As long time readers know, I have not always written
favorably of the Chevy Volt and its kindred cars. However, my problem with the Volt had little
to do with the car itself, which is both relatively fun to drive and a
technological marvel. My problems with
the Volt had just about everything to do with the inability of the numbers to
work at anything like the car’s $40,000 sticker price, thus limiting its appeal
to ostentatious greenies, a very limited market.
However…
Apparently, no one in the Volt’s short life has ever paid
sticker price for the car, as far as I can tell. A good buddy of mine leased one when they
were relatively new at a monthly payment that reflected a sale price nowhere
near its sticker price; in fact, if you played with the numbers, the lease had
to be based on a price at which one could buy a similarly equipped
conventional, mainstream mid-sized car. At
those numbers, the Volt makes a lot of sense, provided one drives more than a
modest number of miles per year.
GM has finally acknowledged reality, but not completely, by
reducing the sticker price of the Volt by $5,000 to $35,000. This is in line with a general trend of
automakers’ reducing the prices, through very attractive lease deals and
outright reductions of sticker prices, of their plug-in hybrids and pure
electrics due to a very slow market for these cars. GM says that reductions in the cost of
manufacturing the Volt contributed to the decision to reduce its price. This may be true, but Economics 101 tells us
that it is weak demand at current prices, not falling costs, that leads to
reduced prices. If GM didn’t have
roughly twice the normal inventory of this car sitting on dealer lots, it
wouldn’t be reducing prices in response to a reduction in its costs of
production; it would be maintaining prices and pocketing the reduction in
costs.
So GM, Ford, Honda, and Nissan have reduced the prices of
their plug-in offerings, making it easier for people to get into these
cars. However, these reductions in
prices have trashed the resale value of these cars. The Wall
Street Journal reports this (Tuesday, 8/6/13, pages B1 and B2) morning that
the trade-in value of a one year old Nissan Leaf is down 25% from a year ago;
the trade in value of a one year old Volt is down 21%. This cratering in trade-in values will have
two effects.
First, it will, or should, infuriate those who bought
plug-in vehicles, increasing their
overall costs of ownership and thus incurring ill-will for the car
companies while providing another reason for people to sour on hybrids or
electrics.
Second, and perhaps more insidiously, the incentive to
lease, rather than buy, these cars will increase. Even before these price reductions, as my
friend who leased the Volt pointed out, it made little sense to buy a car in a
period of rapidly advancing technology; better to lease and let the lessor take
the risk of obsolescence. (Yes, my buddy
is a very smart guy.) Now with the
carmakers reducing prices in response to slack demand, the near absurdity of
owning these cars has been exacerbated.
Unless the terms are heavily skewed away from leasing (They run in the
other direction currently.), any thinking person will lease his or her plug-in
hybrid or pure electric. Thus, the ultimate
lessors (the car companies, either through captive finance companies or the
heavy subsidies they pay to third party lenders) will bear the risk, either of
rapidly advancing technology and attendant obsolescence or of simply a cool
reception in the market place, of owning these cars.
Not only, then, are the car companies taking a gamble by
making and marketing these cars; by making leasing the only logical way for
people to get into these automobiles, the companies are doubling down on their
bets by making themselves the second owners, the receptacles, if you will, of
these vehicles that may very well be obsolete or simply unwanted in the
marketplace.
The impact on the stocks of these companies should be miniscule;
electrics and plug-in hybrids are a very small part of their business. But the implications for the technology of
such vehicles, which still looks transitional, and perhaps for the company that
specializes in such cars, Tesla (TSLA; See my 5/30/13 and 5/23/13 pieces, IF YOU WANT TO GET PEOPLE CHARGED UP, WRITE ABOUT TESLA (TSLA) and TESLA (TSLA): THEGREENIES ARE CHARGED UP, BUT…), could be
profound.
