Co. expects the new-for-â€™11 Chevrolet Volt extended-range electric vehicle to hold its value over many years, despite a raft of technologies that are unproven in the marketplace.
Potentially crimping demand for the vehicle is a recent GM decision to forgo special emissions certification that would enable California buyers to claim up to $10,000 in rebates on a Volt purchase.
The Volt will qualify for a $7,500 tax rebate offered by the federal government on electrified vehicles. California residents were looking forward to combining an extra $2,500 in state rebates with the federal payback, but that option will not be available until at least the â€™13 model year, GM says.
To qualify for Californiaâ€™s advanced-technology partially low-emissions vehicle certification, the Volt would need a 10-year, 150,000-mile (241,000-km) battery warranty. GM announced last week an 8-year, 100,000-mile (160,930 km) warranty.
However, extending battery coverage to 2020 in California would have meant additional engineering and compromised the carâ€™s development timetable, GM says.
GM spokesman Brian Corbett says a number of other Volt-applicable incentives exist in California, such as use of high-occupancy vehicle lanes and special parking privileges. â€śWe donâ€™t think the lack of ATPZEV status will hurt sales.â€ť
Meanwhile, Volt Marketing Director Tony DiSalle defends the EREVâ€™s long-term value proposition, claiming GMâ€™s technology is â€śfar out aheadâ€ť of its competition.
â€śThere will always be innovation, no question about that, but we have an extraordinarily high degree of confidence over the longevity of the car and the longevity of the battery,â€ť DiSalle tells Wardâ€™s.
The Volt batteryâ€™s warranty might allay the fears of initial owners and is transferrable, but it is unclear how willing a second owner might be to driving the car deep into its lifecycle. Demand for the Volt in the used-car market will play a major role in its future.
â€śNobody knows,â€ť says Jeff Bennett, a professor of automotive marketing at Northwood University in Midland, MI. â€śIâ€™m optimistic, but nobody really knows.â€ť
Recent history demonstrates the importance of strong residual values. For example, when gasoline prices spiked two years ago, demand for fullsize trucks wilted. With a truck-heavy portfolio, GM sales soured and weakened residual values on fullsize pickups and SUVs ended, costing the auto maker billions of dollars.
The combination was one factor in the bankruptcy of the formerCorp. and has led the new GM to skew its portfolio more heavily to cars and cross/utility vehicles while focusing on rebuilding the residual values of all its vehicles.
Like GM, Bennett is bullish on the prospects for consumer acceptance of EVs and continued momentum in battery development. The more people who buy the cars, the more acceptable theyâ€™ll become to others; and as production volumes increase, theyâ€™ll be less costly for auto makers to build.
â€śAs long as we can keep the incentive up for people to buy these in the form of tax credits, keep some momentum by building more battery plants, the popularity of (EVs) will rise and weâ€™ll keep resale values up,â€ť he says.
The industry took another step in that direction last week with President Obama joining Compact Power Inc. in western Michigan for the groundbreaking of the nationâ€™s ninth battery plant. A total of 26 sites related to EV battery development are under way today in the U.S.
Ironically, however, an expected dearth in battery technology breakthroughs could bolster the Voltâ€™s residual values by keeping its propulsion system on the cutting edge for years.
Bruce Belzowski, associate director and assistant research scientist in the automotive analysis division of the University of Michiganâ€™s Transportation Research Institute, says experts attending the schoolâ€™s recent powertrain conference do not expect large-scale production of current battery technology until 2020.
â€śThatâ€™s the technology as we know it today, and itâ€™s subject to change because we donâ€™t have any customer input yet,â€ť he says. â€śThis is a real paradigm shift. How will people adjust to plugging in every night, plugging in at the office, or on trips?â€ť
Belzowski says thePrius could serve as a good barometer for the Chevy Volt.
Introduced in June 2000 with a base sticker of $20,000, or roughly the same price as an entry-level Camry, the Prius posted a modest 15,556 unit sales in its first full calendar year while accounting for more than three quarters of all hybrid deliveries, according to Wardâ€™s data.
Four short years and one pivotal redesign later, the Prius roared past the 100,000-unit mark in 2005 and before the economy tanked, peaked at 181,221 in 2007. The HEV remains on track this year to continue its 6-year streak of 100,000-unit-plus sales and retain a commanding 50% of the total hybrid market.
â€śTo a certain extent, people were hesitant,â€ť Belzowski says of the Priusâ€™ first years. â€śBut () sold enough of them for the company to continue development. â€śNow they have the global lead in full hybrids at a time when the competition is so fierce itâ€™s difficult to be the leader in anything positive.â€ť
Prius residual values have improved over the years, as well, suggesting consumers have grown accustomed to the new technology.
At its launch in 2001, 36-month residuals set by Toyota for the Prius were at 55%. Typically, a vehicle is considered to lose 30% of its value after it leaves the dealerâ€™s lot. By comparison, residuals for a Corolla in the same period were 47%.
Prius residuals improved to 61% when gasoline prices spiked in 2008 and currently stand at 66%, while the Corolla retains 60% of its sticker price.
Some evidence shows the Volt also could witness a slow start. According to a study conducted by Kelly Blue Book Co. Inc. in the second quarter, 5% of 1,300 car shoppers would buy an EV.
Thatâ€™s equal to the number of people willing to buy a diesel-powered vehicle, says KBB spokeswoman Robyn Eckard, and compares it with 47% willing to buy a hybrid and 41% interested in a conventional gasoline-engine vehicle.
If the Voltâ€™s 16-kW battery does begin to show signs of wear, owners would have the option of buying a replacement battery, says GM Vice Chairman Tom Stephens.
â€śThe consumer will decide what makes sense for them,â€ť he says, noting a Volt with 50% less battery life would still get more than 300 miles (483 km) of range with the backup internal-combustion engine.
The Volt is designed to travel an estimated 40 miles (64 km) on full electric power. After the electric range expires, a small ICE kicks on and acts as a generator to propel it the other 300 miles before recharging or refueling is necessary.
DiSalle also notes natural supply and demand will factor into Voltâ€™s long-term values.
â€śA lot of those residual values are based off the supply and demand quotient,â€ť he says. â€śSo if you manage it correctly, it will be a major component in the calculation of the residual values.
GM plans to build 10,000 Volts this year and 30,000 in 2011, its first full calendar year of production.
â€śWe are taking a very measured approach, in terms of the launch volumes, to make sure that we do this in a very high-quality fashion to help drive the quality perception and residual value of the vehicle long-term,â€ť DiSalle says.
Interest remains high in the Volt, he adds, citing more than 63,000 registered enthusiasts who gobble up every bit of breaking news GM forwards to them. â€śWe know there is a highly engaged, enthusiastic customer base waiting for the car.â€ť
DiSalle declines to comment on when GM might release pricing for the vehicle, due out of the auto makerâ€™s Hamtramck, MI, assembly plant in November. While he anticipates high demand, he also expects dealers to keep a lid on mark-ups.
â€śWeâ€™re messaging dealers to not mark it up north of the MSRP,â€ť he says, predicting a leasing mix on par with a traditional vehicle. â€śThere isnâ€™t a mechanism to prevent that from happening.
â€śHowever, this is about bringing a different kind of customer into the Chevy showroom. A smart dealer is going to do the right thing for the customer. And a smart dealer is going to form a great relationship with that customer and treat that customer exceptionally well.â€ť