Charles Lane

GM's Volt mistake

WASHINGTON — General Motors has announced a plan to stave off bankruptcy that includes cutting 21,000 jobs, reducing its dealer network and eliminating its Pontiac division. "I'm a believer in dealing with reality," GM chief executive Fritz Henderson said.

Better late than never. GM wouldn't be in quite so deep a hole if it had not sunk a billion dollars, and much of its corporate reputation, into a not-very-realistic plug-in electric hybrid vehicle known as the Chevrolet Volt.

Likely to cost consumers more than $30,000 even after a big government tax rebate, the little four-seat Volt "is currently projected to be much more expensive than its gasoline-fueled peers and will likely need substantial reductions in manufacturing cost in order to become commercially viable," President Barack Obama's automobile task force reported on March 30.

Translation: Unless and until gas prices shoot up, you'd be crazy to buy one of these much-ballyhooed vehicles, which will run 40 miles on a single charge if GM can overcome difficult battery-engineering issues.

To be sure, the green-leaning Obama administration has not ruled out allowing a restructured GM to continue pouring (federal) money into the Volt. But I hope it won't. The Volt and other electric vehicles could gobble up more subsidies than ethanol.

Though Obama promised to have 1 million plug-in hybrids on the road by 2015, the dream of a mass-market electric car remains implausible, and probably will be for years.

For some people — environmentally friendly Hollywood stars and other wealthy dabblers — cost is not the top concern in deciding what car to buy. For them, a Volt or even a $101,500 all-electric Tesla Roadster might be of interest.

Everyone else looks at total cost of ownership, which includes not only the purchase price but also taxes, fuel consumption (electricity, in the case of an electric car) and depreciation.

A 2009 study by Boston Consulting Group found that the five-year total cost of owning an electric car would remain "relatively unattractive to consumers in 2020, unless its cost is subsidized."

And that's in Germany, where high fuel taxes give drivers much stronger incentives to use alternative-fuel vehicles than in the United States.

In fact, Boston Consulting Group found that the total cost of ownership of existing hybrids and advanced internal combustion engine cars is more attractive than that of electric cars as long as oil prices are below $280 a barrel. Oil is trading around $49 in the United States, gas costs about $2 a gallon.

Small wonder that venture capitalists have pulled the plug on one of the most promising new electrics, the Norwegian THINK, a two-seater built for city driving. At last check, the Norwegian government was refusing a request to bail out the company.

And small wonder that the Obama task force looked askance at the Volt, which offers the size and power of some small Volkswagens at Cadillac prices. Geoffrey Styles, founder of energy consultants GSW Strategy Group, recently reported that it would take a minimum of six years for drivers to recoup the differential between the Volt's projected price and that of a Toyota Prius — even assuming $4 per-gallon gasoline.

Electric cars might ease a lot of problems related to auto emissions — global warming not least among them. This is why green-minded politicians love them and entrepreneurs tinker with them.

Of course, to the extent that they relied on coal-fired electric plants for power, electric cars might simply move the emissions problem around. And who knows what environmental challenges might be posed by the disposal of millions of big, used-up lithium-ion batteries?

More fundamentally, the electric car is hostage to the oil-price cycle. Indeed, to the extent that we use more electric cars, we reduce the demand for petroleum, which drives down the price of petroleum, which makes electric cars less competitive with gas-burning ones — and so on.

There's no way to change this pattern unless and until a breakthrough radically cheapens electric-car technology — or the U.S. government drastically and permanently increases gas taxes.

In the meantime, we would probably accomplish more in terms of sustainable fuel savings simply by driving less, trading in big cars for smaller ones, and improving existing hybrid and internal-combustion technology.

The Obama administration should refrain from lavishing public money on losing propositions like the Volt — and let the entrepreneurs keep on tinkering.

GM's Volt mistake 04/29/09 [Last modified: Wednesday, April 29, 2009 7:49pm]

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