Volt Birth Watch 88: No Profit Here

by Robert Farago

September 16th, 2008 9:47 PM

Well duh. Still, it’s refreshing to see a GM exec admit the inescapable. You know, eventually. Although, it must be said, not unequivocally. “Most of our Gen 1 technologies, I don’t know that I’ve ever seen a situation where we make money, particularly when you load all the costs in,” GM COO Fritz Henderson told Automotive News [sub]. “So I don’t necessarily think this is going to be the exception.” Not necessarily going to be the exception? How elliptical is that? Not quite as oblique as GM Car Czar Maximum Bob Lutz, who couldn’t resist adding his 2.8 cents. “We’ve made very, very conservative assumptions on battery warranty. And that huge lump of battery warranty in the cost calculation helps diminish the profitability.” Sounds good! Details? “Lutz wouldn’t provide specifics but said GM is assuming it will have to replace ‘quite a few’ batteries. If battery reliability and life proves to be better than assumptions, GM can relax ‘some of that scary warranty provision,’ giving the Volt a shot at earlier profitability, he said.” Earlier than what?

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Chris Haak on Sep 17, 2008
@Robert Farago : The devil’s in the details. Which Lutz either refuses to divulge, or is incapable of divulging. Of course, if Maximum Bob simply didn’t WANT to reveal this information, he should have kept his mouth shut in the first place. Yes, he should have kept his mouth shut. No disagreement from me on that one. I wouldn't have divulged the details either (since, as we've pointed out, it sounds like they're telling potential customers that the batteries have a good chance of failure). Not even mentioning it would have been the best solution, but he clearly has trouble biting his lip. @KixStart ChrisHaak, GM is treating a $10K component as a consumable. If that’s really the case, this car is not ready for prime time. And, if it isn’t, they’re pricing the car out of any reasonable market. Of course, with a production run of only 10K, the price is almost irrelevant. It's a matter of GAAP accounting. They don't know what the failure rate will be for the batteries (I'm sure in large part because their rushed development program doesn't allow true long-term reliability testing, just short-term extreme abuse that is supposed to simulate long-term use). If they under-accrue for battery failure warranty claims, they could be liable for shareholder lawsuits and all sorts of other nastiness. The best course of action would have been for Bob Lutz to shut up about how much they ahave to accrue or not accrue for battery failures. By saying, "we are being conservative and expecting many of them to fail, but I don't really think that will be the case," it makes the car sound like a POS, even if it might not be. We'll recall that Toyota wasn't blabbing about the profitability or lack thereof of the Prius in its early years when it was selling at a loss (though Toyota denies that it ever sold at a loss). They probably had similar warranty provisions, but wisely kept their mouths shut.

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Ed S. on Sep 17, 2008

ChrisHaak said: "We’ll recall that Toyota wasn’t blabbing about the profitability or lack thereof of the Prius in its early years when it was selling at a loss" Which was last century! They began production in 1997, fully 13 years before GM, and way before the market DEMANDED the innovation. Experts like to call it "planning" GM likes to think of it as clairvoyance. Either way they don't have "it". ChrisHaak said: "Provided they’re doing what they’re saying, they’re doing this the smart way….prepare for the worst and do their hardest to make it better." You mean accepting the reality of the situation they themselves created by over-reaching on their first ground-up electric-hybrid. And sure, GAAP accounting is a good place to start when you're trying to state to the public (READ: Fed bailout boys) "we're doing everything right and above board...you can trust us with the public's money" but, as you probably already know, GAAP is established by the largest business in a given industry and GM had been the biggest for a long time. Boy did they ever tilt GAAP in their favor...look where it got them.

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Yankinwaoz on Sep 17, 2008

Reserve? I don't know about you, but I'd bet that reserve is going to be nothing but a pile of IOU's. And if GM declares BK, that reserve will become worthless.

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Bruce Banner on Sep 17, 2008

......and Atlas Shrugged.

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