GM's hybrid premium

[DeadPhish]

Originally Posted by JackDodge

We have all heard the Detroit 3's counter to buying a hybrid as "costing you thousands of dollars more" and that it will take you years to make it back. BusinessWeek recently detailed GM's entry in to the hybrid market as possibly being too late even though necessary. GM's Lutz, long a V8, nothing can guzzle too much gas fanatic, has seen the light, even though GM's engineers and designers still insist that their customers only want gas hogs. In the article "GM's Challenge: Live Green or Die", Lutz is quoted as berating them with "You people don't understand. Everything has changed." GM's marketers tell Lutz that the Cadillac that he wants them to shrink and get 37 mpg isn't what buyers want. That bigger and more powerful is what they want. The great quote from Lutz counters "It is now, but it won't be in 2011"

So Mr. V-8 gets it at last. But the real meat of the article is GM's hybrid premium in stark contrast to Toyota's and Honda's. Currently, the bare minimum premium for a GM hybrid stands at a whopping $10,000. That's in sharp contrast to Toyota's premium which is now around $4,000. Perhaps the Detroit 3 crowd shouldn't have been shouting their "thousands of dollars more" mantra for the past few years since GM's premium is, in fact, thousands of dollars more than their Asian competitors, eh?

To be a little more accurate. I've done a very detailed comparo of GM's 2-Mode pricing and the premium is nowhere near the $10000 figure quoted in the press. In general the press is horribly incompetent in assessing these issues. They have consistently gotten the Toyota numbers wrong and now they get the GM numbers wrong....along with the Toyotas still.

It's all about comparing equal vehicles as much as possible.

Roughly the new 2-Mode Tahoe is a very very well-appointed vehicle which, equipment-sise, is somewhere above the LT trim which lists for about $45000 but below the LTZ trim which lists for $50-$53K. Let's say if the vehicle wasn't a hybrid it should list for about $47000. As a hybrid it lists for $51000 ( 2WD ) to $55000 ( 4WD ). The premium is about $5000-$6000.

The Toyota hybrid premiums are all over the place.
The Prius pckg #2 is now about $3700 above the Matrix with similar features.
The TCH is about $2700 higher than the Camry 4c XLE trim with similar features.
The HH @ $37000 is about $4500 higher than the gasser version.

What is the real 'premium' for Toyota? I'd guess about $2000 tops.

[DeadPhish]

Originally Posted by JackDodge

Just the article itself. If that's not good enough, then you're free to do more research on your own.

"Getting the product mix right isn't the only worry weighing on Wagoner and Lutz. GM also has a long way to go before it can make its new technology cheaply enough. Toyota has cut the cost of its hybrid system to nearly $4,000 a car, says consulting firm 2953 Analytics. Lutz figures GM will be lucky to get the cost down to $10,000 per vehicle by 2010. Translation: GM will have to charge consumers a lot more for hybrids. "GM, like everyone else, is serious about this because they have to be," says a Honda executive. "But how many of their hybrids and how many Volts will they sell? Their technology is very expensive." Then there is the marketing challenge. Even Ford has been selling a hybrid SUV for several years. GM, best known for the Hummer, will have a hard time persuading consumers its cars are green."

Again there is a little bit of smoke and mirrors here on GM's part, intentionally. Let's apply some known factors.

The Tahoe 2-M ( T2M ) is an SUV with certain equipment. If it wasn't a hybrid it would list for about $47000 ( 2WD ).

It has two small motors inside its transmission... Cost? $400?
It has a NiMH battery pack............................ Cost? $2500 OEM cost?
It has some extra wiring................................ Minimal
It has some significant R&D to be amortized ( see below )
It is being built on an existing SUV line in an existing plant... Minimal
Anything I've left out?

Outside of the R&D amortization the 'extra costs' are about $3000 which is right in line with Toyota and Honda and Ford, why shouldn't they be? So the key difference is the R&D amortization.

In it's press announcement GM already stated that the development of the 2-Modes was about $1.0 Billion. But that cost was shared with Daimler and BMW. Lets say GM was the lead and took the most cost.
$500 million GM
$250 million MB
$250 million BMW

So GM has spent already $500 million on R&D. That's gone spent already. Thus the out-of-pocket cost to build one of these T2M's actually is about $3000. But as good business practices they should look to recoup their R&D moneys spent over the past 5 yrs or so. To recoup these funds you need to present your case to smart buyers. People spending $50000+ on a vehicle usually know how business works and they understand figures. Many own or operate their own businesses.

First year's production is estimated at 10,000 units
$500,000,000 / 10,000 units = $50,000 amortization.. Nope that won't fly.

Let's say like most businesses they decide to amortize over 5 years with slightly increasing volumes such as 10000, 15000, 20000, 25000, 30000 units for a total 5 -yr production of 100,000 units.
$500,000,000 / 100,000 units = $5000 amortization

Now this begins to make sense. $3000 actual extra costs per unit plus $5000 amortization on the first 100,000 units is just about an $8000 'premium'. But when unit No 100,001 is reached the R&D is fully paid back and that $5000 'cost' now becomes a $5000 profit....Cha Ching!!!!

But it gets better... The 2-Mode technology is going to be added to the Escalade, Silverado, Sierra, Vue, Aura, Malibu and lambda triplets. That 100,000 unit schedule is likely to be reached well before 5 yrs.

However all bets are off if fuel ends up going to $6 a gallon such that no amount of gas savings can rescue the big V8 SUVs and trucks. They will have to rely entirely on the crossovers and cars...not surprisingly just as Ford and Toyota are doing.

[JackDodge]

Originally Posted by hiremichaelreid

So, SOME engineers and designers say SOME people don't want smaller cars. If the get good FE, I don't think people will say "I want a gas hog" !

Summary makes it sound like Lutz is a greenie who is "fighting the good fight" against his evil engineers and designers. IMO, truth is they are in a panic and want to spread the word that they will soon have great vehicles with 10 years of engineering crammed into 2-3 years.

Yeah, right... good luck with that Lutz...

I've always wondered who they're talking to when they say that the buyers want more power. Of course, the car companies consider the dealers to be their real customers and some of those around here have Corvette fetishes so it's not THAT difficult to know who's telling them to build gas hogs. We must always remember that, that as far as GM is concerned, we aren't the ones they listen to.

[Rybold]

Originally Posted by hampdenwireless

Toyota does the same with the Camry. Discounts are more available on the non hybrid Camrys at dealers, and less so on the Hybrids. Of course that Premium is much less and Toyota is selling the Camry hybrids quickly.

With the Camry, that statement may have been perfectly valid a few months ago, but today, I think part of it also has to do with demand outpacing supply. (like with the Prius)

DOES ANYONE HAVE ANY FIGURES FROM HONDA?

Originally Posted by hiremichaelreid

"Not all of Lutz's staff agree with his thinking. He wants to shrink cars like the midsize Cadillac, but some engineers and designers say doing so will make the cars less appealing to luxury buyers and families."

In the luxury market, I don't think gas prices are much of an issue. Someone who buys a $150,000 SL65 AMG is buying it for the same reason they bought one two years ago - because they want power. Those people live in fancy houses, buy $200 shoes, and they want to extend their luxurious power to the road also. Someone that buys a Cadillac CTS-V (the Corvette engine) probably has the same mindset. They don't want a Prius. They are loaded and they want power over other drivers!

I think there will ALWAYS be a separation there. The mass public may move to hybrids (I hope they do, and it appears the public does also), but the luxury market is a whole different customer. Sure, yes, there are some wealthy people that want to be ecofriendly, and there are also some that save their pennies so they can make big purchases - that segment of the market will opt for hybrid luxury vehicles. But the mainstream luxury market is a whole different customer from your hybrid customer. For starters, those people are paying $80 grand for a car in the first place, when they could buy five Yarises for the same amount. It's a whole different customer.

Did you know that the Porsche Boxter is EPA rated hwy at 29mpg? I applaud Porsche for never using a V8 in their cars. A turbocharged six is significantly more effiecient, and when you are not 'racing,' you get great everyday fuel economy.

[Rybold]

Originally Posted by JackDodge

I've always wondered who they're talking to when they say that the buyers want more power. Of course, the car companies consider the dealers to be their real customers and some of those around here have Corvette fetishes so it's not THAT difficult to know who's telling them to build gas hogs. We must always remember that, that as far as GM is concerned, we aren't the ones they listen to.

Actually, I think the sales numbers are the most significant influence, and therefore the customers are the ones they listen to. If a certain model of vehicle does not sell, it will be discontinued. Another factor that auto dealers pay attention to is the average number of days a vehicle sits on the lot before it is sold. This reflects the demand for the vehicle. When a vehicle has more demand than supply (what the Prius is currently experiencing), you better bet every single automaker is taking notice.

[JackDodge]

Originally Posted by Rybold

Actually, I think the sales numbers are the most significant influence, and therefore the customers are the ones they listen to. If a certain model of vehicle does not sell, it will be discontinued. Another factor that auto dealers pay attention to is the average number of days a vehicle sits on the lot before it is sold. This reflects the demand for the vehicle. When a vehicle has more demand than supply (what the Prius is currently experiencing), you better bet every single automaker is taking notice.

Yeah, that's true. I doubt seriously that Lutz has magically turned in to a tree-hugger but I think that, from a business perspective, he finally gets it. That is, sure, there are still people who can afford big and powerful today, but by 2011, their ranks will be decimated as even people who are very wealthy will have gotten very tired of $8 per gallon. As Kunstler has stated before, this isn't the end of oil, it's just the end of CHEAP oil. It helps that people like Lutz finally realize that and will adjust their companies accordingly. The market will force the Detroit 3 to turn out higher mileage vehicles; they can't lobby their way out of that.

[cwerdna]

Originally Posted by Rybold

Did you know that the Porsche Boxter is EPA rated hwy at 29mpg? I applaud Porsche for never using a V8 in their cars. A turbocharged six is significantly more effiecient, and when you are not 'racing,' you get great everyday fuel economy.

No, I didn't realize it was that high and it's actually respectable compared to other sports cars... however, it's actually not that great if you compare it what say the Honda Accord V6 sedan gets. Per Side-by-Side Comparison, it seems the only 08 Boxster that gets 29 highway mpg is the 2.7L w/5 speed manual at 20/29, 23 combined. The auto is rated at 19/26, 21 combined. Those are only 245 hp and weigh a pretty light 2877 and 3009 lbs. respectively.

The 08 Honda Accord V6 w/an automatic w/268 hp weighing in at 3657 to 3600 lbs. manages 19/29, 22 combined.

FWIW, Porsche went with a V10 for the super exotic and rare Carrera GT.

I wouldn't be surprised if Porsche has seemingly shied away from 8 cylinder engines or above for cars to keep down weight and to keep from paying even more in CAFE fines (http://www.nhtsa.dot.gov/portal/nhts...CAFE_Fines.pdf).

[Tideland Prius]

I would think an 8 cylinder boxer engine would be too large!

[dogfriend]

Originally Posted by Rybold

I applaud Porsche for never using a V8 in their cars.

You have a short memory or you aren't very old.


Porsche 928 - Wikipedia, the free encyclopedia

[hschuck]

Porsche also puts a V8 in their current SUV.