"It's more car than electric?!"

My last Volt article on March 2The Chevy Volt: The Car We Had To Build?—raised a variety of issues, and as always, provoked some interesting comments from readers, including Mark, who wrote:

I know it’s tempting to subtly massage the numbers to fit your message but… well just for the record your numbers are more than a little off. I understand it’s an election year in the US and electric cars are being used as a punching bag, but at least try and get the numbers right before using them to support a political message.

For some help with your math, have a look at some real world numbers at:

http://gm-volt.com/2011/08/29/could-a-chevrolet-volt-cost-less-to-own-than-a-chevrolet-Cruzee/

They used real world MPG comparing the cruze to the volt, real world average yearly miles, MSRP, depreciation etc… and came up with a Five to six year break even, even with a $3.6 gas price. Not that we will ever see that price again any time soon…

On the political side you might want to open your eyes to the issues of multi-billion dollar giveaways to so called green start-up companies, or maybe the $4 billion a year in tax payer money that Big Oil is currently being given as an incentive to “Drill Baby Drill’.

The article to which Mark referred is “The Chevy Volt: Basic Math Mileage Reprised.”  The reprised version of that article ran on January 09, 2012.  In that article, among other issues, I did a simple comparison of a conventionally powered 2011 Ford Fusion SEL and a 2011 Fusion Hybrid.  I wrote:

Let us consider two versions of the same vehicle: the 2011 Ford Fusion, a popular mid-sized, four-door sedan. Keep in mind that it’s difficult to make such comparisons with a high degree of accuracy because prices vary a great deal from car to car due to differences in options, so for the purposes of this little exercise in elementary school math, we’ll compare only the MSRP of the Fusion 14SEL with the MSRP of the base line Fusion Hybrid.

In making such calculations—and I’ve noted this in other articles—one must make certain assumptions that will never be universally applicable.  Not everyone buys a given model of car for the same reasons.  While maximum fuel mileage might be the foremost concern of one person, it may be far down on the list of another.  Comparing vehicles based on the manufacturer’s suggested retail price (MSRP) is always problematic in that there really is no such thing as a vehicle available at the dealership at that price.  Options, regional and local supply and demand, dealer preparation fees, taxes, and a variety of other factors conspire to make the retail prices of what might appear to be two identical cars different.  Combine this reality with the very different driving practices and patterns of any two people, and you begin to get a sense of the difficulties in making universally accurate comparisons.

So my comparison was a simple “break even” calculation for the respective versions of the Fusion based on their MSRP and city and highway mileage figures as provided on the Ford website.  Assuming that each vehicle would drive 10,000 miles per year and that gas would cost $3.65 (it’s nearly $4.00 where I live in north Texas as I write), I discovered that if all of those miles were city miles, considering the $3,300 greater initial cost for the Hybrid Fusion, it would take 4.7 years—the average time new car owners keep their vehicles–for its owner to break even—to recoup the $3300.00 difference in initial purchase price–in gas costs alone, and city mileage is where hybrids really shine.  If we consider only highway miles it would take the Fusion Hybrid owner 36 years (!) to break even.

The point is quite simple: electric and/or green vehicles currently on the market promising great savings, particularly in mileage, often don’t live up to their promise.  Nowhere is this more evident than in the case of the Chevy Volt.  But let’s pay a visit to the website Mark suggested and see what’s up.

The site, named “GM-Volt” (by all means, visit it yourself) bills itself as:

The definitive source of real-time news, information and discussion about the Chevy Volt electric car and related topics.

I don’t know if this site is a GM-sponsored or supported vehicle (so to speak), but if it’s not, GM needs better PR people as it would be hard to find any site doing more to bolster the Volt’s flagging fortunes.  Note the advertising blurb that opens this article.  It’s on the GM-Volt site, and I’ve seen similar ads for local dealerships across the nation, indicating that it’s a GM ad provided to dealers.  Wasn’t the Volt supposed to be an electric wonder?  Weren’t the benefits provided by that technology its primary reason for being and the feature by which it would take the automotive world by storm?  GM’s recent Superbowl Volt ad tried to promote the high technology of the Volt.  For the record, I rather liked the ad, particularly the apparently sexual reaction of the five aliens to the guy’s wife, but strangely, that was the best part of the ad.  And now GM is downplaying the electric nature of the Volt, trying to sell it by saying “It’s more car THAN ELECTRIC“?  Why not: “It’s not really much electric, honest!”  Strange times, this age of Obama.

The upshot is that the GM-Volt site used a feature provided by Kiplinger, called the Green Car Calculator.  The feature allows one to compare the five year cost of ownership of various “green” and conventional vehicles, in this case, a 2011 Volt and a 2011 Chevy Cruze, the platform upon which the Volt is based.  Keep in mind, however, it does not allow comparison with all commonly available cars.  For example, my 2011 Ford Fiesta, which achieves an honest 40+ MPG on the highway with panache is not present, and only a single Honda Civic model is listed.

What apparently caught Mark’s eye was that in this particular comparison, the Volt cost only about $500.00 more than the Cruze over five years (they apparently rounded up the 4.7 year figure I found).  But there was a fly in this particular ointment:

CORRECTION:

Kiplinger’s Jessica Anderson got back to us at 3:45 p.m. EST today and said because I was questioning the accuracy of the calculator, they did indeed uncover a “glitch” in the system.

‘The tool works by taking the inputs from users on our site, sending them to Vincentric and then bouncing back with the appropriate calculations using their data (this is so our users can benefit from their monthly data updates),’ Anderson said. ‘Unfortunately the fuel cost for Volt is not taking the gas usage into account as we thought and subsequently that number is off by quite a bit.’

After re-running the calculations, in the example given, Anderson says the disparity between a Cruzee and Volt is actually $1575, not $500. Still a pretty fair closing of an $18,000 initial price gap, but this is where it stands.

‘We will be running a correction in the magazine and online, but I still think that with such a close gap in ownership costs, the Volt is certainly a viable choice for the economically minded,’ Anderson said. ‘My apologies for the confusion and my thanks for helping us to spot a problem. We will be working in the next few days to fix the error on the Volt calculations, but that issue has not affected any of the other models in our calculator. Just another way that Volt is forcing the industry to look at everything differently.’

As one might expect, the article portrays the Volt in the best possible light:

If Kiplinger’s calculations are even nearly on-target, it is good news for the Volt, and contradicts cost-conscious reviewers who have portrayed the Volt as not making financial sense.

And while the happy scenario the website is trying to predict for potential Volt owners could possibly be somewhat accurate for some people, it is almost certainly far from accurate for most.

So the Volt’s actual five-year cost—according to Kiplinger’s Green Car Calculator was actually more than three times higher–$1575.00—than the original $500.00 estimate.  If this was accurate, some people seriously considering a Volt might well be encouraged, for in the lofty economic environs of Volt buyers, who according to GM’s own market research comprise the top 7% of all households in the US, making at least $170,000.00 a year, $1575.00 isn’t much of a factor.

Real World Factors:

(1) Fuel Costs:  As with any calculation, some assumptions that may or may not hold up for most drivers have to be made.  In Kiplinger’s case, give them points for honesty in noting that they really couldn’t build in accurate fuel costs for the Volt because gas and electric costs vary, and the only way the Volt might truly save money is if it is driven almost exclusively electrically.  Even so, they assert that the Volt will save $11,798 in “fuel” over the Cruze.  It is in this figure that almost all of the Volt’s supposed cost advantage is found.  As I’ve noted in past posts, there just really is no good way to figure these costs.  GM-Volt wrote:

The calculator is probably more accurate when showing that life with the Cruze is all about fuel costs and distance traveled. The higher these go, the more it costs to own compared to the Volt.

Well yes, but again only if the Volt is driven almost completely electrically.  Due to its battery and electric equipment, the Volt is a very heavy version of the Cruze propelled by a weak—by comparison—gasoline engine that gets less gas mileage than the Cruze in Kiplinger’s comparison, but requires premium fuel to get less mileage.  With that in mind, GM-Volt’s assertion should be taken with more than a grain of salt.

We’re also making the assumption that all-electric travel with the Volt would be substantially cheaper, but again, those costs remain unknown, and if Mr. Obama gets his way and EPA regulations close coal-fired plants all over the nation with nothing to replace that generating capacity, electric prices will indeed “skyrocket” as he hoped.

This will surely not make the Volt cheaper to operate.

Bizarrely, Kiplinger assumes an “electricity price”—which apparently means the cost of electricity—for the Volt and the Cruze of $0.12.  It’s going to cost only 12 cents to charge the Volt for five years?!  And where, exactly, does one plug in a Cruze?  Does it, Tesla-like, absorb electricity out of the ether?  Why does it need to?  This alone would reasonably tend to make one wonder about Kiplinger’s assumptions for the Volt.

There is one enormous additional expense not considered in the Kiplinger calculation: charging time.  Time, the truism goes, is money.  Without the optional $2000.00 fast charger, it takes as much—perhaps more—than 12 hours to fully charge a Volt on standard house current (even longer and to a lower level of charge in cold climates).  Keep in mind too that this does not include installation charges, which can easily run as much as $500.00 or more (have you checked electrician’s prices lately?).  Who can afford to take 12 hours to charge a car battery, particularly if the Volt is their only car?  In any reasonable calculations involving any electric vehicle (the Nissan Leaf being a perfect example; it’s electric-only), such up-front infrastructure costs must certainly be included.  Add that to the updated Kiplinger figure and the cost differential suddenly becomes $4075.00.

It’s doubtless true that the upper 7% of the economy that have, to date, bought Volts would not have much difficulty absorbing that additional $2500 ($4075?), but anyone else, particularly lower-income Americans–93% of the population (we’re the 93%, we’re the 93%!)–hoping to reap substantial savings on their cars, would likely find that little bit of economic reality to be daunting indeed.

Consider too the fact that there really is no charging infrastructure outside the home.  If such an infrastructure is ever built, it would be reasonable to assume that the cost of electricity at charging stations would surely be greater than home current.  Those that buy, install and maintain charging stations are going to have to recoup that investment somehow.  Mr. Obama has not yet managed to completely destroy the free market.  But hey, if contraception is going to be “free,” why not free electricity for charging EVs too?  Thanks Sandra Fluke!  Unless one’s daily commute did not exceed the 25 mile range Volts are commonly managing, electricity prices (and overall operating costs) will certainly be greater than the optimistic assumptions of Volt boosters, and Volt users will be relying on their premium-fueled gasoline engine more than they imagine, driving up overall costs.

Keep in mind one additional bit of information.  GM’s EPA window sticker for the Volt suggests that it will get 93 equivalent MPG.  The Kiplinger figures were 35 city/40 highway.  I wonder where all those miles went?

(2) Maintenance/Repair Costs:  As I noted in “The Chevy Volt: And It Costs A King’s Ransom To Repair Too!”  Due to its technology and rarity, the Volt costs considerably more to repair than more numerous and less tech-packed vehicles.  Remember that it’s essentially two differently powered vehicles sharing the same running gear, yet both are also intimately intertwined.  It would certainly be reasonable to believe that any Volt would cost more for repair and maintenance than a comparable conventional vehicle, yet in the Kiplinger calculation, it is assumed that the Volt’s maintenance will cost about $350 less than the Cruze. Kiplinger also considers the Volt’s repair costs to be nearly $200.00 less than those of the Cruze.  These assumptions are, to put it mildly, not realistic for any newly marketed vehicle.

Consider too the battery of the Volt.  GM claims that the Volt’s battery will last 10 years, which if true would seem to put that issue beyond the five years being considered in the GM-Volt article.  Fair enough, however, there is no practical experience over time with the Volt, which has been available for only two years to date.  We do know that any battery has a given charge life cycle.  The more often it’s charged, the more rapidly it reaches the end of its useful life—it just won’t charge any more.  So paradoxically, the more one uses the all-electric capability of the Volt, the more rapidly a battery replacement will be required.  GM has quoted replacement prices of from $8000.00 to $10,000.00 and has even claimed—once; I haven’t seen it again—that it will replace batteries free under warranty (original owner only) if they don’t last ten years, but this has to be, for the moment, considered speculative.

(3) Insurance:  Kiplinger assumes the Volt will cost only $155.00 more than the Cruze over five years for insurance.  This is surely fanciful.  As I’ve already noted, Volt repair costs greatly exceed those of comparable conventional vehicles.  In addition, the fact that a damaged Volt battery will burst into flame and/or explode (this is not hyperbole but the very nature of lithium-ion batteries) will certainly require—at the least—complete battery replacement in the event of damage.  It would seem that Kiplinger’s assumption in this area is simply wrong, potentially catastrophically wrong.  Insurance is about risk assessment.  The Volt is simply far more risky than conventional vehicles, vehicles with which the insurance industry has more than a century of experience with which to refine its risk calculations.

(4) Depreciation:  This is the largest potential problem for GM-Volt’s assumptions.  While Kiplinger does assume that the Volt’s depreciation cost will be greater than that of the Cruze, they must make their calculation based on knowledge gained through decades of experience with conventional vehicles.  Actual figures for the Volt simply don’t exist; it hasn’t been around long enough.

As I’ve mentioned in past posts, depreciation/lack of used value will almost certainly doom the Volt even faster than its other potential failings, the largest of which remains—for most consumers—the fact that it simply costs too much in comparison with conventional vehicles in its class.  Few Americans that must buy major goods like a car by means of loans can afford the extra monthly premium of a car that will cost $10,000 to $20,000 more than its perfectly useful and satisfactory competitors.  And remember that to date, it has been only the top 7% of households that have actually bought Volts.  That’s a terribly limited potential customer base that may be already saturated.

This brings up the issue of the used market.  A heavily depreciated Volt—Kiplinger figures the Volt will lose $27,540 (a difference of $11,128 from invoice price), which might make a used Volt relatively affordable as a used car.  Affordable, that is, until the small matter of the battery is considered.  Who will buy a used Volt knowing that at any time they’ll be spending as much for a new battery as they paid for the entire car?  This fact alone would render the Volt essentially worthless as a used car. It is entirely possible that the Volt will be the first car designed to have no value on the used car market.

Final Thoughts:

Mark closed his comments thus:

On the political side you might want to open your eyes to the issues of multi-billion dollar giveaways to so called green start-up companies, or maybe the $4 billion a year in tax payer money that Big Oil is currently being given as an incentive to ‘Drill Baby Drill.’

As I’ve noted in the past, the Volt certainly has a political component, at least in part because of Mr. Obama’s political take over of GM.  While this is an election year, I’ve been writing about the Volt before it was released for sale–about two years ago–so my motivation has been far less about the current realities of this election cycle than long-term trends and general political philosophy.

I am indeed concerned about the politics of the Volt, but largely because it is not the business of government to mandate the production of products, to choose winners and losers in the marketplace, or to mandate the purchase of consumer products, all usurpations of common sense and liberty undertaken by Mr. Obama.  I am particularly concerned because I am an unwilling part owner of General Motors—we all are–which means I am unwillingly supporting the continued existence of the United Auto Workers, which should stand or fall on the strength of the services it provides rather than its political influence.  Without Mr. Obama’s intervention, UAW bosses would be making far fewer and far smaller contributions to Democrats, and UAW workers would be making wages and benefits in line with market reality, which would, more than anything, help to secure the future viability of American auto manufacturers.

Mark aptly raises the untold billions the Obama Administration continues to throw away on green start-ups that they know are going bankrupt (though still handing out executive bonuses) even as they fill their black hole-like bank accounts with taxpayer cash, but he repeats a bit of conventional wisdom about oil company “subsidies” that is—I’m sure in his case unintentionally—misleading.

In fact, oil companies receive no direct subsidies for the production of oil.  Like all American corporations and businesses, they simply take proper and legal advantage of tax law.  When Mr. Obama demagogues the issue, he is being misleading at best.  What he wants to do is to greatly increase the tax burden and associated costs of doing business for American oil companies (and for business in general and the rest of us), a policy that will not in any way reduce costs for them or consumers, and will surely not increase tax receipts.

And regarding “drill, baby, drill,” the Obama administration is doing everything it can to prevent just that.  Mr. Obama’s claims of increased production on his watch refer to oil leases granted before he took office and to production on private, rather than public, lands, production over which he has no control or he would likely stop it too.

I represent my calculations as nothing more than they are and provide clear information about my assumptions.  I do not claim them to be absolutely conclusive and universal.  I hope only that they help to illustrate some small part of the problem with vehicles like  the Volt.  I have written, for example, little about the Nissan Leaf because it is not taxpayer subsidized and will stand or fall on its merits, as is proper in the free enterprise system.  But these simple points remain:

(1) For most Americans, the Volt is just too expensive to buy and maintain.  To date, only the top 7% of Americans have bought them.  This is not a sufficient customer base to make the Volt economically viable.

(2) The cost savings proposed by its supporters, for most Americans, will never materialize.  Such savings reply on battery range that doesn’t exist, on charging infrastructure that doesn’t exist, and on making the technology cost-competitive by grotesquely driving up energy costs, which Mr. Obama is well on his way to achieving.

(3) Taxpayer dollars, as I noted in my last Volt article, subsidize each Volt to the tune of around a quarter of a million dollars(?!).  No wonder Chevy can afford to market a vehicle that not only makes no profit but actually loses money.  Thanks to Mr. Obama, the Volt operates above and outside the reality of the free market.

(4) Battery technology is simply not sufficiently advanced to make the Volt a reasonable replacement for conventional vehicles, and there are no known market-practical breakthroughs on the horizon. This is particularly true of people who can afford only a single vehicle.  With an actual usable range of only about 25 miles, the Volt is simply not ready for prime time technology.  Volts are even less useful in predominantly cold climates.

Certainly, people buy vehicles for a wide variety of reasons, and Chevy’s most recent Volt commercials featuring happy and smiling Volt owners extolling the wonders of their Volts would seem to illustrate that point.  However, the Volt inhabits even more of a niche market than the Corvette, which unlike the Volt does make a profit for Chevrolet.

So Mark, thanks for your suggestion.  And to everyone else, by all means, if you want a Volt, buy one and I hope you enjoy it.  I’ll continue to provide analysis and commentary on the Volt and related issues, including calling your attention to Volt boosters like GM-Volt.  It’s always wise to be as completely informed as possible when considering the purchase of any durable good and folks like Mark help to better inform us all.