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Will the Chevy Volt Survive Bankruptcy?

By · May 31, 2009

Chevy Volt at Sunset

In the direct aftermath of General Motors filing for Chapter 11 this morning, the fate of the Chevy Volt remains unclear. The Volt, a plug-in hybrid that promises 40 miles of gas-free all-electric driving, is considered a Hail Mary pass for market relevance that the old GM never got a chance to throw. The ability to move forward on the Volt, to some degree, rests in the hands of the Obama Administration. The fate of the Volt also represents a potential conflict of interest for the federal government, which will need to balance its interest in leading GM toward financial viability with its political agenda to have US automakers produce the next generation of advanced fuel-efficient vehicles.

President Barack Obama gave little direct indication about the future of the Volt in his press conference this morning about GM’s bankruptcy. He did mention his administrations plans for a “green jobs training program” for US autoworkers and the federal government’s purchase of a fleet of cars (with an emphasis on high-mpg cars). Obama also mentioned pending legislation for a “fleet modernization program,” also referred to as “Cash for Clunkers,” in which consumers receive federal support for trading in old vehicle for new fuel-efficient cars.

GM’s chief executive, Fritz Henderson, was more explicit in his remarks following Obama’s presentation. Henderson said, "Between demand and the requirements of the law, the fuel efficiency of our vehicles is going to improve. I think the technologies we’re investing in, whether it’s the Volt, whether it’s hybrid technologies, whether it’s basic research, is all important to get that accomplished. Our objectives, both to the firm and the market, are in alignment not only with President Obama but with governments around the world with reference to having more fuel efficient vehicles." Henderson said that GM is making its plans with the assumption that "we will see higher oil prices than we see today." He said the company learned from 2008 that economic growth can produce “sharp increases” in oil prices.

Tough Decisions for "New GM"

The company will shed 21,000 union workers, close 12 to 20 factories, and close 40 percent of the company’s 6,000 dealerships. In this context, does it make sense to save an expensive future product that will lose money for many years? Questions about the Volt go beyond a simple "yes or no" decision. How many will be made? How much will it cost? How will it be marketed? When is it expected to turn a profit? In his press conference, Obama promised that GM's board will “call the shots.” He said “the new GM, not the US Government, will make those [tough] decisions.”

The new GM will be 60 percent government owned, and though day-to-day decisions will not be made from the Oval Office, the administration has hand-picked Albert A. Koch to act as chief restructuring officer for GM, meaning that whatever emerges from the rubble could closely resemble the government's vision.

During the 2008 campaign, President Obama repeatedly name-dropped the Volt and set a goal of 1 million plug-in hybrids on American roads by 2015. In his first address to Congress in February, Obama seemingly referenced the promise of the Volt when he pledged that a substantial portion of the plug-in hybrids of the future would be American made. Consumer tax incentives issued as part of Obama's economic stimulus package were identically aligned with the technical specs of the Chevy Volt.

But with fuel prices considerably lower than they were last summer and no guarantee that the Volt will hit profitability for several model years, it's not clear how the vehicle might fit into GM's immediate plans. Scheduled for a 2010 release—with a sticker price of around $40,000—it's unlikely that the first wave of Volts will be much more than niche products. Obama's Presidential Task Force on Automobiles said in its assessment of electric cars and GM's restructuring plans that "while the Chevy Volt holds promise, it will likely be too expensive to be commercially successful in the short-term." Anonymous sources on the task force though, promised Bloomberg News that the administration has no plans to cancel the Volt.

Image Versus Profitability

With the market for cars down across the board, estimates of the size of the first run of Volts have fallen from upwards of 50,000 to as few as 11,000. Like the Toyota Prius gas-electric hybrid before it, the Volt is more likely to start out as a curiosity, and as the sticker price drops—and gas prices rise—to spread from trendier urban areas to the heartland.

From GM's standpoint, even if it isn't a huge seller for the first few years, the Volt offers several advantages. With CAFE standards about to begin a steady climb, the Volt’s underlying technology could help the company meet the tougher standards—although probably not for several more years. The specialized components and systems found in the Volt's powertrain are likely to factor into future plug-in vehicles. As production increases, the cost of plug-in cars is expected to become more affordable.

More importantly, there's the matter of image. If successful, the Volt could be to GM what the iPod was for Apple: a game changing product that generates excitement about the brand—something the company desperately needs. The symbolism of the Volt could play a role for the company’s future, but the much bigger and more immediate impact to the bottom line will come from GM producing a leaner and meaner fuel-efficient cars for its entire lineup. With the government now serving as a primary owner of GM, it's likely that the car GM’s executives swore would save General Motors will at least be given a chance.

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