Would a $40,00 Volt save The General

By Dino Delellis

This topic nearly word for word has been scrutiny of automotive journalists and other transportation stock analyst and pundits ever since it was announced that GM would once again do an electric car.

GM, Ford and Chrysler arrayed a huge number of lawyers and much cherished Washington lobbyists to go after California after it decided to introduce a zero emissions rule on part of all car fleets. While GM was fighting California, it was also building an electric car, 10 years ago called the EV1. The state lost, GM breathed a sigh of relief and promptly destroyed all EV1's and sold the patents.

Yep, sold the patents to a MIT. Just kidding. If the patents had been sold to MIT, the car would have been rebuilt and the Toyota Prius hybrid would never have been created. Whoever bought the patents wasn't interested in building an electric car. There is enough anecdotal evidence to suggest the battery patents were purchased by Texaco who has done tremendous work with them since ( NOT ).

Some might say, that was a wise business move to recoup costs, but most of the public would in acute dismay exclaim "Why would oil companies be interested in automotive patents that would/could eventually diminish their own returns ?"

Anyway in the latest from an interview with GM's Chief Designer we get the following profile of the Volt.

GM has almost entirely "bet the boat" on the new technologies going to market in the electric Chevy Volt. We are sure that GM Detroit Management exactly didn't plan it this way, but their European operations must have seen the writing on the wall many years ago as gas hit 3+ dollars per gallon in europe and continued on through the equivalent $4 dollar mark. With the global credit crunch, increased gas prices and declining sales of the big cash SUV's GM is feeling the pinch like never before. The Volt must become iconic.

The car is also GM's gambit to outpace foreign competitors like Toyota (TM) and Honda (HMC). Unlike conventional hybrids-including the best-selling Prius-the Volt is essentially a plug-in electric car with an onboard gas-burning engine that can recharge the vehicle's batteries. This enables the Volt to travel some 40 miles before the driver turns on the gas.

According to GM research, many drivers will not need to switch to the gas engine because simply recharging the vehicle via a regular outlet at home overnight will satisfy most of their driving needs. When I first heard this, I thought - What a useless car. Who wants a car that does only 40 miles per charge, but in truth, the car simply switches to the small gas engine at that point and continues its merry way.

Despite the GM bashing that many of us might engage in, on occasion, we all truly want a Volt or something like it. Traveling and seeing new places isn't just a wish for the elite. But with gas prices threatening to go higher and the slightest threat of war poised to carry them beyond even the previous high of $147 per barrel, having a vehicle with the potential of the Volt is simply everyone's dream.

So back to the question can the Volt save GM?

I suppose it might be presumptuous but perhaps we should first ask - Does the General really need saving?

BusinessWeek estimated GM's Liquidity position to be 45 Billion in May of 2005 with a burn rate this year of over a Billion a month here in 2008 ( Boston Herald ). Estimated reserves now stand at about 25 Billion and analysts say that even with the 10 Billion in future cost cutting, GM may need another 10-12 Billion in cash to see their way through to 2010.

Detroit News writes in an article on Oct 14th 2008

GM had access to about $21 billion cash and $5 billion in available credit at the end of June and is in the midst of cutting $10 billion in costs by the end of 2009 and raising $5 billion through asset sales and borrowing.

Cost-cutting associated with the aforementioned 10 Billion in cuts, intensified when GM announced it was closing plants in Grand Rapids and Janesville, Wis. 2500 workers are affected by these measures in plants that produce sport-utility vehicles and parts for pickups/SUVs.

Since 2005, the General's cash reserves have been reduced from 45 Billion to a mere 25 Billion and with the tightening credit crunch and federal government moving slowly on aiding the BIG3, the rumour doing the rounds is that GM is eyeing the cash reserves of Chrysler ( estimated 11 Billion ) to help it through 2009 when the arrival of the Chevy Volt and Cruz, the following quarter are expected to help turn things around.

So, what are our expectations for the Volt? GM says its expecting to sell about 10,000 Chevy Volts at between 30-40,000 USD each in 2010. So, that's about 3-4 Billion dollars in gross sales with a net of about a 800 Million dollars annually at an estimated 20% profit per car.

Without being redundant, back to my original question. Can the Volt Save GM?

Looking at these numbers alone, I would wager, most emphatically no. - 23212

About the Author:

Dino De Lellis writes on a number of interesting topics. To see more of the Dino personal journals hop on over to Dino P. Delellis and catch his odd views on the world at large.