Volt production halted

Last week President Obama promised he will buy a Chevy Volt once he’s out of office. “Five years from now when I’m not President anymore, I’ll buy one and drive it myself,” he told the audience at a United Automobile Workers conference. Well, it seems like Chevy wouldn’t mind closing this sale right now to drive sales upwards. Right now demand for the Volt is falling short of supply and as a result GM decided on Friday to suspend production of the Volt for five weeks, idling 1,300 workers at the Detroit-Hamtramck assembly plant.

Although the Volt's sales didn't meet GM's expectations in 2011, the situation didn’t seem to be that bad – the company sold 7,671 Volts last year, short of its original goal of 10,000 cars. GM had ambitious sales goal for 2012, anywhere between 45,000 to 60,000 cars. Yet, the actual sales are growing much slower – GM sold 1,023 Volts in February and only 603 in January. GM’s plant was operating in accordance with its forecast, which gives you an idea why GM decided it doesn’t want to sit on a pile of unsold electric cars and decided to suspend production for couple of weeks.

If you start wondering if we’re seeing a sequel of ‘Who Killed the Electric Car’, stop right there. The chances GM will shut down the Volt are smaller than the chances Rush Limbaugh will buy one. GM needs the Volt badly, at least in terms of branding, and the company’s hope to see the Volt generating for GM the same halo effect the Prius generated for Toyota hasn’t changed in a bit. The only similarity between the events in the mid 90s and what’s going on now is that they both question GM’s management decisions.

Let’s look first at the demand side. If you looked at the sales figures from 2011, it was obvious that very few people right now are willing to pay $33,500 (the price is $41,000 but you get a $7,500 federal tax credit) for the car. "The price premium on the Volt just doesn't make economic sense for the average consumer when there are so many fuel-efficient gasoline cars available, typically for thousands of dollars less,” explains Lacey Plache, chief economist for auto information site Edmunds.com.

Even the rise in gas prices doesn’t change the cost-benefit analysis that much. Edmunds senior analyst Michelle Krebs pointed out on CBS news that even at $5 a gallon, it'll take the average driver 9 years to make up the cost difference over the similar-size Chevrolet Cruze. If the gas prices are going to be around $4 or even less, then the payback period will be longer. Even if we take the nine years break-even point as an assumption – how many people do you know that would be willing to invest in a green product that has a nine year payback time?