GM's basic problem is that "the Volt is over-engineered and over-priced," said Dennis Virag, president of the Michigan-based Automotive Consulting Group.

The Real Story On GM's Volt Costs

Bob Lutz, Contributor

I was surprised to read Ben Klayman’s piece on alleged astronomical per-unit losses on the Chevrolet “Volt.” Ben is usually a solid professional who checks his facts.

The statement that GM “loses” over $40K per Volt is preposterous. What the “analyst” in whom poor Ben Klayman placed his faith has done is to divide the total development cost and plant investment by the number of Volts produced thus far. That’s like saying that a real estate company that puts up a $10 million building and has rental income of one million the first year is “losing” 9 million dollars, or several hundred thousand per renter.

Listen, Ben and Micheline: that’s not how car business cost accounting works.

Let me provide a look at how a car company tracks profitability of a product program: measured are material cost and labor, and these are deducted from the selling price. The positive difference is called “gross margin.” Then, one allocates per-unit “fixed cost” (advertising, general overhead, etc.) plus per-unit depreciation and amortization of the initial investment, based on the TOTAL NUMBER TO BE PRODUCED OVER THE LIFETIME of the product. If the margin, after all deductions, is still positive, then we call it a “fully accounted profit,” and the car is a winner.

The Volt “variable cost” (labor and materials, without revealing any confidential GM information), looks very roughly like this: A Li-Ion battery today runs about $350 per KWh. The Volt’s is 16KWh, so that’s roughly $6000. Add $4,000 for the battery pack structure, the cooling, the high-voltage wiring, the motor and the power electronics. So, that’s the electric portion. Add about 20 hours of assembly labor which we’ll round to a very generous $1000. The dealer net price is, say, $37,000. We now have $26,000 left for the rest of the car, which, cost-wise, is about equal to a Chevy “Cruze” which sells for around $22,000 retail! (And the Volt has no costly conventional transmission.) Thus, the “Volt”, by my estimate, is either close to “variable break-even” or may be on the cusp of a positive gross margin. Deduct the per-unit allocation for all fixed cost, depreciation and amortization and it is, surely, still “under water”….but not by much, and less and less so as the volume builds and other, higher-margin GM cars, like the Cadillac ELR, piggy-back off of the Volt’s initial investment.

Maybe the Volt, a first-generation technology masterpiece and the most-awarded car in automotive history, will never make a really decent profit.

But succeeding generations of the same technology will. Meanwhile, the happy Volt buyers (most satisfied owners of any nameplate in the market) are getting more that they paid for. (Is that so bad?)

We won’t even factor in the profound halo effect the introduction of the Volt has had on GM’s reputation as a leader in environmental automotive technology; it’s priceless, and could never have been achieved without it.

So, once again, the knee-jerk Volt bashers, devoid of any real knowledge, have had their usual joyous verbal catharsis, but the car doesn’t care: The volumes are building globally and it’s doing exactly what it was designed to do.