Will GM Pull the Chevy Volt's Plug?

Will General Motors (NYSE: GM  ) pull the plug on the Chevy Volt?

It looks like it has -- but only temporarily. GM said that its Detroit-Hamtramck assembly plant, which builds the innovative plug-in hybrid, would stop production for five weeks, beginning on March 19.

GM insists that this is a normal -- and temporary -- production adjustment to "match supply to demand". But why is demand so low? And what are the prospects for GM's troubled halo car?

Falling short of low expectations
GM CEO Dan Akerson has said that the company's goal is to sell 45,000 Volts in the U.S. this year. Absent a big sales turnaround, that isn't happening: The company sold just over 1,000 examples of the plug-in hybrid in February. At that rate, they'll be lucky to reach a third of their goal for the year.

Of course, the Volt fell short of much more modest sales goals last year. The problem isn't the car itself. It's one of GM's best vehicles: thoughtfully designed, well-finished, and genuinely innovative. But there are two factors holding it back:

  • It's expensive. With a sticker price near $40,000 before various incentives and tax breaks, it's not a value-priced proposition. Not only is the Volt more expensive than Nissan's (OTC: NSANY) all-electric Leaf, it's a lot more expensive than Toyota's (NYSE: TM  ) Prius. And the Prius, fairly or not, is the default choice for a lot of folks who might otherwise be prospective Volt buyers. It's no surprise that Volt-owning households tend to be high-income ones.
  • It's had some really bad PR. Last year's disclosure of a fire in a crash-tested car fueled a media outcry, fed by election-year politics that have sought to position the Volt as an Obama administration boondoggle. It's arguable whether the safety fears -- which are unjustified, say Federal regulators -- or the political kerfuffle have done more damage to sales, but both have hurt the Volt's cause.

GM halted Volt production while its engineers and Federal regulators sorted out the fire-safety issue, but it restarted early in February after design improvements were incorporated and the government declared the Volt safe.  Clearly, even with that halt, supply of the car is still exceeding demand, despite a big marketing push that included a Super Bowl ad.

Ironically, one of the biggest challenges to the Volt's success might be right on Chevy dealers' lots.

This might be the Volt's toughest competitor
Have you checked out the Chevy Cruze? It's not a high-tech plug-in hybrid; it's just an ordinary compact, with an efficient four-cylinder engine. But it's a good little car, easily the best compact GM has ever sold in the U.S. It looks pretty conservative on the outside, but inside it looks and feels like a luxury car -- and it drives well, too.

Even better, and more to the point, it gets 42 miles per gallon on the highway. That won't challenge the Volt's green cred, but it's quite good for a quiet, comfortable car … and a Cruze starts at less than half of what you'll pay for its high-tech sibling.

The Cruze was the best-selling compact in America for a while last year, and has continued to be a strong seller even as Toyota (NYSE: TM  ) and Honda (NYSE: HMC  ) have rebounded aggressively. While GM has said that the Volt has pulled a lot of people into Chevy dealerships, the sales numbers show that few of those folks actually bought Volts. I would not be surprised to learn that curiosity about the Volt has led to quite a few Cruze sales.

If that's true, then the Volt might be indirectly contributing more to GM's bottom line than many have realized. But while the Volt might eventually transcend its PR problem, its high price is likely to keep sales at the niche-product level, at least until GM figures out a way to bring it down without losing money.

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Comments from our Foolish Readers

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 March 08, 2012, at 6:38 PM, dennypat38 wrote:

    ust change the name to CORVAIR GET OFF THE HORSE IS DEAD

  • Report this Comment On March 08, 2012, at 6:38 PM, dennypat38 wrote:

    get off the horse is DEAD

  • Report this Comment On March 08, 2012, at 7:20 PM, carfun wrote:

    The car is too expensive. Most people who can afford this car want something a little larger and fancier. Resale will be bad. No one will want to own one of these when the battery warranty expires. The battery installation will no doubt exceed the value of the vehicle at that point. If the volume remains low parts will be expensive and difficult to find. We drove one and the interior feels very dated. Since battery technology is an area of a much research it is likely the technology of this car will quickly become obsolete.

  • Report this Comment On March 08, 2012, at 9:54 PM, baldheadeddork wrote:

    To be fair, the 45K sales projection for 2012 was only one of many really dumb things Dan Akerson said in front of a reporter last year.

    And while we're talking about bad PR, let's not overlook simple bad reporting, which has become pandemic when the subject is the Chevy Volt. I heard Joe Meger of Market Foolery say on Tuesday that the Volt has been a "total bust". It missed the 2011 projections by less than 2400 units. That's not bad PR, that's lazy and dumb reporting.

    Let's be honest, there is a significant number of reporters and commentators who are waiting to bury GM alive. The Volt fire was blown massively out of proportion by a lot of the same people who have erroneously dismissed Toyota's reliability and safety issues over the last three years. I don't think it's a coincidence. If all you know about the auto industry is Toyota Good and Detroit Bad, you're going to dismiss anything negative about Toyota and jump on any error by GM, big or small. At best it's just another example of confirmation bias, at worst it's barely-masked political bias. Neither has any place in reporting, and if you give a damn about cars, journalism or just the truth you should be screaming whenever you see it. Perception is not reality, neither is propaganda unless you allow it.

  • Report this Comment On March 08, 2012, at 10:18 PM, frazzini wrote:

    I tried to buy a Volt when they first came available and was on the list for Chevy Volt news for two years. I live in Northern Arizona and after inquiring where I could buy one I was contacted by a dealer in California. I had waited to get one after hearing all the great things about the Volt and purposely held off buying a new car and was was excited to buy the Volt. I was contacted by the dealer and I asked how much and was told it was 39k and I told him great I want one. The dealer then told me BUT, we are getting over 49k for the Volt and they would not sell me one for the sticker price and would need me to basically bid to get one. I was shocked and angry that I had waited so long to get this vehicle and because of greed I would not be getting a Volt and I went and bought a Honda CRZ Hybrid. Now I see that the Volts are not selling and I was wondering if you were aware that the extreme price gouging may be the reason why the Volts are not selling as expected. I am confident that if the Volts were sold at sticker price they would not be enough available.

  • Report this Comment On March 09, 2012, at 8:57 AM, dghCLE wrote:

    GM should get rid of any dealers or car saleman selling the car for a price higher than the car's recommended MSRP. GM has not been the great car company it once was since the late 1970's. The cars are just bland. Look at a Corvette's interior it would go in any cheap production car. I drove the Equinox lately, and same thing the interior looked like some sweat pant stretch pant material on the car seats, I have seen cheap car seat covers that were better cloth material. They need to higher some car folks instead of bean counters to make some decisions on what goes into their cars.

  • Report this Comment On March 27, 2012, at 11:59 PM, dixiedrifter wrote:

    The Volt has passed the point of sales equilibrium, in other words, fewer and fewer buyers will consider the mini "inferno" Chevy calls the Volt. The car is too expensive for our society dealing with four plus dollar a gallon gas, to take a chance with. As our society is an energy based economy, most buyers will purchase a fossil fueled vehicle which gets approximately forty miles to the gallon over this "Rube Goldberg" creation courtesy of Government Motors. With everything costing more, taking a chance on "experimental" technology is not high on most people's list of priorities. Dan Akerson, in my opinion, is clueless.

  • Report this Comment On May 10, 2012, at 7:13 AM, rhian0105 wrote:

    Volt has struggled in gaining acceptance due to its relatively steep price tag. Other reasons why many new customers have also kept away are: the lack of an infrastructure of charging stations as well as the necessity of installing a home charging station and the inconvenience of waiting the 10 hours it requires to get the car fully charged from the home 120-volt station. <a href="http://www.cardealexpert.com/model/21229/2012-Chevrolet-Volt... >Another Volt production halt announced.</a>

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