Why General Motors Hail Mary Volt May Fail

Did anyone do the math to see if anyone would actually buy into the Chevy Volt hype and hoopla?

But, $40,000? That is almost exactly what you'd pay for a new BMW 335i ($40,300) and not too far off the asking price of a new Mercedes-Benz E-Class ($48,050). These are fine cars, but not exactly marketed to people who are concerned about their pocketbooks.

Forty Thousand Dollars. That is a lot of coin. Even with a government subsidy (on top of the subsidy GM has built into the car's price) expected to be as much as $7,500 (thank you, fellow taxpayer), the potential Volt buyer is looking at a bottom line price that is right there in the entry-luxury range -- and roughly three times the cost of a new econobox.

Does it compute? Well, let's see... .

For the sake of discussion, we'll take GM's 230 mpg claim at face value. This figure is about four times the published mileage of the 2010 Toyota Prius (50 mpg, average). But the Prius costs just over half as much ($22k). So, the Volt buyer would have to "work off" the approximate $18,000 difference ($12,000 or so, if you subtract the proposed $7,500 government subsidy).

Twelve grand buys one helluva lot of gas -- even at $3 per gallon. Four thousand gallons, to be precise. If whatever you are driving now gets an average of 25 mpg (half what the Prius gets) that 4,000 gallons would keep you going for 160,000 miles.

Apparently GM didn't. They're looking to price the car around $40,000. That's a whole lot of money, and puts it in direct competition with high end luxury cars, the BMWs, Mercedes, Infinitis and Lexus of the world.

What kind of ride are you getting for that? Well, you are getting a purported 230 mpg (which as I've noted previously relies on some slick math and assumptions). When you compare it to other high gas mileage cars, it would take years - decades even, before you break even at regular annual mileages.

So, it wouldn't be the average Joe buying the car. It would be the Ed Begley Jrs., the Leonardo DiCaprios, and the Bill Nyes of the world that can afford to indulge in this kind of purchase.

It's the rich that drives the marketplace and brings down the prices. They're the early adopters, and they have to buy in significant numbers to bring down the production costs and make it worthwhile for GM to expand production. As currently conceived and priced, this isn't a car for the masses like the Prius or other hybrids currently available.

GM has made a multibillion dollar bet that the Volt will catch on, and that prices will drop to sustain the company going forward. The problem is that if GM has to sell the vehicles at a loss, the Volt does the company no favors, it only adds to the problems. The price may work to balance the books, but it isn't at a price-point that would get the sales volume needed to make it work, even when you throw in the government subsidy/rebate of $7,500.

This is what makes so little sense. The government is providing a $7,500 incentive for energy efficient cars, but it isn't available for use to purchase cars like the Honda Civic or Toyota Corolla that are extremely dependable and get better than 30 mpg in mixed driving. You can find used Civics and Corollas for $7,500, and not only would most purchasers avoid getting into debt (a recurring problem and one of the reasons that the economy is in the doldrums as easy credit made overextension all too easy) to buy a car, but they'd get a car that will deliver bang for the buck.

The Volt seems to be more of a proof-of-concept vehicle, rather than one meant to replace the standard internal combustion engine-powered car. The Volt might answer the question of whether it can be done with an electric plug in vehicle, but it might not end up being the panacea that proponents hope for.

If anything, the $7,500 is little more than an indirect subsidy to GM and other automakers to produce hybrids and high efficiency car models that can't be bought at prices that are sustainable based on pure market pricing; they need the additional incentives to move off dealer lots.