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the analysis Posted by saabsince 93b [Email]  (#972)  [Profile/Gallery]
(more from saabsince 93b) on Sun, 23 Sep 2012 10:36:58
In Reply to: GM's accounting is suspect, Bill Homer  [Profile/Gallery]
, Sun, 23 Sep 2012 10:18:55
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http://seekingalpha.com/article/860881-does-general-motors-lose-49-000-on-each-volt
QUOTE:
Using the data from Munro & Associates, Reuters calculated that General Motors (GM) spends an average of $89,000 to produce each Volt, while the revenue generated by each Volt sits at $40,000. This indicates a loss of $49,000 on each Volt sold. The number is large enough to devastate investors in the company (including the government) who are looking for a return on their investment. GM argues that the number reflects one-time product research and development costs. Basically, according to the company's argument, as the company sells more Volt cars, the average research and development cost per car will come down. I certainly agree with this argument, but it comes with a caveat: Will GM ever be able to sell enough cars to break even with Volt? This is a very tough call. In GM's defense, the company could use some of the knowledge it acquired during the research and development phase of Volt when building other cars. In the car industry, it is very difficult to specify exactly how much of research spending goes to which model.
Adding insult to injury was the company's cheap lease options this summer. The company's goal was to attract more people to the idea of driving an electric car. GM allowed people to lease a brand new Volt for two years at a cost of $5,000. Considering the high average cost of each car for GM to produce, the loss gets deeper. At the end of a two-year lease period, the car is likely to lose a much greater value than $5,000 as new cars tend to lose a lot of value within the first two years of usage. If the leasers don't buy the cars they lease at the end of the two-year period, this may hurt GM's investors deeply.
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