Should GM Cut the Price or De-Content the Chevy Volt?
The Volt scored a victory last month, when one driven by Leo Karl III (and navigated by me) came in second, beating out an even dozen Tesla Model S cars in Connecticut’s EV Road Rally. But the month overall wasn’t very good for G.M.'s halo car, because the Volt got trounced by the Nissan LEAF in the marketplace.
In April, Volt sales fell 11 percent from the same month last year. The Volt has generally been leading the LEAF (that range anxiety thing), but last month the LEAF was decidedly in the lead, with 1,937 sales compared to the Volt’s 1,306. The Tesla Model S is also outselling the Volt now.
The LEAF's Lead
Nissan’s success probably has something to do with the LEAF’s $6,000 price cut on the basic model, which came with a whole host of improvements to the car.
The question, then, is how should G.M. fix sales of the Volt for the 2014 model? Can they be fixed easily? Should the company cut the car’s $39,995 (before the federal tax credit) MSRP? It does seem that potential buyers should be enticed with something more than two new colors.
I have some thoughts on that, and so do experts I talked to. And G.M. C.E.O. Dan Akerson weighed in, saying in a London speech in April that the Volt would be selling steadily if the company could just knock $5,000 or more off the price. “This is a unique car that has one disadvantage: That’s the cost at its current volume,” he told Automotive News. “If we can knock on the order of $5,000 to $10,000—pick a number, $7,000—off of this thing, yeah, it’ll be a fine car.”
A Bold Price Cut
With the drop in gas prices threatening Volt sales even more, I think a price cut (and maybe some improvements) are in order. The company should cut the price by $2,500 or more, even though it will make an unprofitable car even less profitable. That tactic worked for Toyota, which lost money on every Prius sale for years before it started printing money based on volume and lower cost of production.
In general, American automakers have been reluctant to do this, and it has cost them. The Big Three refused to market a hybrid in 2000, even though they had developed prototypes, because they were afraid of losing money on cars with two powertrains. Toyota and Honda had the hybrid field to themselves for four years.
John Gartner, a senior analyst at Pike Research, concurs. “The Volt has been very well received by customers, but the higher price continues to be an impediment to growing sales,” he said. “With LG Chem now producing batteries in the U.S. for the Volt, G.M. would be wise to pass reductions in battery costs on consumers to become more price competitive. The plug-in vehicle market will only get more crowded with vehicles such as the Honda Accord PHEV likely to vie for market share, which will require GM to be more aggressive.”
A De-Contented, Entry-Level Volt
Leo Karl III, my driving partner in the EV rally, is a Chevrolet dealer in New Canaan, Conn., and has sold 69 Volts. He has a great idea: How about an introductory loss-leader? "We do run the risk of alienating those customers who have already bought the car with an across-the-board price cut," he said. "But a slightly de-contented model could work."
How would that look on the ground? "For instance," says Karl, "the car doesn't really need the software that delays charging based on the grid price—it's probably duplicative of the capability of the garage chargers. And there could be some reduction of comfort and convenience features. It's a very well-equipped car, which G.M. tried to make perfect out of the gate. My gut from talking to people is that the company is going to come out with a more basic version as a price leader."
Jack Nerad, executive editorial director at Kelley Blue Book, sees the value in a price cut, but strikes a cautionary note. “Dropping the price by $6,000, as Nissan did with the LEAF, would certainly add a boost to Chevy Volt sales,” he said, “and if that price cut were to be accompanied by a snappy ad campaign with a big media spend, that would provide yet a bigger boost.”
The Bottom Line
But can GM afford it? “Right now,” Nerad said, “all the car companies are doing an internal calculus of how much they want to spend kicking up sales of electric and electrically driven vehicles. Given the economics of such vehicles it is highly doubtful that any car company is making money selling them, and from a profit point of view the future of such vehicles is also cloudy.”
I take Nerad’s point. G.M. isn’t going to make money selling the Volt, but that's true no matter what it does. The company needs to get some sales momentum going, and make the car more visible. The word of mouth needs to spread. I think the benefits of a price cut would outweigh the risks. Lease customers have been getting a break—some are paying $159 a month for 24 months. "It's an amazing lease deal," says Karl. But people who pay upfront need something similar.
And how about a few low-cost add-ons on the upper-level model, if it comes to that? G.M. can’t do anything about the relatively cramped back seat (it’s a four-seater, not a five-seater), but it might add some deluxe finishing trim. It could also improve some of the non-intuitive touch sensitive buttons, improve the heater and/or the entertainment system to reduce the electricity draw, and maybe make a few tweaks for slightly higher range or reduced charging times. That’s what Nissan did to the LEAF.
As Nerad points out, “With fuel prices going down and fuel efficiency from gasoline-fueled cars going up, there is a double squeeze on electrics, plug-in hybrids and the Volt.” So my point then is that consumers need to see the car as something of a bargain to make the leap in this climate.
A further challenge comes from within G.M., Nerad says. “The Spark, which is about to launch, will be significantly cheaper and, as an all-electric, it could have more appeal to environmentalists than the Volt that still burns gasoline. G.M. has obviously done its own calculus on the issue and decided this is the best course rather than promoting Volt.”
I dunno. Akerson obviously has fire in his belly about selling more Volts. I expect to see G.M. make some kind of move beyond making the car available at the same price in Brownstone Metallic and Ashen Gray Metallic.
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