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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I might have to disagree with you here. 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. The old under promise and over deliver (though I’m concerned the actual car itself might not do this).
What would be infinitely worse is for GM to think they will only have to spend $1 million on battery replacement when it is actually $5 million.
Sorry, I’m no GM fanboy. I’ve never owned one. My grandpa had a Cadillac about 15 years ago, otherwise that’s the closest I’ve ever come. But guess there are instances here where I see things a little differently in this instance. Plus its always easy to pile on, yeah? :)
Toyota seems to have no problem whatsoever in the Prius.
You can’t price your Hail Mary Play out of the market with a warranty provision. Better to offer a regular warranty – especially since they’re only selling 10K – and see what happens. The early (insane, really) adopters will bite, regardless.
KixStart, this has nothing to do with the price of the car and everything to do with accounting reserves to allow for warranty expenses. Lutz is saying that they’re booking a large reserve for potential battery problems just in case (since they’re an unproven technology), so that reserve hurts the per-unit profitability. If warranty claims on the batteries turn out to be better than expected, they can reduce the amount of the reserve, and thus the amount attributed to each unit, and the car has a better chance of being profitable, or at least selling for a smaller loss.
ChrisHaak :
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.
At least with warranty reserves, you can make an adjustment to reduce the reserves if the warranty claims justify it. I suspect GM is really paying attention to drivetrain/battery testing, so I would be less concerned about those components and more worried about the non-drivetrain components. Power windows and door locks that fail 15 minutes after the warranty expires or perhaps it will be power seat switches.
I went ahead and put myself on the GM-Volt.com “waiting list”. I’m #41,625. GM better ramp up production quickly, I don’t want to wait until 2015 to get mine…
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.
The whole Volt program is a joke. GM would rather blow in a few billion bucks building a ridiculously expensive car in infinitesimal quantities than admit Toyota’s hybrids make sense, given the current state of battery technology. Bob Lutz pooh-poohed them, so they must remain pooh-poohed and GM must build something “better.” Or, at least, something else.
The fact that GM is doling out key steps in their product development process is unprecedented – this trend seems to indicate two things: 1.That they’re so behind the curve (compared to the other players in the EV/Hybrid game) that they don’t care 2.That they want us to “feel their pain” so that the public won’t feel so ripped off when GM requests the 25 Billion dollar “analgesic”.
Which could make the Volt the new millenium “People’s Car”
See yesterdays article on the CVT mess for an idea on how things go when GM pushes new tech through quickly.
Or the Solstice reliability and design details (so to speak)on how it goes with conventional tech.
Haven’t the batteries in the Whybrids been a problem…
Yah, put me in line for a Volt…in ten years…if…
Bunter
ferrariman, maybe if I get in behind you they will have it sorted out by then! ;^D
Chuckle.
Bunter
@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.
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.
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.
……and Atlas Shrugged.