As the Obama Presidency potentially draws to a close, an interesting, though not unexpected, trend has begun to emerge. The media has begun to report more honestly on the fast failing fortunes of General Motors and particularly, the Chevy Volt. In addition, editorial writers have begun to forecast what I’ve been writing for some two years. The SMM Electric Vehicle Archive is available here.
The two big trends? General Motors is in deep financial trouble and is headed—soon–for a second bankruptcy (you actually believed Mr. Obama when he said they haven’t been through a first bankruptcy?), and the Chevy Volt is also in deep financial trouble. I do not mention Chrysler because it barely exists, with domestic market share in the 8% range. It continues to exist only by virtue of being propped up by, of all companies, Fiat, which is losing money in Europe, but making money on Chrysler. That’s right, gentle readers, the auto bailout is enriching an Italian company.
As I provide updates from around the media and blogosphere, regular readers will notice that virtually everything they’re now saying, in many cases for the first time, I’ve already said, often repeatedly and long ago. I don’t bring this up to pat myself on the back (well, not too much anyway) but to make the point that with the Obama Administration potentially on the way out, and with economic reality simply too horrific to ignore any longer, even the media is finally at least nodding to common sense.
First, an oldie but goodie from the March 5, 2012 Washington Post, long a staunch ally of Mr. Obama and his green energy agenda. Charles Lane writes:
GM fell 2,300 units short of its sales target (10,000) for 2011. It is not on pace to hit 2012’s goal of 45,000 units.
So much for Obama’s goal of 1 million all-electrics and plug-ins on the road by 2015.
And consider these comments, which not long ago, would have been heretical:
Democrats and liberals are fond of calling their conservative and Republican adversaries ‘anti-science.’ To the extent that the right espouses “creation science,” or disputes established facts about environmental degradation, it’s an appropriate label.
But progressives’ fascination with electric cars and other alternative-energy schemes reflects their own refusal to face the practical limitations of alternative energy — limitations that themselves reflect stubborn scientific facts.
Stubborn Scientific Fact No. 1: Petroleum packs a lot of energy per unit of volume. (Each liter contains 34 megajoules.) Consequently, gasoline makes a cheap, portable and convenient motor fuel.
By contrast, even state-of-the-art batteries deliver far less energy than gas, in a far bigger package. A Volt can go 35 miles on a single charge of its 435-pound battery. This sounds like a big deal until you realize that a gas-engine Chevy Cruze gets 42 miles per gallon — and costs half as much as a Volt.
It costs a fortune to pump, refine and ship crude oil. Yet even accounting for all that, gas-powered cars are a better value than electric vehicles and will be for some time. Gas savings on the Volt would take nine years at $5 per gallon to offset its higher price over the Cruze, an Edmunds.com analysis found last month.
Now fast forward to September 12, 2008 and a Washington Post Editorial by its Editorial Board:
The Energy Department study assumed that General Motors would produce 120,000 plug-in hybrid Volts in 2012. GM never came close to that and recently suspended Volt production at its Hamtramck, Mich., plant, scene of a presidential photo-op. So far, GM has sold a little more than 21,000 Volts, even with the help of a $7,500 tax credit, recent dealer discounting and U.S. government purchases. When you factor in the $1.2 billion cost of developing the Volt, GM loses tens of thousands of dollars on each model…
No matter how you slice it, the American taxpayer has gotten precious little for the administration’s investment in battery-powered vehicles, in terms of permanent jobs or lower carbon dioxide emissions. There is no market, or not much of one, for vehicles that are less convenient and cost thousands of dollars more than similar-sized gas-powered alternatives — but do not save enough fuel to compensate. The basic theory of the Obama push for electric vehicles — if you build them, customers will come — was a myth. And an expensive one, at that.
But aren’t Chevy Volt sales up? Forget the fact that the factory that makes them has been shut down twice already this year for at least a month at a time; aren’t Volt sales booming? Well, sort of–if “booming” is defined as “selling far fewer vehicles than any sane manufacturer should consider even remotely economically viable–but not because Mr. and Mrs. Joe Consumer are flocking to dealer showrooms.
Ed Morrissey of Hot Air wrote that the Department of Defense began buying increased numbers of Volts, boosting sales figures. Another major factor is Chevrolet’s essentially giving away Volts with lease terms that plainly make it mathematically impossible for GM to turn any profit on the vehicle, not that profit was possible in the first place at full MSRP sticker price. By all means, take the link and see for yourself. But first, consider this brief excerpt from what Morrissey had to say about the marketability of the Volt:
Sustained value — There isn’t any in the Volt. For the sticker price — even with the subsidies — it’s underpowered and undersized compared to the rest of the market. Thanks to a massive battery replacement cost at somewhere around the 8-year mark, there won’t be any trade-in or resale value for the car, either, which is why lessees are highly unlikely to buy the car from GM at the end of the two-year lease. Without that battery replacement, the Volt becomes an underpowered, undersized, and overly expensive internal-combustion vehicle.
The Associated Press via Fox News also weighed in on Sept. 24, with news that Chevy is discounting the Volt around $10,000. They wrote:
GM’s discounts on the Volt are more than four times the industry’s per-vehicle average, according to TrueCar estimates. Edmunds.com and J.D. Power and Associates say they’re about three times the average. Discounts include low-interest financing, cash discounts to buyers, sales bonuses to dealers, and subsidized leases.
A quick aside: Hot Air’s Erika Johnsen adds a bit more on the DOD’s purchase of Volts:
So, let me get this straight: The defense budget is looking at billions of dollars in budget cuts to create a “leaner military” over the next decade, and Secretary Panetta has said that the upcoming half-a-trillion sequester would be a ‘disaster‘ as-is, but now we’re using our limited defense funds to buy cars that the free market is rejecting in order to prop up the Obama administration’s green agenda?
…Is this real life?
Frighteningly real, Erika, but that’s not all. The State Department has been buying Volts and charging stations for diplomatic missions around the world, spending huge sums: $108,000 for a single charging station in Vienna. My recent article on that topic against the backdrop of the Libya Embassy attack explores the issue.
How much is the Volt losing? The AP noted:
Now the losses could be even higher. It costs $60,000 to $75,000 to build a Volt, including development, manufacturing and raw materials, estimates Sandy Munro, president of Munro & Associates, a Troy, Mich., a company that analyzes vehicle production expenses for automakers. Much of the cost comes from an expensive combination of two power systems — electric and gasoline. With a sticker price of $40,000, minus the $10,000 the company pays in incentives, GM gets roughly $30,000 for every Volt. So it could be losing at least $30,000 per car.
Imagine that. Most new cars don’t cost $30,000, and GM is losing that much–and more–on every Volt, even with a federal tax credit of $7500, ruinous leasing deals, and discounting 25% of the vehicle’s MSRP.
On Sept. 24, Bruce Krasting at Business Insider.com took government involvement in the electric vehicle industry to task, daring to expose what the Congressional Budget Office (CBO) had to say. It wasn’t pretty. His conclusion:
DC is on all sides of this mess. It is paying subsidies for inefficient and over priced cars. It is creating free grants to support an uncompetitive product. It is lending very big money (with long maturities and at low rates) to industry players. Please don’t tell me that car companies don’t go bankrupt. These loans go out to 2034.
The CBO had a few recommendations on what to do with Washington’s headache with electric cars. The one that will probably be adopted is this one:
‘A larger tax credit is needed to make electric vehicles cost-competitive with higher-fuel-economy conventional vehicles.’
That’s the solution? It’s just sending more money down a rat hole.
Quite right Mr. Krasting, quite right, and it gets worse and worse:
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.
For those interested in a more in-depth view of Volt production costs and the possibility of eventual profit, it might be worth your time to visit the Senator Blutarsky Blog which has an analysis that is at least a bit GM-friendly. Even so:
THE BOTTOM LINE: even with generous assumptions, the first generation of the Chevrolet Volt will consume about $1 billion in federal tax credits, and STILL result in an economic loss to GM shareholders in excess of $600 million over its lifetime. Without the subsidies, the cumulative loss would triple to $1.8 billion.
This is what used to be called, in business circles before the Age of Obamanomics, “fiscal lunacy.” In the meantime, even Nissan isn’t immune to the realities of electric vehicle economics. On October 01, 2012, Fox News reported that like GM, Nissan is offering “…cheap leases and big discounts on electric cars.” And there are additional problems for the diminutive Leaf:
He [a Nissan spokesman] also said Nissan has bought back two Leafs from customers in Arizona, where the company has received complaints that the batteries aren’t holding as much electricity as they did when they were purchases. If the batteries don’t hold as much electricity, the cars can’t go as far on a charge.
But Reuter said all lithium-ion batteries, including those that power other electric cars and consumer electronics, lose capacity over time. The cars that were replaced had thousands of miles on them and the battery storage capacity loss was normal, he said.
Ah! So EVs with a 40 or so mile range actually lose range with “thousands of miles on them.” General Motors and Nissan didn’t mention that in their promotional literature? Imagine that. For the Obama Administration, that’s probably a feature. For actual humans, it’s more likely a bug.
And in the political corner, National Review explains why the arguments of Mr. Obama and the Democrats for the auto bailout and related matters are less than truthful. For the flavor of the piece, if you’re not of a mind to take the link, consider the conclusion:
The GM bailout was a bad deal for GM’s creditors, for U.S. taxpayers, and, in the long run, for the U.S. automobile industry and our overall national competitiveness. No wonder the Democrats are campaigning on a fictionalized account of it.
It’s not widely known that GM’s share price is so low taxpayers will never recoup the amount loaned to GM, and will likely lose as much as $25 billion, perhaps more. In the age of Obama, if it’s not a trillion, it seems like pocket change, but for many Americans, a billion dollars is still quite a bit of money.
And in a development that is almost—but not quite-comical, we learn that LG Chem—well, let the story make the point:
HOLLAND, Mich. (WOOD) – Workers at LG Chem, a $300 million lithium-ion battery plant heavily funded by taxpayers, tell Target 8 that they have so little work to do that they spend hours playing cards and board games, reading magazines or watching movies.
They say it’s been going on for months.
‘There would be up to 40 of us that would just sit in there during the day,’ said former LG Chem employee Nicole Merryman, who said she quit in May.
‘We were given assignments to go outside and clean; if we weren’t cleaning outside, we were cleaning inside. If there was nothing for us to do, we would study in the cafeteria, or we would sit and play cards, sit and read magazines,” said Merryman. ‘It’s really sad that all these people are sitting there and doing nothing, and it’s basically on taxpayer money.’
Two current employees told Target 8 that the game-playing continues because, as much as they want to work, they still have nothing to do.
‘There’s a whole bunch of people, a whole bunch,’ filling their time with card games and board games,” one of those current employees said.
That employee says some workers are doing odd jobs around the building, including cleaning and maintenance, while others hang out in the cafeteria playing video games, Texas hold-’em and Monopoly or doing Sudoku or crossword puzzles — all on company time. The employee said some watch movies.
‘There’s no work, no work at all. Zero work,’ another current employee said. ‘It is what it is. What do you do when there’s no work?
How much are taxpayers in for thus far? A $151 million DOE grant, $7 million for worker training, and more than $700,000 for employee health and dental insurance, and that’s not all. Take the link for the whole debacle. Why was the plant built in the first place? Uh-oh:
The company’s goal: 300 employees pumping out 15 million battery cells a year. Its biggest customer: The Chevrolet Volt.
But it gets better—actually, worse—gentle readers. From The Washington Free Beacon, via Conservative Wanderer.com:
As GM teetered on the edge of bankruptcy in June 2009, it cut a $367 million ‘lock-up agreement’ with several major creditors in order to prevent its Canadian subsidiary from going under. The move spared the subsidiary from fulfilling the $1 billion debt it owed the creditors—major hedge funds—ensuring that GM would not have to face bankruptcy courts in two nations, which could have delayed the company’s recovery.
The trustee for (old GM) creditors shortchanged by the government-driven bankruptcy are now suing the hedge funds in a move that could undo the bailout.”
Why could it undo the bailout? Because the Obama Administration withheld pertinent details from the court. In plain language, they lied to the judge, and he found out about it:
“When I approved the sale agreement and entered the sale approval order I mistakenly thought that I was merely saving GM, the supply chain, and about a million jobs. It never once occurred to me, and nobody bothered to disclose, that amongst all of the assigned contracts was this lock-up agreement, if indeed it was assigned at all,’ [ Judge] Gerber said in July.
Double ooops. The Wall Street Journal also wrote about the issue.
And one last scene in this Three Stooges’ Film Festival: As I noted some time ago, GM is set to double down on absolute failure by producing a Cadillac version of the Volt, apparently to be called the “ELR” (No. Filling in the acronym would be too easy…) for the 2014 model year. Fox News notes:
Details on the car are still mostly under wraps, but Cadillac says it will feature a T-shaped battery pack and four-cylinder engine/generator, which is the same configuration used by the Volt. However, the specific size of the engine and capacity of the lithium-ion battery to be used in the ELR have not been announced.
Please allow me, gentle readers, to put that in English. Cadillac is going to build it’s own EV using essentially the same engine, battery pack and other equipment used to build the Volt. The Caddy version will almost certainly weigh much more than the already porcine Volt. Lord only knows how much a “Cadiolt” or “Voltilac” will cost, but it’s going to have to be at least $10,000 more than the Volt, and that for a slower, heavier, less sporty vehicle for a marque that has worked hard to market upscale, powerful, fast and luxurious vehicles. Cadillac buyers can likely afford one, but when Caddy’s competitors are BMW, Mercedes and Audi, the most pertinent question is surely “why would they want one?” GM has surely adopted Obamite economic principles. One can almost imagine a room full of GM executives musing “What can we do to really screw up Cadillac? Wait! I know, I know!”
As I’ve often observed, the Volt is an interesting engineering exercise that should never have made it into production. The capabilities of the vehicle—and all contemporary EV’s, are simply not up to the needs of enough Americans to make them economically viable, and absent incredible leaps in battery storage capacity, range and flexibility, they never will be. For those not keeping up on such things, I wouldn’t bet the farm on such leaps. In fact, the fundamental facts of battery capacity have changed little in the last century.
At a time when GM is actually giving Volts away and losing huge amounts of taxpayer money even then, it’s building a much more expensive Volt-based Cadillac that will almost certainly provide no actual improvement in range or performance over the Volt, apparently so it can lose even more taxpayer money. Even with Mr. Obama’s dream skyrocketing energy prices, Volts are so expensive they’re still not attractive.
There is no doubt GM is going to go belly up again, and we won’t have to wait long. The shady dealing of the Obama Administration in the first bankruptcy might see to that, and sooner than anyone imagined.
In any case, Americans may rediscover many simple truths of the free market very soon. Among them: don’t build a product which can’t be sold for a reasonable profit, no matter how cool some of the technology seems to be. That’s not so hard, is it? I suspect GM really isn’t too big to fail after all. No company is, and even corrupt governmental largess can’t stave off reality forever.