GM shutting down Volt production for 5 weeks…

It was annouced last Friday that GM would be shutting down production on the Chevy Volt for five weeks starting in mid-March until mid-to-late April. The stated reason was that there was too much channel inventory, about twice as much as a normal car.

There are a few problems with that outlook, in that the Volt isn’t a normal car. Its a specialized low-volume (for now) car. If a GM dealer only sells about 1 car for every 3 dealerships per month (3,000 dealerships, 1,000 cars a month), that would mean a dealership would either have zero or one Volts on their lot when the customer shows up to look at them. Not very pleasing from a customer point of view, “well this is the only one we have, and we wont get another one for 2 months, and all the other dealers in town only have one each too!” If you want the customer to have a reasonable choice of configurations, you’ll need about 3-4 cars per dealership, varied in color and configuration throughout the city. My local market has about 15 Volts (including 4 models that were originally demo units) for sale, some of which are still in transit to the dealer. My rough approximation is about 10 cars per million people in a metro area. So where I live should have about 20 cars for sale. This is also roughly a 4 months inventory. The problem with 4 months of inventory is what are you going to do when the new models come out in August or September? Take huge losses on 1/3 of your annual inventory? Not likely.

So what I’m expecting is that GM is trying to push down inventory to about 5 cars per million people so that when it comes time for the 2013 models to show up, dealers aren’t stuck with four or five really slow selling cars.

I’m somewhat optimistic that such an aggressive early push is hinting at some bigger, better things to come in 2013. By then, GM should be producing both the engine and battery cells domestically (Austria and S. Korea, respectively). GM has stated that the cost of freight for the battery cells is non-trivial, possibly in the range of $100-200/kWh. This would translate to a $1600-3200 cost per vehicle when the freight costs are factored in. Combined with the engine’s reduced freight costs as well, a $2,000-4,000 price cut could be in store for 2013, necessitating even deeper cuts in the 2012 Volt price to move them off the lot. Plus, the idea of a $29,950 price tag after rebate seems really appealing from a marketing standpoint — after tax credit it would be cheaper than the plug-in Prius, and the same price as the high end Prius, and all the comparisons with a loaded Civic start to look better.

EDIT: On April 8, GM announced that in the wake of record sales in March 2012 (including the one Volt I bought!) the plant will open one week early, on April 16 instead of April 23.

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