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Plug-in profit woes: Chevy losing $49K per Volt model

Chevy is losing up to $49,000 on every Volt model it builds, two years after the popular plug-in hybrid's launch. Cheap leases and high sales figures may have pushed the Chevy Volt deficit even higher over the summer.

By Bernie Woodall, Paul Lienert, Ben KlaymanReuters / September 10, 2012

A 2012 Chevy Volt electric car is seen at the sixth annual Alternative Transportation Expo and Conference (AltCar) in Santa Monica, California in this 2011 file photograph. Chevy is losing money on producing the popular Volt.

Lucy Nicholson/Reuters/File

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General Motors Co sold a record number of Chevrolet Volt sedans in August - but that probably isn't a good thing for the automaker's bottom line.

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Nearly two years after the introduction of the path-breaking plug-in hybrid, 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.

Cheap Volt lease offers meant to drive more customers to Chevy showrooms this summer may have pushed that loss even higher. There are some Americans paying just $5,050 to drive around for two years in a vehicle that cost as much as $89,000 to produce.

And while the loss per vehicle will shrink as more are built and sold, GM is still years away from making money on the Volt, which will soon face new competitors from Ford, Honda and others.

GM's basic problem is that "the Volt is over-engineered and over-priced," said Dennis Virag, president of the Michigan-based Automotive Consulting Group.

And in a sign that there may be a wider market problem, Nissan, Honda and Mitsubishi have been struggling to sell their electric and hybrid vehicles, though Toyota's Prius models have been in increasing demand.

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 - which will be difficult to bring down until sales increase.

But the Volt's steep $39,995 base price and its complex technology - the car uses expensive lithium-polymer batteries, sophisticated electronics and an electric motor combined with a gasoline engine - have kept many prospective buyers away from Chevy showrooms.

Some are put off by the technical challenges of ownership, mainly related to charging the battery. Plug-in hybrids such as the Volt still take hours to fully charge the batteries - a process that can be speeded up a bit with the installation of a $2,000 commercial-grade charger in the garage.

PLANT SHUTDOWN

The lack of interest in the car has prevented GM from coming close to its early, optimistic sales projections. Discounted leases as low as $199 a month helped propel Volt sales in August to 2,831, pushing year-to-date sales to 13,500, well below the 40,000 cars that GM originally had hoped to sell in 2012.

Out in the trenches, even the cheap leases haven't always been effective.

A Chevrolet dealership that is part of an auto dealer group in Toms River, New Jersey, has sold only one Volt in the last year, said its president Adam Kraushaar. The dealership sells 90 to 100 Chevrolets a month.

The weak sales are forcing GM to idle the Detroit-Hamtramck assembly plant that makes the Chevrolet Volt for four weeks from September 17, according to plant suppliers and union sources. It is the second time GM has had to call a Volt production halt this year.

GM acknowledges the Volt continues to lose money, and suggests it might not reach break even until the next-generation model is launched in about three years.

"It's true, we're not making money yet" on the Volt, said Doug Parks, GM's vice president of global product programs and the former Volt development chief, in an interview. The car "eventually will make money. As the volume comes up and we get into the Gen 2 car, we're going to turn (the losses) around," Parks said.

"I don't see how General Motors will ever get its money back on that vehicle," countered Sandy Munro, president of Michigan-based Munro & Associates, which performs detailed tear-down analyses of vehicles and components for global manufacturers and the U.S. government.

It currently costs GM "at least" $75,000 to build the Volt, including development costs, Munro said. That's nearly twice the base price of the Volt before a $7,500 federal tax credit provided as part of President Barack Obama's green energy policy.

Other estimates range from $76,000 to $88,000, according to four industry consultants contacted by Reuters. The consultants' companies all have performed work for GM and are familiar with the Volt's development and production. They requested anonymity because of the sensitive nature of their auto industry ties.

Parks declined to comment on specific costs related to the Volt. The independent cost estimates obtained by Reuters 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 - a price tag that totals "a little over" $1 billion, Parks said. Independent estimates put it at $1.2 billion, a figure that does not include sales, marketing and related corporate costs.

Spread out over the 21,500 Volts that GM has sold since the car's introduction in December 2010, the development and tooling costs average just under $56,000 per car. That figure will, of course, come down as more Volts are sold.

The actual cost to build the Volt is estimated to be an additional $20,000 to $32,000 per vehicle, according to Munro and the other industry consultants.

The production cost estimates are considerably higher than those for the Chevrolet Cruze, the Volt's conventional gasoline-engine sister car, which Munro estimates at $12,000 to $15,000 per vehicle.

Production costs typically include such items as parts, material, labor and the cost to run the factory, according to manufacturing expert Ron Harbour, who heads the North American Automotive Practice at Michigan-based consultant Oliver Wyman.

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