GM’s Chevy Volt; How pricing ruined what could have been.

This past month Chevrolet slashed $5,000 off the $40,000 price tag of their range-extended electric car, the Volt, in an effort increase the vehicle’s tepid sales performance. While that may help, the price change likely comes too little too late. It’s a move that asks “would consumers buy the Volt if…the price were lower?” but doesn’t bother to ask the broader question of “why aren’t consumers buying the Volt?”
Photo from NRMA New Cars

Photo from NRMA New Cars

I was very excited when plans for the Volt were first rumored and I couldn’t wait for it to succeed. To be honest, however, GM’s pricing strategy has doomed the Volt since its conception. I say this for several reasons. First of all, the initial price for a product really sets a value anchor by which it will be compared. Second, price cutting is always a risky strategy. And lastly, GM wanted the Volt to do too many things at once, and it did none of them well.

Now, before I delve into the pricing issues, let me first explain the context in which the Volt is marketed. As a range extended electric car, the Volt really has had to carve out a niche for itself, holding its own against not only electric cars, but also against the well established hybrid market. Not to mention gasoline cars with similar price tags.

As a car that takes gasoline, the Volt severely confuses consumers on how it differs from a hybrid vehicle. The difference is that a hybrid vehicle alternates between a gasoline engine and an electric motor to move the car. While the range extended Volt is only moved by an electric motor whose battery can be charged by a gasoline generator, which is not connected to wheels.

As a consumer, the number one problem with the context mentioned above should be the fact that the Volt’s price anchors the car in terms of value for money. Yes, the Volt pays for itself over time in savings, assuming you keep it long enough,  and (for the forceable future) comes with tax breaks. But when you go shopping for a car, you have a general price tag in mind when you set out and you don’t consider the long-term cost to own until after you’ve narrowed you’re list down to two or three vehicles that are in what marketers refer to as your consideration set. This means the Volt is fighting for the spotlight against cars in vastly different categories from its own.

When you think “I’m going to spend $40,000 on a car,” your mind inevitably wonders to 4 or 5 vehicles; the *BMW 3 series, Audi A4, Mercedes C-class, Lexus IS, and – if Nissan’s ads have affected you – the Infinity G Series. Furthermore, they all start at under $40,000 so you have room to option them before you reach the Volt’s price.  This is what the Volt competes with at its price point, which means Chevrolet has made a very bold decision in terms of pricing.

The BMW 3 series has literally been rated as the world’s best car by multiple magazines every-single-year since its conception. The build quality, handling, and interior finishes of the Volt aren’t even as nice as Chevrolet’s other offerings in the $40,000 price range, let alone those of a BMW.

The platform for the Volt is the same as that of Chevrolet’s Cruze, an economy car targeted at younger buyers. The only thing the Volt has going for it is its innovative drive train. Let’s be honest, though, even that will lose its novelty once everyone you know has taken your Volt for a drive around the block and stops asking questions about it. Not to mention the fact that the next person who buys a similar vehicle will probably get a much nicer car for a much lower price.

A BMW 3 series, on the other hand will put a smile on your face every time you drive it and when you finally shop for its successor you’ll be sad to see it go. Let alone that the other cars in this price category look sleek and sexy, while the Volt looks like GM’s take on the uninspired-looking Toyota Prius.

For what the Volt is, it should have been priced similarly to Nissan’s $28,800 fully electric Leaf, Toyota’s $25,000 Prius Hybrid, or even Volkswagen’s $25,200 Diesel Golf. Why? Because the Volt is a hatchback and that’s what a hatchback should cost. If GM wanted $40,000 for the Volt, it should have been a luxurious compact sedan.

The Prius and Golf also beat the Volt’s range by about 200 and 150 miles respectively. So the Volt doesn’t even win (or for that matter, compete) in the road trips category, a key characteristic of a good hatchback.

A good example of a company that did not make the same mistake as GM is Tesla Motors. When Tesla put the Model S on the market with a starting price of roughly $75,000, the car could hold its own against similarly priced rivals in literally every category.

Not only is  the Tesla Model S staggeringly gorgeous, but it seats 7, can surge to 60MPH in just 4.2 seconds, and has the build quality and interior finishes to take on the Audi A7 and Mercedes CLS. There’s also the fact that the Model S made a name for itself as the safest car made to date. Tesla CEO Elon Musk explains the Volt’s problems best in an interview with Bloomberg:

There are several problems with cutting the price on the Volt. Price cutting is a very dangerous territory where you admit both that your product is not worth the price you have been asking and that your sales force is not very good. Deeper than that, price cutting sets future expectations for the consumer and fails to address the real reasons why consumers aren’t buying your product.

Well dressed men everywhere know better than to pay $80 for a pair of khakis at Banana Republic when they’ll be on sale in a month for $35. Similarly, good car shoppers know to research when the end of a sales period is for the brand they want to buy. They then hound the dealer to lower the price of the desired vehicle two days days before the sales period ends. Lowering the price of the Volt could cause consumers to hold out for a cheaper car or yet another price cut.

The cost of being an early adopter of any product is high. If you’re the first to buy a range extended vehicle, it should cost a great deal, but be worth that high cost. When Ferrari first put Formula 1 style transmissions in their super cars they were not very good at all. But when you bought their 1997 F355 Berlinetta, you got your money’s worth regardless of the questionable transmission. Soon after BMW offered the a similar, more reliable and effective transmission from Getrag in their E46 3 Series. This leads to my biggest point of contention with the Volt.

GM clearly could not make up its mind on what the car should be. Was the Volt meant to test if there was mass market demand for a range-extended electric vehicle? Was it meant to test new technology to be featured on other vehicles? Was it supposed to show that GM was looking into the future and being more environmentally conscious? Or was it to show how innovative the company could be?

It honestly feels like GM gave up picking which question to answer and tried to say yes to all of these questions. Volkswagen, by comparison, chose one question and answered it very thoroughly. In 1998 Volkswagen bought the long-defunct super car marque, Bugatti. The Bugatti Veyron was born and VW used it primarily for research and development as well as publicity. Volkswagen loses as much as $7 million per Veyron, by some estimates. This was very intentional in that every part on the car used new technologies that trickled down to literally the most basic of Volkswagen’s vehicles. I’m not saying that that GM should lose $7 million per Chevrolet Volt. They already lose as much as $49,000 per Volt.

What I would say is that the Volt should have have done three things. 1) Showed the world the kind of high quality vehicles GM could produce. 2) It should have been packed with reasonable technology that could trickle down to the bulk of GM’s future model lineup. And 3) It should have been ready to compete with vehicles in similar price and product categories.

GM doesn’t need to lose $7 million on each Volt, but it should not have been so blatantly focused on building the car to a price point. A focus which was evident in a scene of the film “Revenge of the Electric Car” where GM CEO Bob Lutz criticizes the cheap, toy-like dashboard and central interface of a prototype of the Volt. Yet somehow the production model still features a dashboard and central interface that seem out of place and poorly designed.

The overall result of this mentality is a market misfit that leaves consumers confused. Perhaps the only good thing to come of the Volt is Chevrolet’s loosely related Spark; an all-electric compact starting at $26,685, which seems to compete well with Nissan’s Leaf. Though the Spark is an evolution of a previous vehicle sold in international markets.

*Full disclosure; I drive a 1994 BMW 3 Series and a 1976 BMW 2002.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s