Supporters of the Chevy Volt were elated at March’s record sales figures, thinking that the future had finally arrived. Yet in absolute terms, the Volt’s best month ever is hardly impressive. More important, these drab sales are propped up by an extraordinary amount of preferential tax treatment and direct subsidies, ranging anywhere from $50,000 to $250,000 per vehicle sold. The Chevy Volt is a prime example of the folly of government’s picking of winners and losers in the marketplace.
March Sales: It’s Not Hard to Beat a Horrible Track Record
This matter-of-fact Forbes commentary on the record-setting March sales gives an idea of just how abysmal the Volt has been thus far:
[S]ales results for March…showed Volt sales zooming to 2,289 units for the month, a full 277 percent ahead of a year earlier and about the same percentage ahead of poor sales in January of this year.
That result gave Volt by far its best sales month ever and could inject some life back into a proposition that lately has been much more about politics than about the product.
…
Yet sources at some Chevy retailers didn’t report any kind of broad-based surge in retail sales had developed in March over February. It’s possible Volt’s quick rise wasn’t much noticed by many dealers; the addition of about 1,000 sales of Volt in a month’s time, spread across about 3,000 Chevy dealers in the United States, would mean the sale of only an extra one-third of a unit per dealership, on average, in March compared with February. Meanwhile, a source with knowledge about federal-government fleet orders didn’t believe the Obama administration had placed any big order for Volts lately.
In any event, there appeared to be some hope that strong Volt sales in March comprised more than just a one-month blip. Early last month, GM announced February sales results for Volt that had recovered to 1,023 units from only about 600 units in January — a month that had been dominated by continued publicity over Volt’s fire-crash issue. But then last month, GM also announced the suspension of Volt production and further soured the waters by blaming media “exaggeration” of the fire risk for Volt’s slump. [Bold added.]
When dealing with such a low baseline, it’s not too hard to get a 277 percent “surge” from the previous year’s figures. To keep things in perspective: By far the best single month saw 2,289 Volts sold. According to GM’s U.S. sales figures [.pdf], its best-selling Chevys in March were as follows: Silverado/C-K Pickup at 36,491 units, Malibu at 23,887 units, Cruze at 21,607, and the Equinox at 20,064 units. There were some models (such as the Avalanche and Corvette) that sold fewer units than the Volt, but overall to have a record-breaking month of 2,289 units sold is hardly a good sign.
Record-Breaking Government Support
The poor sales record for the Volt is all the more disturbing in light of the tremendous (perhaps record-breaking) support the electric vehicle has received from both federal and state governments. Most obvious, the federal government currently gives a $7,500 tax credit to Volt buyers—who come from households earning $170,000 on average—a generous incentive that President Obama has recently suggested be bumped up to an even $10 grand.
Yet there are very generous state-level benefits as well, as this Forbes piece explains:
Demand in March was beginning to build among dealers and consumers in California for a lower-emissions version of Volt that GM just started manufacturing, so that it could be eligible for single-occupancy access in carpool lanes and up to $1,500 in state rebates.
Other states also have been adding incentives for Volt purchase. Colorado, for example, recently announced that Volt customers would become eligible for a state tax credit of up to $6,000 — on top of the federal tax credit of $7,500. That could cut the effective sticker price of a Volt sold in the Rocky Mountain State by up to $13,500, or down to the mid-$25,000s, from $41,000. At that price, Volt’s features and contenting level would compare favorably with many internal-combustion models. [Bold added.]
Yet the government support goes beyond tax incentives given to the end consumer. Last year, James Hohman of the Michigan-based Mackinac Center for Public Policy estimated the total government support for the Volt project. According to Mackinac:
Hohman looked at total state and federal assistance offered for the development and production of the Chevy Volt, General Motors’ plug-in hybrid electric vehicle. His analysis included 18 government deals that included loans, rebates, grants and tax credits. The amount of government assistance does not include the fact that General Motors is currently 26 percent owned by the federal government.
The Volt subsidies flow through multiple companies involved in production. The analysis includes adding up the amount of government subsidies via tax credits and direct funding for not only General Motors, but other companies supplying parts for the vehicle. For example, the Department of Energy awarded a $105.9 million grant to the GM Brownstown plant that assembles the batteries. The company was also awarded approximately $106 million for its Hamtramck assembly plant in state credits to retain jobs. The company that supplies the Volt’s batteries, Compact Power, was awarded up to $100 million in refundable battery credits (combination tax breaks and cash subsidies). These are among many of the subsidies and tax credits for the vehicle.
It’s unlikely that all the companies involved in Volt production will ever receive all the $3 billion in incentives, Hohman said, because many of them are linked to meeting various employment and other milestones…
GM has estimated they’ve sold 6,000 Volts so far. That would mean each of the 6,000 Volts sold would be subsidized between $50,000 and $250,000, depending on how many government subsidy milestones are realized. [Bold added.]
Conclusion
Government has no business being in the car business. Among its other problems, the government bailout of GM now gives an artificial incentive to tailor other policies to boost the sale of GM vehicles, such as the Chevy Volt.
Despite the mountain of government support, the Volt has sold very poorly since its birth. There is nothing scandalous about bringing a car to market that the consumers don’t want; that’s the risk of free-market capitalism. Yet when the government changes the tax code and other policies in order to funnel people into buying something that they otherwise wouldn’t consider, then there is a problem. At this point, government officials are distorting the distribution of scarce resources away from where market forces would have channeled them.
The Institute for Energy Research (IER) is neither “for” nor “against” conventional, electric, or hybrid vehicles. Our position is that the government should keep the tax code and other policies neutral with respect to particular technologies, allowing consumers to vote with their dollars on which car models should be produced.
