Pulling the Plug on the Chevy Volt

Why the Obama-backed vehicle's demise wasn't because of bad press.

The recent decision by General Motors to temporarily suspend production of the battery-powered Chevy Volt is just the latest chapter in the ongoing saga of a government-backed vehicle plagued by consumer disinterest, safety concerns, taxpayer abuse, and crony capitalism.

GM cited anemic sales figures as the basis for its decision to halt production of the Chevy Volt, a “range-extended” electric car that can go 35 miles on a fully charged lithium-ion battery before a small gasoline engine generates power for further driving when the battery runs low.

GM had planned to produce 60,000 Chevy Volts in 2012 -- including 45,000 for the US market -- but reportedly only sold 676 Volts in January and1,023 in February, leaving the company with an inventory stock of 3,596 vehicles, enough to last through the spring without building another unit.

As such, GM announced that beginning March 19 it will temporarily lay off 1,300 workers for five weeks so that the car company can “maintain proper inventory and make sure that we continue to meet market demand.” To achieve that goal, GM has decided to use the intervening weeks in production delay to launch a new national ad campaign to boost the Volt’s consumer appeal.

However, it remains to be seen how effective that ad campaign will be given that market demand for the Volt has been tepid at best since GM introduced the vehicle into the US market in January 2011 as its answer to Toyota’s popular Prius hybrid and Nissan’s all-electric Leaf.

Yet, despite spending billions of taxpayer dollars developing, promoting and subsidizing the Chevy Volt -- GM sold only about 7,700 Volts in 2011 after targeting sales of 10,000 vehicles.

For its part, GM has blamed the Volt’s lackluster sales on negative publicity surrounding the car being the subject of an investigation in 2011 by the National Highway Traffic Safety Administration over fires occurring in Volts during crash testing, including one vehicle that caught fire and three others whose battery packs sparked or caught fire.

It should be noted that the federal government gave a $105 million grant to GM to help it produce those battery packs as well as a $151 million grant to LG Chem to produce the Volt’s battery cells.

While federal officials eventually cleared the Volt of any safety risk, GM Chairman and CEO Dan Akerson testified at a congressional hearing in January 2012 that the Volt had become “a political punching bag,” and as a result, had suffered “collateral damage.”

Of course, to be fair, consumer decisions about the Volt have been driven as much by price as by fears that their car may spontaneously burst into flames.

For example, while the Chevy Volt retails at around $40,000 before a government tax credit of $7,500 is applied, it still sells several thousands dollars higher than its hybrid and all-electric competitors. As one auto industry analyst said of the Volt’s sticker price, “You’re in BMW 3-series territory. For a Chevy customer, this is really new territory.”

Another economist, noting the $16,700 price for a fuel-efficient, gas-powered Chevy Cruze Eco, said, “The price premium on the Volt just doesn't make economic sense for the average consumer when there are so many fuel-efficient gasoline-powered cars available.”

The “price premium” certainly doesn’t make economic sense for taxpayers as government “investment” in the Volt has, according to The Mackinac Center for Public Policy, made each Volt cost $250,000 for every one that’s being sold.

Nevertheless, while many would argue that government subsidies are counter-productive, a market intervention that distorts the actual price of the vehicles, that belief is certainly not shared by those in the Obama administration who have proposed raising the maximum tax credit for electric vehicles (EVS) from $7,500 to $10,000 beginning in fiscal 2013.

Of course, it should be noted that the Obama administration’s attempt to artificially drive down the cost of the Chevy Volt on the backs of the American taxpayer is being fueled by its belief in the Volt as a major cornerstone of the President’s green energy policy.

That belief was on display most recently in the President’s January State of the Union address in which he promised that his administration’s goal was to have one million electric vehicles on the road by 2015. Unfortunately for the President, those numbers, according to a Department of Energy report, included GM selling 120,000 Chevy Volts in 2012 and 500,000 of the overall million sales by 2015.

Yet, while consumer reluctance toward the Volt may be growing, the Obama administration has other avenues by which it may reach its million EV quota, in particular from companies which have been major beneficiaries of “green handouts” from the Obama administration.

For example, General Electric, which builds the charging stations for EVs, has announced that it will be purchasing only Chevy Volts for employee use, including 25,000 EVs by 2015 for its own global fleet and 65,000 for customers in its worldwide fleet management businesses. Moreover, GE has also committed to buying some of the first Volts built in China, with the caveat that it receives the contract to build the charging stations there.

In addition, the Electrification Coalition reported that Fleet operators of America’s 16 million government and commercial trucks, vans and cars will buy more than 200,000 all-electric and plug-in hybrid cars between 2011 and 2015.

Still, despite that outside assistance, selling a million EVs will be a tall order, especially given that rising gas prices have failed to provide a needed stimulus for consumers to buy electric.

That fact wasn’t lost on Republican Representative Darrell Issa, chairman of the House Oversight and Government Reform Committee, who recently said, “Even as gas prices continue to climb, President Obama’s attempt to manipulate the free market and force consumers into purchasing electric vehicles like the GM Volt has failed.”

Adding insult to injury, even the environmental benefits of the EVs have been brought into question, evidenced most clearly in a recent report by Britain’s Department for Transport which found that electric cars could produce “at least 50 percent higher” emissions over their lifetimes than gas equivalents because of the energy consumed in making their batteries.

Still, despite it all, some continue to remain bullish over the Volt’s future prognosis, such as former GM Vice Chairman Bob Lutz, who said recently that “the Volt is a bases-loaded home run. It will overcome.”

Hopefully, Lutz is correct. Currently the loss to US taxpayers over the $60 billion auto bailout given to GM has been estimated by The Treasury Department at $23.4 billion.

That loss will only continue to grow as GM remains committed to produce a car that does little to lessen dependence on foreign oil, help the environment, and which the vast majority of Americans neither can afford or want.

Still, there is one person who is on record as being a future Chevy Volt buyer. Days before GM announced its production halt of the Volt, President Obama was praising the car at a United Auto Workers campaign event in Detroit, saying, “Five years from now when I’m not president anymore, I’ll buy one and drive it myself.”

Of course, by that time, given its downward sales trajectory, the Chevy Volt may be a collector’s item and then truly worthy of its current price tag.

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