Why the Chevy Volt Is Such a Scandal

Even though General Motors (NYSE: GM  ) mostly seems to be doing the right things here, the issue with the Chevy Volt's battery continues to generate a lot of fuss.

Though a Reuters report late last week suggested that GM is closing in on a fix for the Volt's batteries, which could combust after an accident, reports also surfaced that the General has turned to a different battery supplier -- A123 Systems (Nasdaq: AONE  ) -- and a different lithium-ion battery technology for its upcoming electric Chevy Spark model.

That suggests that there may be a larger problem with the specific type of batteries used in the Volt. And because it's not a real scandal unless Congress is involved, three House Republicans, describing themselves as "deeply troubled," accused federal regulators last week of withholding information about the car's safety.

Naturally, the members of Congress have scheduled hearings for next month. Expect them to be televised.

How big of a headache is this going to be for GM?

A bigger problem than a burning battery pack
It's worth remembering that the Volt's issue -- that a damaged battery pack could catch fire days or weeks after a serious collision -- has so far caused exactly zero injuries or problems with customers' cars. Both of the Volt battery packs that have caught fire so far were in the hands of the National Highway Traffic Safety Administration, the agency responsible for crash-testing new cars sold in the U.S. (In the case of the second fire, the battery pack was a stand-alone unit that had been deliberately damaged by a team of NHTSA and GM engineers . Only one actual Volt -- the one originally crash-tested by the feds -- has burned as a result of the problem so far.)

With another company, at another historical moment, it would be easy to write this off as teething trouble with a new technology. Lithium-ion batteries are new to autos, and several different varieties are coming into service for the first time. The battery that GM is using in the Volt (and that Ford (NYSE: F  ) is using in its Focus Electric) is different in details from those in the latest Toyota (NYSE: TM  ) and Honda (NYSE: HMC  ) models, and very different from the packs used by Tesla Motors (Nasdaq: TSLA  ) .

With that said, from any reasonable perspective, GM has done a good job of handling the situation: Offering to buy back the cars or give owners loaner vehicles until the problem is fixed, making executives available to the media, and working hand in hand with the feds. The company's response so far is hard to fault, and further evidence that GM's current managers are much more on-the-ball than their predecessors.

But this isn't another historical moment and it's not another company, and that's why this is turning into something more than teething trouble.

This is another consequence of the bailout
General Motors, as you may recall, was bailed out by the federal government -- infused with cash and rushed through a quick bankruptcy proceeding during the darkest days of the economic crisis. Technically, GM has already repaid the bailout loans with a combination of cash and stock, but because the stock is trading well below the government's breakeven point, the government is still a GM shareholder -- and GM is still widely perceived, with justification, as being in the taxpayers' debt.

Because the decision to bail out GM was made by President Barack Obama over Republican objections, GM is now a political football -- and in an election year, any problems, any weakness, will be painted by each party's favorite paintbrush.

That's also why the Volt fires may be an opening to attack the president for his administration's work to facilitate electric vehicle development. Because of this, I'd bet that the lurid headlines, congressional hearings, and resulting negative pressure on GM's stock price are all likely to stick around for a while longer -- no matter how well GM coordinates its response.

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Fool contributor John Rosevear owns shares of Ford and General Motors. You can follow his auto-related musings on Twitter, where he goes by @jrosevear. The Motley Fool owns shares of Ford Motor. Motley Fool newsletter services have recommended buying shares of General Motors, Ford Motor, and Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (18) | Recommend This Article (5)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 12, 2011, at 5:34 PM, MichaelDSimms wrote:

    I believe this stems from a deeper problem, than a badly designed battery pack. The push away from oil and towards unproven and impractical electrical vehicles by an administration hell bent on flushing money down toilets. Or perhaps it's just to line Al Gore types pockets with their global warming scare tactics. I wish to say global weather changes aren't happening but just beyond our control. With the world's population growing and developing countries adding to emissions it does little for us to throw up some windmills, solar panels, and add a few hybrids and electric vehicles. You may as well pedal an electric bicycle and try and power your neighborhood. That said we should continue to try and produce cleaner transportation and industry. But with common sense and on an even playing field with the rest of the world.

  • Report this Comment On December 12, 2011, at 6:43 PM, spawn44 wrote:

    I don't believe the decision to bail out GM was made by Obama. The bush administration had already commited funds to GM before obama was elected. The obama people increased the amount GM needed at a later date when it appeared the unions were going to be in big trouble.

  • Report this Comment On December 12, 2011, at 7:24 PM, TMFMarlowe wrote:

    @spawn44: You're correct. But the fast march through bankruptcy that actually saved (or revived) GM was a process that Obama's folks set into motion.

    Thanks for reading.

    John Rosevear

  • Report this Comment On December 12, 2011, at 9:24 PM, r123t wrote:

    I'll be civil, but as a GM retiree, I find your comments to be purposely slanted and political, with your conclusions based on bias and hearsay and your own opinion. Yes, GM went through a humiliating bankruptcy, and yes, it was facilitated by the Obama administration. But the Volt was first shown as a concept car in January of 2007 at the auto show in Detroit, and the first working model was displayed in September of 2008; both appearances were under the administration of George Bush, not Obama. And yes, the Volt was first put on the market during the Obama administration, and certainly Obama is interested in green alternatives. But you could just as easily have mentioned the other companies, the Southern import companies, are also rushing green vehicles with batteries of varying types, which will also be eligible for federal tax incentives. You failed to mention this, so I can only conclude that you have a particular axe to grind with GM (and no doubt the UAW and the D3 in general). Considering how disgusting I find your objectivity, this is as respectful as I can be.

  • Report this Comment On December 13, 2011, at 4:29 AM, 60Chevy wrote:

    Have you driven the Volt? It’s the most fun car since the ’64 Mustang… and then some. The car is absolutely exhilarating to drive. GM has procedures in place for properly handling the car after a crash and these procedures were not followed, end of story. The only scandal here is the media making up attention grabbing headlines, taking advantage of people’s curiosity about the Volt. People don’t associate the Volt with President Obama. GM has been working on electric cars for a long time, since before Barack Obama was old enough to run for the presidency. The A123 battery has a proprietary cathode that allows it to charge and discharge with less heat generation. Heat management is a major factor in electric car design. LG Chem makes laptop batteries. A123 makes electric car batteries.

  • Report this Comment On December 13, 2011, at 5:20 AM, TMFMarlowe wrote:

    @60Chevy: Actually, the handling procedures came into being *after* the NHTSA Volt fire, as I understand it. If you think otherwise, please do me a favor and post a link to a source.

    Thanks for reading.

    John Rosevear

  • Report this Comment On December 13, 2011, at 9:41 AM, itsratso wrote:

    wait, so the battery can catch fire in a crash? you mean, just like a gasoline powered car can catch fire after a crash? scandalous.

  • Report this Comment On December 13, 2011, at 10:50 AM, TMFMarlowe wrote:

    @itsratso: Exactly. Only less so: The battery fires have happened several days later.

    John Rosevear

  • Report this Comment On December 13, 2011, at 11:22 AM, zmedow wrote:

    Man this issue has gotten really overblown, consider this · According to the National Fire Protection Association, there were 258,000 vehicle fires in 2007 and 385 deaths. There were 1,675 injuries. And people are worried about a fire that started 3 weeks after the crash happened? Thats right the fire happened 3 weeks after the crash happened. At this point people seem to be forgetting that small point. Point is that GM failed to notify the NHTSC about proper standards when dealing with a crashed electric vehicle like draining the battery after the crash. This was a huge blunder on their part but considering that that is the operating procedure when a GAS car gets in a wreck maybe the NHTSC should have known better. There have been no cases of fires directly after crashes in the real world and I personally think its alot of hype. Just another attempt for no apparent reason to derail electric cars. Sad really when you think about it. People need to stop being such nay sayers and whiners and let people who want electric cars get them.

  • Report this Comment On December 13, 2011, at 5:27 PM, r123t wrote:

    Sorry John but even as a prejudiced bystander, I agree with the comments from those who have posted. No doubt GM could have posted specific standards for battery drainage after a crash, or to put a repeating message coming through OnStar after a crash as to specific standards. The media, though, including yourself has found this to be a convenient way to sell a story, usually with a misleading headline such as the one used by you. Our local newspaper even had a piece on the Volt with the blaring headline "Chevy Volt a Failure." You say it is a "scandal." The only scandal is the biased coverage and the blaring headlines associated with the Volt by those who would like to see it, and by extension, GM fail. Well, sir, if GM and the Volt fails, so do a lot of good folks working at GM, as they lose their jobs. The economy of many local communities, home to GM plants and their suppliers, fail. Speaking of suppliers, if they fail, and the supplier's house of cards falls, the effects on the Southern auto industry would be tremendous. My own pension, which I worked over thirty years to achieve, fails. This, sir, is not an academic exercise. It is not a quest for a headline. You, sir, may be insulated from the effects of a GM failure. It most certainly is not theory to me, rather it is reality. If GM cannot make a decent car, and they truly are failures, or the operation of the business is sullied by scandal, then certainly we deserve what we get. But for persons like yourself who are not associated with the industry to use terms like failure or scandal in such an unfair and obviously slanted manner, is well, scandalous.

  • Report this Comment On December 13, 2011, at 7:01 PM, bernardkeithvett wrote:

    Obama and/or Bush had no choice but to "bailout" G.M. Can you imagine what shape all of the Midwestern towns that live off firms that manufacture parts for GM would have been in if GM had failed? Imagine the unemployment in already suffering areas. If GM ultimately fails, and it doesn/t look like it will, the "bailout" will have bought some time for these towns and areasw mentioned above to attempt to reorganize their economies. There has not been a sudden collapse of a suffering area because of the "bailout." A disaster was averted.

  • Report this Comment On December 13, 2011, at 11:55 PM, keganhorne wrote:

    As a proud owner of a Volt, I have to comment on this issue. My Volt is the best car that I have ever owned. I say that as a person who has before now never purchased a car made by an American auto maker, The Volt is a quantum leap in technology versus anything else currently available. Never mind that, the Volt is a fun car to drive; lots of pick-up and good handling. I have about 900 miles on my Volt and have used 2 gallons of gas. I figure in my first month of owning a Volt I have saved about $210 in fuel costs. ($240 in gas savings vs $30 in electricity usage.)

    So, we have the right wing hate machine doing their best to make sure that the Volt is not successful. The Motley Fool dutifully reports that the right wing hate machine is doing this and, therefore, we should conclude that the Volt will never succeed. I submit that the right wing is so consumed by hate that they cannot see that their behavior is very destructive to what is best for our country. We should all be cheerleaders when an American company comes up with a car as great and game-changing as the Volt. But no, the right wing hate mongers no longer care about that. And, Motley Fool, its too bad that you do not see fit to acknowledge that the Volt is game changing and that over time the market will recognize this.

  • Report this Comment On December 14, 2011, at 5:23 AM, 60Chevy wrote:

    You are a good American Kegan Horne. Big Oil is the main sponsor of the Far Right. So of course they hate the technology in the Chevy Volt. I see the problem of money in politics as a lack of Critical Thinking. People actually watch those television advertisements during political campaigns. It’s crap, but it works… that’s the sad part. The only way to limit the power of money in politics is to turn off your television, or buy a TiVo DVR and fast-forward through the commercials. I vote based on what I read and I only read reliable journalism, the best I can find.

    John, I do not know exactly when the NHTSA received the proper handling procedures from GM. The folks at NHTSA are supposed to be the experts, they should have known better. When I smashed the front fender on my car 15 years ago, and I disconnected the battery when I parked the car. It’s called common sense.

  • Report this Comment On December 15, 2011, at 12:28 PM, TMFMarlowe wrote:

    r123t: No need for apologies, but I think you misunderstand my position. I've said -- a few times now, including above, and will say again -- that this whole thing is just teething troubles, and at least so far it's no big deal. It's "such a scandal" because GM and EVs are political lightning rods, as I explained in the article -- nothing misleading about the headline, as far as I can see, because it *is* turning into a scandal, albeit one made mostly of hot air. As a GM shareholder writing for people who are interested in the company and the stock, I need to write about this issue because it's a big deal. Believe me I'd really rather be writing about fixing Opel, or the new Malibu or ATS, but this is the hot GM story and it's my role here to take a view on it.

    Long story short, I don't think we really disagree.

    John Rosevear

  • Report this Comment On December 18, 2011, at 12:53 PM, buffalonate wrote:

    The whole story is ridiculous. You mean something in a car might malfunction after it crashes. Who would have ever dreamed such a thing? Here is a solution to the problem. If your car crashes, get out.

  • Report this Comment On December 19, 2011, at 11:49 PM, crashnburns wrote:

    I am a Volt owner and I took advantage of GM's offer to return my Volt until the safety issues are resolved. This is not the first safety issue I have with a GM car, we have a defective z06. I find it amazing that we did report our safety issue with the Vet to GM and the the National Highway Safety Transportation Association, and were not offered anything but the beloved Volt owners are offered vehicles until the matter is resolved. Let me set the record straight GM does not give you a vehicle they give you a rental from Enterprise, and they give you a car with 30,000 miles on it, no on star, no sirruis, no back up camera and many other features I am STILL paying over $400 a month. I bought a GM brand spanking new Volt I did not buy a stinky rental car! When I call Volt advisors to explain they act like they are doing me a favor giving me a rental car while I continue to pay and insure my car. They act like I am asking for gold when I am lost and try to use ONSTAR, but oops we do not offer it to rental cars. The only person that deserves any kudo’s in this whole fiasco is ENTERPRISE RENTAL they have tried to satisfy my needs, As I drive around lost and unable to use a service I am still paying for, You are not impressing me one bit and I know how you handle safety issues I have seen it for 10 months with a safety issue in a z06. Buyer beware, if you are willing to risk the lives of your family on GMs word God bless you. I have been there done that and I will not GAMBLE MY FAMILIES LIVES AGAIN, so my Chevy Volt with 8,000 miles, onstar, sirruis radio, rear camera...remains parked, and my 2008 z06 remains parked. I have always bought FORD and have never had to park FORD vehicle let alone two. Nice job GM.

    NOW GO DO THE RIGHT THING!

    Please respect my opinion as I respect yours. This is a real situation and I have a right to post my opinion too.

  • Report this Comment On December 21, 2011, at 2:26 PM, r123t wrote:

    Thank you, John, for clarifying your position to me on this issue. Sometimes words don't accurately tell what is in a person's heart, and we probably do agree more than disagree. For a GM retiree like myself, the past few years have been a long slog through uncertainty, and I probably have been sensitized to varying media reporting way too much.

    crashnburns-- You've made some very serious charges against GM. However, you did not specify what the safety issues with the Corvette were. I'm not here to defend GM, but from the angry tone of your posting, one could infer a lot of things, some in your favor, and some that make you sound like just a hater of all things GM. Please specify those safety problems on the Corvette; I think we'd all like to know. And, for pete's sake, if you had so many problems with the Corvette, why in the world did you buy another GM vehicle, this time the Volt? You must have the money to buy a lot of different brands other than GM, as these are not inexpensive vehicles. I can truthfully say that if I had been stung once by any company, GM or otherwise, I wouldn't have given them a second chance. I won't comment upon your statement about the Volt replacement issue, simply because your comments on the matter are the first that I have heard.

  • Report this Comment On December 29, 2011, at 11:28 AM, Sawman99 wrote:

    Is it a bit unfair to heap all this Volt criticism on Government Motors? Maybe so, but the anger and resentment are due to the government's flawed decision that GM should be by-pass the laws applicable to everyone else and be given special treatment because they're a support system for an overpaid, corrupt union. Oh yeah, their management stinks too for dealing with these union clowns and not moving offshore more, lousey product design and development, and silly insistence on buying up the world, especially Europe.

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