GM losing $49,000 on every Volt sold, but will make it up on volume!

That is about the price of a dealer installed prius battery.

 

I'd like to see a link if you can. The customer bill might be $2500 + labor, but that does not prove the list price. There are dozens of stories here on PC of Toyota discounting repairs for off warranty work, but that is Toyota discretion.

 

What does that have to do with cost ?

Automakers routinely fork out good-will money for special circumstances. It's good consumer relations.

 

I at least am not talking about GM's cost, but list price to the consumer (or insurance company, e.g).

 

That is absolutely correct john, they are likely replacing them at a loss, since they expect to not replace many. Good customer service at a low cost to gm. He was pointing it out, because some posters were acting as if gm would be ripping of consumers on replacement parts.

The cost in the article seemed to say $20K-$32K, which would lead us to believe there is a small profit,not a loss on each one produced. I have no idea if this is accurate, if it is I would assume the high end of the scale. This profit is not enough to make up for development. GM says that will happen in gen 2. We will wait and see if that is true, but we should not consider the misinformation accurate.

 

I'm not convinced the replacement was done at a loss, considering that GM received the damaged battery in return. It is very likely that the damaged battery could be remanufactured for less than $2500.

 

Sure, so long as you ignore the R&D and carrying costs of a repair facility as a "strategic asset."

LOL

Show me a list price of a remanufactured battery, and I'll give a drop of credence to your fantasy. I may not even mention you have no idea what damage the returned battery sustained.

 

That would imply the cost will go up as cars reach end of warranty.

Man that would be funny.

 

My apology SageBrush, I have you on my ignore list so I usually don't see your posts. I don't have any idea how much damage the battery sustained. I am extrapolating from some experiences of Prius owners that have had their traction battery re-manufactured by one of the few independent shops around the country.

Perhaps bwilson4web can comment on re-manufacturing of traction batteries.

 

I paid $1,700 for my ReInVolt battery in November 2010 and have no regrets. There was nothing wrong with the original traction battery pack and I continue to repurpose the modules. But I wanted the lower internal resistance and improved heat capacity of the newer modules. I simply choose to upgrade my pack . . . before prices went up.

Bob Wilson

 

SageBrush, ReInVolt remanufactures Prius batteries (exchange) for $1875 (I must be dreaming). I would be curious as to your estimate of ReInVolt's

On second thought, I would not be curious about your estimate, for somewhat obvious reasons.

Remanufactured Hybrid Vehicle Battery Packs

 

It only matters what it costs to build 1 more volt, not what was spent developing it. The sunk costs are gone. It pays to make the car as long as your selling price exceeds your marginal cost. Besides the costs occured mostly before bankruptcy.

 

I think this is the key point, the article makes it sound like it doesn't make sense to keep selling them because each unit is being sold at a giant loss (using their math). However there is not a good look on how much of those development costs are recouped on each sale or what sales would ultimately need to be to break even as it were.

 

As is said, the decision to produce has nothing to do with development costs at this point. Maybe if they calculated correctly before, they would not have built it, although there were other driving forces besides $, like the fear of being behind the competition on hybrids. The decision to continue producing should only be made on the cost to make the car without the burden of amortized costs. They may never recoup all the development costs, but they may reach the point (or have reached it) where the direct costs to build the car are below the selling price, then they will make a profit. If they cancel the volt, then they will need to write off all the R&D and take a huge hit. The sunk costs should not enter into the decision to continue producing a product.

 

That reasoning sounds about right so far as it goes, but there are ongoing carrying and opportunity costs to consider.

 

Carrying (rent, sales staff) costs (a.k.a. indirect costs) are real costs and need to be allocated in the decision making but it is not uncommon for a company to have many different products and have significant variations in expected contributing margins across the product line -- i.e. indirect costs often not allocated equally. As long as a product has positive margins, its contributing something to covering fixed costs. I've not seen any numbers, but that is not surprising. In normal accounting, one either looks at gross profit for a product, or net profit, and its rare for anything else to be reported for a particular product/division. Gross profit for a product excluded indirect costs, while net included all allocation for indirect (which included R&D allocations, depreciation of capital investments/buildings, ammoritizaiton etc). It is very uncommon to see discussion of per-product/line/division for any intermediate model, though companies do talk ab EBIDTA, its not usually applied to products.

The Forbes article quoting Lutz suggests the volt is in at variable-break-even/positive gross margin but does state "Deduct the per-unit allocation for all fixed cost, depreciation and amortization and it is, surely, still “under water”….but not by much, and less and less so as the volume builds and other, higher-margin GM cars, like the Cadillac ELR, piggy-back off of the Volt’s initial investment." The overall net profit will depend on ELR because that means the costs of R&D and some of the capital investments will be spread over a larger base.

However, opportunity costs are intangible and not included in accounting (even though some intangibles such as IP from research are). While opportunity costs are intangible they are often used in decision making, and may impact market perception, but would been to be weighted against intangible gains such as such as the halo effect (indirectly supporting sales and reducing the cost of customer acquisiton), the value of market precpetion and the brand value. All of these items only have indirect financial impact, but can factor in many ways not directly reflected on the balance sheet. They are notoriously difficult to allocate and rarely is such allocation discussed publicly. GM's balance sheet is not great, and the market value is impacted by many things. Intangibles can help justify the company "goodwill" on their balance sheet, but they cannot be allocated directly. So maybe the Volt helped to justify the 30B (now 29Billion) of goodwill on the GM balance sheet retained that is relatively unprecedented for a company that went through bankruptcy. Maybe the board sees it as important to the public perception that impacts their share price. Even if just a contributing element to the perceived value, they can consider it to have generated serious tangible value in an indirect way that more than offsets the intangible opportunity costs.

 

That isn't a news article, its an opinion piece written by Bob Lutz for Forbes. They also are carrying an anti-volt option piece. We should never blur the differences. IMHO, gm is doing the ELR, so they can go less expensive on the next gen volt. It's Lutz's opinion that it will be higher margin, but I do not share this projection that the ELR will be economically profitable - have a ROI above gm's hurdle rate.

+1

Exactly. There are costs in cancelling the program, including bad will from the Unions, engineers, and those that like plug-in technology. The marginal costs are less than the sales price.

 

Agreed its just Lutz's opinion, ut that is far more informed than any of us here and probably more informed than most news articles. I would also agree that the ELR potential for profitability is uncertain, though Lutz did not say it would be profitable, just that it would have a higher margin. There is a big R&D expense to recover , so profitability for the line may take many years, if ever. But independent of the ELR profitability, more vehicles still spreads the fixed costs over a larger pool which decreases the net costs per vehicle moving both the Volt and the ELR closer to net profit. As with the volt there are intangibles that will factor into the decision and I agree, once the ELR is out, volt Gen2 may be able to cut back with a base model (mape keep a advance model that is upscale) and lower the cost for the base model.

 

And don't underestimate the value of the Volt in attracting young and talented engineers to GM.

 

The problem though is the mixed messages we get from GM. The speed & direction of Volt is quite unclear. How much is being invested with resources also spread to other fuel-efficiency efforts?