A Different Take on the GM Volt Announcement

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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.

–Lisa Reisman

Comments (4)

  1. Karl Davis says:

    Even aside from the total cost of ownership, I don’t believe the 230 MPG claim. That would imply a fuel & energy cost of 1 to 1.5 cents per mile. My back-of-an-envelope calculation puts the cost per mile more like 7 cents, comparable to a 40 MPG car – a number that can easily be reached with a diesel.

  2. Chris says:

    Well – there are a couple of other factors involved in measuring the Volt’s cost effectiveness. The Volt will only come in one trim and the 40k price tag is expected be well equipped (only a few whistles like the solar roof for climate control will be expensive options).

    At the very least one has to compare the Volt to the highest trim Corolla. The Volt has a 160HP electric motor which is closer in line with the Corolla’s 158HP 2.4L option. The Volt is a bit heavier which affects acceleration but electrical motors are high torque from 0 RPM and there is no transmission that would result in drive train losses so I would consider it equivalent. The Volt isn’t a sluggish 90HP train like the first and second generation Prius was.

    This changes two things: first the Corolloa now costs $21k and not $15k. Secondly the MPG drops on the Corolla down to 22/30MPG instead of 26/34MPG. At the same time the author of the “break even” point did not calculate electricity costs (although these are considerably less than gas in most areas).

    Quite frankly you can’t really try to explain the cost effectiveness of buying a Corolla versus a Volt. If people really cared about cost effectiveness above all else one would buy a $1500 junker that gets decent gas mileage and run it into the ground over 2 or 3 years and then do it again. But people don’t do that because cars are something more than just a means of transportation (for better or for worse).

    PS: The Volt is a lot more fun to drive than a Corolla which also needs to be taken into consideration. I’ve been one of the lucky few that have had a chance to hop in. The handling is superb (low center of gravity and even front/back weight distribution due to the battery and decent sized wheels helps on this end) and the acceleration – while it’s not a sports car or anything – is pretty quick and there is something special about having full torque right from the start. The lack of a traditional transmission and eerie silence during all out acceleration is surreal as well.

  3. Ken says:

    Agreed. 40K is just too much for most folks in this depressed economy. I’ve read of conversions that can be done for 10K to turn a gas engine car into a 100% electric model. That is more feasible for now, until the cost of mass producing these electric cars can be brought down to a level more competitive with gas cars.

  4. LP says:

    Don’t you love the TCO analysis with cars. Let’s compare a TATA with a Ferrari.

    Ego is huge thing. If you move to a Acura, it’s hard to move back to Corolla. Likewise, if you move to an S class it’s hard to move to back to the Acura.

    However, it’s weird when people who can afford Phantoms buy a Prius. For some reason a Prius is above it.

    So as a future Prius owner and a current Camry Hybrid owner, it’s hard for me to move to a corolla. Even if the TCO is better on the Corolla.

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