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The Chrevolet Volt is coming your way, rolling out in selected cities, powered by electricity from the grid and an internal, gasoline generator. Step right up, Mr. and Mrs. America and fork over your hard earned 41,000 dollars.
For a movie actor who might make two or three million or more a picture, that’s small change. For the rest of the country, it represents, for many people, as much money as they will earn in a year. Oh, of course you could lease it at 350 a month, but then you’d only get 12,000 miles per year.
The website “The Truth about Cars” panned the Volt as little more than a compact car trying to pretend it is something else. Not enough room, too much space taken up by the battery and a price that is way too high.
What gives? Why would GM price a car out of the range of ordinary buyers?
The first answer is: because they want to. The second: because they really don’t want to sell it.
GM would deny this to the heavens and the TerryReport is not going to spend a half a decade or more waiting for a clear answer from the corporate giant. It is clear on the face of it, however, that pricing a small car, however powered, at a price higher than most luxury cars means you don’t intend for it to be a mass market vehicle. So, what is it?
The Volt is an experiment, a PR effort and I will leave it to others to say whether GM actually is hoping the experiment fails. You have to remember that all of the car companies are gasoline car companies. New technology threatens the more than 100 years of experience they have making, selling and profiting from gas powered cars. Clearly, they want to take it slow.
Here are some other reasons that GM might have (who really knows?) in pricing the car out of range:
1. They appear to be using a strategy that I call aspirational marketing: they want to establish the idea that an electric car is really something special, so when they come out with a 31 thousand dollar electric, people might say, “Wow, now I can afford it and I want it”. This marketing plan was followed with the introduction of cell phones in the US during the 1980s while the cell companies built out their systems. As the towers, and thus capacity, became more abundant, they lowered the cost of phones, airtime and the credit ratings required to “qualify” for phone service.
2. Limiting liability problems if the things go bad at a very high rate. It is new technology. What would happen if 70% of the most expensive component started to fail after a year and a half? Big problems, big payments and law suits, no doubt.
3. PR: they wanted to hit the market with something, so this is it. Truth about Cars suggested that the next version. 2.0, might be a real car with a real market. As evidence, the writer presented the fact that the production run of this model is being kept low by GM.
4. If it doesn’t work out, they can say, “See, battery technology is just too expensive. We will wait until the cost comes down before producing another car” This can be seen as a shift the blame strategy in the event of failure. The higher price allows that tale to be pushed to the public and to government leaders in Washington, DC.
There is no single way to come up with a “reasonable” price for a new model of a car. In theory, the first Taurus to roll off the line could have been priced at several million dollars, even a billion, because the costs of development are easily above a billion for any truly new model. Manufacturers base the pricing on what they think they can get. They, and their accountants, project tens of thousands of vehicles of that model to cover the development costs and profits. If the car winds up not selling, the car company eats the development expense, but they don’t try to recoup the cost in the first 1,000 or even 10,000 cars. It is only because most reporters, and the public, are so deeply, can I say it?, naive about business practices and accounting that GM could get away with such a full of bull story about why the car costs so much.
The $41,000. price for the Volt is fake. It was picked by management for reasons other than the cost of development and manufacturing, even though it is obviously more expensive to produce a car with both a gasoline and electric engine than single gasoline powered one. Of course they will lose money on all of the first copies, but that could be said of every new car that comes out.
The real question is where would the break even point be if the car were priced at, say, $28,000? If you can’t project or wisely predict that point, why not just make the price anything that you think works for you? That’s what GM appears to have done with the Volt. As a result, anything that GM says about the first Volt models in the future should be suspect and carefully considered in that light. The car could flop in the marketplace because of the high price and GM could blame that on immature technology or whatever else sounds good at the time.
Doug Terry, 8.6.10
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