GM CEO on Volt as a loss leader, making money from small cars
2011 Chevy Volt - click above for a high res gallery
The president of GM's North American operations, Tony Clarke, recently kicked up a bit of a dust story when he expanded on New GM CEO Fritz Henderson's statement that the Chevy Volt can stay even if it's "can't pay the rent." Henderson went back to Automotive News (subs req'd) to try and explain why the Volt as a loss leader is a good thing and how he thinks a vehicle scrappage program (i.e., cash for clunkers) should work.
On the rent payers, Henderson said that the North American profit model "was so focused on basically pickup trucks, full-size SUVs, and, when they were strong, mid-SUVs." The tide is turning and he wants to maximize as much profit as possible out of cars like the Chevy Aveo. The new GM mindset: "I'm not going to let anybody off the hook on the Aveo profitability. I want to make sure that we get the maximum profitability on the Aveo, too. And so, if the Aveo is less, that's fine, but I'm not going spend all my time on the Silverado."
The Volt is the "case study," Henderson said, for big investments that will, hopefully, pay off when Gen-3 comes around. "[The Volt] doesn't necessarily pay the rent. It actually consumes rent when it's launched," he said, adding that GM "need(s) money to pay for it. Not from the taxpayer."
Henderson also praised Congress and Obama's Auto Task Force and said that a U.S. scrappage program could find good ideas in the German model.
[Source: Automotive News (subs req'd)]
Reader Comments (Page 1 of 1)
Andy 12:53AM (4/14/2009)
Ahhh, the endless stream of excuses from GM. Please....
Loss leaders are supposed to be the cheap items that bring people in from which to be upsold. You don't run a multi billion dollar multi year R&D program to build a loss leader. This is utter cow pokey fed to us just to brace us for the usual GM failure to bring an advanced product to market at a feature/price point that consumer will care about. At it stands, the Volt will cost the same as a Tesla S luxury car if it weren't for taxpayers being forced to make downpayments on the Volt. I'll be interested to see which delivers first.
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mesam 8:57AM (4/14/2009)
I felt like I read a different article than you did. There were no excuses, but being transparent. Any revolutionary step in technology will take an investment. That's why Toyota lost money on the Prius for years, but is now reaping the rewards.
The Volt should come out with a cost between $35-40k (before the government rebate). The Tesla S will come out with a base cost of $57k. Not to mention, the Volt will have a 10 year warranty on the battery, the Tesla warranty will be for 3-5 years. They don't sound equal...
axiomatik 9:40AM (4/14/2009)
aahh, such short memories. When the Prius came out, Toyota lost money on each and every one they sold for several years. And think of all the money they spent developing it before they ever sold a single Prius. Man, Toyota is run by a bunch of idiots.....oh, wait. Honda sold the first-gen Insight at a loss as well.
Unless GM can start to mass-produce the Volt, it will be very costly. But they can't mass-produce it if it is priced too high. Thus the plan to initially sell it at a loss, knowing that the more they sell, the lower their production costs.
martialoffrance 1:32AM (4/14/2009)
go back to your rice burner. sick and tired of how people like you will praise GM in one article and trash them in the next. This site has way to many hypocrites reading it. Get bent bub
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Carney 11:09AM (4/14/2009)
Make money from small cars? That can work during an oil shock or other economic crisis, but it's not a wise long-term strategy any more than Wal-Mart permanently shifting its emphasis to survivalism (gold, guns, ammo, freeze-dried food, bottled water, underground shelters, etc).
The problem is that in general people don't WANT to trade down to a smaller, weaker, slower, flimsier car. That goes against basic and deep-rooted human psychology.
They only buy such vehicles in extraordinary circumstances, most notably a drastic decline in personal wealth or a drastic increase in gasoline prices.
As soon as that drastic level of pressure is off, they will go right back to buying roomy, powerful, fast, and heavy vehicles in gleeful indifference to anyone's lectures about the environment or what they should make do with because it's "good enough" for them.
(That's why the Japanese automakers wisely beefed up their cars once the stagflation and oil shock of the 70s and the recession of the early 80s were over.)
Many greens react to this trait in fury with dreams of re-imposed or even permanent hardship, perhaps deliberately created, to teach us all a "lesson", or of crushing regulation forcing an unhappy populace into pricey, tiny, fragile eco-toys, or better yet, away from the open road and stuffed onto mass transit that goes where and when a bureaucrat says.
There's a better way, of course. Instead fighting upstream against human nature you can jiu-jitsu it and divert it into a harmless or beneficial direction.
If we switch from gasoline to renewable alcohol as the standard liquid fuel, we can go a long way toward cleaning up the air and water, protecting the economy from oil shocks, and de-funding terrorists, while still vrooming along in big muscular vehicles. The switch can happen if we mandate that all new cars sold in America be fully flex-fueled, able to run equally easily on any alcohol fuel as on gasoline. That tech exists now and is cheap, only $100 per car for automakers. With alcohol fuel, especially methanol, being cheaper than gasoline (via tariffs/taxes if necessary), and with the marketshare of alcohol-compatible cars on the road going up 10% a year, the market will do the rest as people, knowing that the economy has had the threat of an oil shock removed and that they will not be stuck with crushing bills at the pump, flock to dealers again.
THAT is the basis of a long-term turnaround for GM and all the automakers, not austerity and a prolonged diet of Deprivation Soup.
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Chad 12:17PM (4/14/2009)
"The problem is that in general people don't WANT to trade down to a smaller, weaker, slower, flimsier car."
Umm . . . I do. I want a 1800 lb car that has a 50 hp 2 cylinder diesel, a manual transmission, and an MSRP of less than $15,000 (ideally $10,000). A 0-60 time of 15-20 seconds is fine by me if I'm getting 80 mpg!
Carney 1:59PM (4/14/2009)
I said "people in general", Chad. I suspect you know perfectly well that you are atypical and further suspect that you take some pride in your (perceived) self-sacrificial asceticism. The point remains that most people do not care to have their comfort and pleasure sacrificed and will resist it.
Anyway, why would you want a diesel? They emit far more smoke, soot, and particulate matter (SSPW), not to mention sulfur and NOx, than even gasoline. Perhaps you could go to great lengths and significant expense to reduce that, but that money and fuss could just as well go to something inherently cleaner.
For instance, alcohol, which is not a mutagen or carcinogen, emits NO sulfur or SSPM and substantially less NOx (to which it in vapor form is only a tenth as reactive), and whose carbon emissions can come from plants thus being essentially carbon neutral, in a huge contrast to fossil fuels.
Finally I note that diesel is a petroleum-based fuel, and that transporting oil in tankers, storing it underground at fuel stations, and pumping it into cars all causes enormous and catastrophic damage. The Exxon Valdez is still killing wildlife as sea otters eat contaminated shellfish; oil doesn't dissolve and stays concentrated. Alcohols are readily biodegradable into harmless components and dissolve away into the vast hydrosphere.
Chad 5:22PM (4/14/2009)
"and further suspect that you take some pride in your (perceived) self-sacrificial asceticism."
Not really, I'm just cheap.
"Anyway, why would you want a diesel?"
Diesel is the cheapest way to get big MPG. When electric cars can be had for $10,000 to $15,000, I'll want an electric car. Like I said, I'm cheap
Also, alcohol fuels aren't a free lunch. The plant matter has to come from somewhere. Even if you are making it out of non-food crops you need land to grow the plants on. This may or may not displace land that could be used for food crops.
Also, don't you think that instead of turning food crop residue (i.e. inedible stems and stalks) into alcohol we should turn it to compost to let it's nutrients return to the soil?
Luke 12:02PM (4/14/2009)
I'm the kind of @$$ who buys the loss-leader and leaves the store -- works for me. :-)
But, seriously, this is the kind of thinking that makes GM loose in the small-car segment. Just looking at a dealer's lot, you get the impression that the small cars there so that you can drive /something/ as a gateway to their bigger products. Compare this to Honda, where the rather-compact Accord is a flagship product. Or, BMW -- where the Mini Cooper is a very desirable small car that stands on its own merits. There really is a place for "getting by" cars -- there's no reason that the "good" car can't be small. I just like good small cars, just because that's what I like -- so, before the Volt, I never really considered a GM car because of the impression I got from their lot.
Granted that GM is starting to change things slowly -- but all of the used cars on the road really affect my perception of a particular vendor's new cars.
-Luke
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Chad 12:19PM (4/14/2009)
"Compare this to Honda, where the rather-compact Accord is a flagship product."
Huh? The new Accord is classified as a full size car!
Luke 1:42PM (4/14/2009)
My bad! While I have looked at Honda vehicles in the last couple of years, I haven't checked the relative weights and dimensions of Honda vehicles... My stepmom is still driving her 1996 Honda Civic EX like the lead-footed grandmother that she she is. The 1997 Honda Accord that my dad had was a little heftier than the 1991 Honda Accord Coupe that we had before that. I guess this comes back to used vehicles on the road influencing what I think of new cars -- especially when I don't do my homework completely.
Anyway, my point is that Honda's lineup is not like the Tahoe/Yukon/Suburban SUVs that GM seems to think are the only "normal people" vehicles. I guess they think normal people would like their CUVs, too. So they make their smaller cars less appealing, in order to get people to spend more money on their higher-end product -- which sucks for me, since I just like small car. This is just an impression I've gotten from a Chevy dealer -- it's not statistically significant, and I haven't exactly interviewed the marketing people who make these decisions. But I get the impression Honda tries to make all of their vehicles as appealing as possible -- from the Fit through the Ridgeline. I don't get the impression that Honda is intentionally making their small cars less appealing in order to steer me toward their big/expensive vehicles. I might be wrong -- but this impression is strong enough that it helps to define which cars I'm likely to take for a test-drive.
At first glance, the first generation North American Ford Focus seems to suffer from this "gateway product" disease, too. The 2nd generation North American Focus (model year 2009-2010) looks little better, but I haven't taken one for a test drive yet. The exterior styling looks like they're trying to sell the car to people who have a choice -- but it's hard to tell if the improvement is more than grill-deep without taking it for a test-drive. I've had several 1st generation Ford Focuses as rental cars, and I wasn't particularly impressed. I bet my local Ford dealer would /love/ to see a real-live customer in these economic times, though... :-)
Anyway, I'm cheering for the Volt and I hope that millions of them are delivered to happy customers all over the world -- and maybe I'll be one of them. Our 2004 Prius might even be worn out by the time the Volt is available. :-)