GM rocked the news world yesterday with an announcement that it’s soon-to-launch Chevrolet Volt will get 230 miles per gallon in city driving. The troubled automaker believes it will earn the first triple digit rating based on standards developed by the Environmental Protection Agency. The key to the Volt, its reliance on a lithium-ion battery pack that is said to go 40 miles without a charge with a secondary small engine to re-charge the battery, will keep the car powered.
But being the sourcing professionals that we are, we like to look at the total cost of ownership. And though many originally purchased a Prius for its cache and status, at the time, some of the initial underlying economics did not make sense. The Atlantic published an analysis of the Volt’s projected savings via its triple digit mileage per gallon against the total cost of purchasing a Toyota Corolla (non-electric version). Essentially, no matter how one slices it, the Volt ends up paying for itself either after 177,000 miles or 229,000 miles. That’s an awful lot of miles. The article articulates the author’s assumptions and calculations.
Now we can appreciate not every car buyer cares about total cost of ownership (after all, many select a car for far different reasons) but the success of the Prius extended beyond any total cost of ownership calculation, at least initially, because those calculations did not equate to better value than the alternatives. Of course, that has all changed. If you examine the current total cost of ownership analysis of a 2009 Prius, the buying decision indeed appears attractive compared to several alternatives.
So the real question for GM is this: will the Volt receive the buzz reminiscent of Toyota’s launch of the Prius back in 2000 such that people ignore the total cost of ownership and the metrics and proceed with a purchase for other reasons? Today the Prius is the most fuel-efficient car sold in the US and also one of the most popular. It got there largely on buzz, favorable press and because it became en-vogue. Add on top of that, once it really reached mass production status, the Prius became a whole lot more affordable.
GM will need a lot of celebrity and buzz behind it, if it too can achieve mass-market production levels, in order to lower the price. It doesn’t appear GM can get there on total cost of ownership argument.