Are the Chevy Volt's sales being inflated by "giveaway" leases?

The Chevy Volt, which the Obama administration has hailed as the vanguard of its green-energy subsidy efforts, has had a bad month in the news.  While GM announced a sales record for the plug-in hybrid for August, Reuters pointed out that the company was losing around $49,000 per vehicle in those sales, pouring red ink into an automaker that can’t deal with the money it already owes taxpayers.  Fox News then reported that the sales record came in part because the Department of Defense began ramping up purchases of the Volt, making it look like another bailout was in process.

Earlier this week, Forbes discovered how GM was able to claim a record in the first place.  The company has been practically giving away Volts in its lease program:

GM is giving away rent-a-Volts. While the claim of 2800+ sales in August is certainly enough to still the Volt’s critics, at least until Election Day (which is all that really matters to the current management), that number is an automotive Potemkin Village, concealing enough rot to make any czar, car or otherwise, proud.

With additional subsidies from GM (that would be you and me), Chevrolet dealers in August were offering two-year Volt leases for as little as $250 down and $199/month.  Fully 2/3s of the “sales” were leases, leaving around 925 cars that were truly sold.  Prior to the giveaway leases, GM says that 40% of 2012 sales were also leases.  The number remains the same—an average of about 925 cars really sold each month for this year.

Automotive News recently reported that the feds have purchased 182 Volts so far in 2012.  Now we’re down to 900 real sales per month..  Corporate (fleet) sales are conservatively estimated at 5% of the total, putting the consumer number closer to 850.

Two years at $199 a month and $250 down amounts to $5,026.  What happens at the end of two years?  Either the lessee buys the vehicle, or the dealer takes it back to sell as a used car.  The car becomes a write-off for GM, while the dealer pockets most of the proceeds, according to Forbes. The big loser? Taxpayers, who both own GM stock and pay the bill for all the subsidies, as well as the write-off losses in deductions from taxable corporate income.

The truth is that there isn’t much of a market for the Volt, and there probably wouldn’t be any without the massive subsidies provided by taxpayers.  It’s not difficult to determine why.

  • Sustained value — There isn’t any in the Volt. For the sticker price — even with the subsidies — it’s underpowered and undersized compared to the rest of the market.  Thanks to a massive battery replacement cost at somewhere around the 8-year mark, there won’t be any trade-in or resale value for the car, either, which is why lessees are highly unlikely to buy the car from GM at the end of the two-year lease.  Without that battery replacement, the Volt becomes an underpowered, undersized, and overly expensive internal-combustion vehicle.
  • Energy — Much is made of the cleanliness of the plug-in chargeability, especially in ads for the Volt and the Nissan Leaf.  But about half the energy to recharge the battery comes from coal, which is the main contributor to American electrical production.  The internal-combustion engines in most cars are more efficient at using gasoline, with the ability to control emissions better, too.  Thanks to a raft of new EPA regulations on coal, electricity production will be declining since other technologies aren’t ready to take its place in terms of mass-production capability, which means that the lengthy recharge will end up costing consumers more than a trip to the gas station — and that gets more pronounced the more vehicles we move away from gasoline and onto an already-limited electrical grid.
  • Environment — Apart from the concerns above, the manufacture of these batteries — and especially their disposal — will create massive environmental problems.  Rare-earth elements necessary to their production are rare indeed in the US, which means we will have to increase our dependence on Asia for those commodities.  The manufacture of battery arrays is notoriously bad for the environment, and we’re now talking about multiplying the need per car.  Disposal is even worse; it will make the environment more toxic rather than less, and the long-term prospects for manufacturing aren’t good unless we find greater reserves of these elements.

The concept of the electric vehicle has been around a long time, but has never been suitable for mass production, except as golf carts with limited use.  We shouldn’t close our eyes to the possibilities of these kinds of vehicles, but neither should we subsidize inefficiency and counter-productive technologies in the vain hope that we can make up massive losses by selling in large volume, which is the kind of thinking that put GM in need of a bailout in the first place.  We should be looking at other fuel options, such as hydrogen or natural gas (a vehicle technology that’s also been around for decades) rather than continue to throw money away on a failure.