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This week, Chevrolet, the flagship division of Governm… excuse me, General Motors, announced that it would be reducing the MSRP on the 2014 Volt by $5,000 – from $39,995 to $34,995. This is on top of recent incentives offered by the embattled company promising an additional $5,000 cash-back on 2012 Volts and $4,000 for the 2013 model. Combined with the $7,500 tax credit offered by the federal government to those who purchase plug-in hybrid/electric vehicles, Volt buyers can enjoy as much as a $12,500 discount on the vehicle, cutting the price by nearly a third.
Yet the big discounts aren’t a signal that the Volt is a successful product selling at healthy volumes. In fact the average American may be shocked at just how few Volts are produced and sold despite the heavy incentives offered by both GM and the government.
So far this year, Chevy has delivered 11,643 Volts, a respectable figure in absence of context. Yet General Motors, throughout all of its brands, has delivered a total of 1,654,417 vehicles over this same time. This means that the much-publicized Volt has only accounted for a paltry .7 percent of all cars and trucks delivered by GM in 2013. As if this wasn’t a clear enough sign of Chevy and the Volt’s troubles, this figure is actually down from the end of last year when Volts made up .9 percent of GM’s delivered fleet.
What’s more, late last year, reports surfaced that suggested GM is losing nearly $50,000 per Volt it sells. With such dismal sales and massive losses per vehicle, it would seem that the Volt’s days would have been numbered months ago. Yet GM, with this newly announced discount, has signaled that it is willing to press on into the 2014 model year and beyond.
Considering GM’s recent brush with death, it begs the question of how even the most inept executives, which GM is certainly no stranger to, could keep the Volt in production instead of using the labor, materials, and capital on more profitable vehicles and ventures. Or perhaps the more appropriate question to beg is why GM is using this money to entice American’s to buy the Volt at a loss instead of making payments towards the roughly $42 billion it still owes the American people.
The answer likely has a lot to do with a government rule that essentially forces GM to produce and sell this vehicle.
The rule is called the Corporate Average Fuel Economy Standards or CAFÉ for short. This rule traces its roots all the way back to the energy crises of the 1970s, when government price controls, exacerbated by Middle East turmoil, resulted in massive gasoline shortages. Instead of immediately lifting the price controls, and tackling the problem at its source, the government instituted CAFÉ standards that forced automakers to achieve an average Mile-Per-Gallon (MPG) rate set by the Department of Transportation for the entire fleet of vehicles they produce. Revised CAFÉ standards, finalized by the Obama administration last year, would push the average fuel economy equivalent required to 54.5 MPG by 2025, almost double last year’s 28.6 MPG standard. Furthermore, electric vehicles and other special fueled vehicles are given an MPG multiplier by the government when considering compliance with CAFÉ standards, allowing these vehicles to weigh heavier on the company’s fleet average.
High sales of the Volt, given this multiplier and its already high MPG-equivalent rating, would theoretically allow GM to continue to produce its more successful vehicles, the ones American’s actually want, for additional model years as the CAFÉ standards tighten towards 54.5 MPG in 2025. Of course the problem is that Volt isn’t selling, forcing GM to keep taking massive losses to get the cars off the sales lot.
Despite whatever fuel efficiency the Volt may boast on the road, on paper this is a tremendously inefficient venture for both GM and the American people who were forced to save the company from itself not a decade ago. GM is being forced to waste capital resources and labor at all levels instead of paying its massive debt to the American people. Any vehicle with such dismal sales and massive losses per-unit would have been scrapped immediately under any other circumstances. Yet the Volt buzzes on purely for CAFÉ compliance. The Volt isn’t a vehicle for taking Americans new places so much as it is a symbol of a government that continues to hold us back.