if sales stay at the same pace (26,000 in 21 months, or about 1,200 per month), that is about 75k Volts over 5 years. With an average sales price of say $40k, that means GM stands to make about $20k per car (over production costs). 75k cars at $20k profit over 5 years is about $1.5 billion.

It appears to me that Chevy’s model closely follows our own company’s model. They are selling at about 200% the production price, and recoup the development costs over 5 years. Of course I’m assuming the $20k cost per car (as in the OP) included labor and overhead along with parts. Also needed to be included in this analysis is shipping, rebates, and other incentives. Of course this is likely offset by financing revenue.

From my perspective, this number is not realistic and is scaremongering.
 
Suudy said:
I agree. Our company’s model is that if we don’t recoup the R&D costs within the first 5 years, the project isn’t worth doing.
Click to expand...
I suspect the auto industry takes a longer view than that on strategic R&D like the Volt. Perhaps 5 years would be the payback time for the next generation Malibu, but I suspect that revolutionary research is amortized over a longer term. I could be wrong, I admit!

As for the federal government conspiring to give high crash ratings due to taxpayer stake in GM, LOL! Meet a bureaucrat sometime will you? Most politicians WISH they had that much control over the bureacracies they supposedly rule. But it’s a fantasy, tinfoil hat stuff.
 
Status
Not open for further replies.
Back
Top