The “Father of the Chevy Volt” Bob Lutz said a capital-strained auto industry is making unprofitable cars to satisfy regulators, and he’d be “surprised and shocked” if the 2017 Chevy Bolt is profitable.
“I no longer have access to General Motors figures, but I would be surprised and shocked if the 200-mile electric Bolt is going to make money,” said Lutz at an Automotive News roundtable discussion held in August. “You look at the cost per kilowatt hour of batteries and the number of kilowatt hours they have got in there and then you look at the selling price. It’s just not going to work.
Since Lutz’s statement General Motors revealed in October it pays LG Chem, its collaborative partner developing the Bolt, just $145 per kilowatt-hour for battery cells. GM has said it will be profitable, and Lutz did qualify he is not privy to those details any more.
But he his point was part of a broader thrust naming the Volt and plug-in Cadillacs as he noted ongoing costs, and focused on other business realities of cars developed for emissions mandates.
His comments have gone largely unreported as they were part of an over 1.5-hour-long video on a subscription only industry site. The frank and revealing insiders’ discussion was between auto industry “superstars,” Bo Andersson, Arndt Ellinghorst, John Krafcik, Bob Lutz, Tim Manganello and Andy Palmer.
The actual topic was Fiat-Chrysler head Sergio Marchionne’s postulation in April that the auto industry is financially skating on thin ice, and collaborative partnerships would be needed.
“The capital consumption rate by OEMs is unacceptable — it is duplicative, does not deliver real value to consumers and is pure economic waste,” said Marchionne in a PowerPoint presentation being talked over by the illustrious guests.
Marchionne said “it is about … fundamentally changing the paradigm for the industry,” which the insiders pondered against a backdrop question of whether this was just Marchionne’s pitch to sell FCA.
Lutz therefore was not the only one piping up. Andy Palmer, head of Aston Martin and formerly an executive with Nissan also spoke of cost containment issues driving up prices.
“What often … get called ‘minor projects’ in an automobile company have simply exploded,” said Palmer. “Those kind of projects, basically regulatory compliances, are now a major part of our R&D spend every year. That is really, really a problem. It creeps up on us. Basically that’s destroying value.”
Agreement was voiced by others in the crosstalk, but Lutz made more strong statements about whole product lines being hurt by compliance cars, as automakers can look at plug-in hybrids and all-electric cars. Even if they are sold nationwide, these vehicles make up less than 0.75 percent of the U.S, market, and do not keep the lights on for major automakers burning through cash.
On the other hand, trucks, SUVs and crossovers are where General Motors and other automakers make their most substantial profits.
With gas prices declining, automakers have been booking ever increasing sales for these types of vehicles while working on electrified cars because they must meet regulations.
This, said Lutz, has cost everyone, even the truck buyers, as he blamed electrified vehicles that cost as much to develop as other vehicles, but make much fewer sales.
“I don’t know if anybody noticed, but full-size sport-utilities used to be — just a few years ago used to be $42,000, all in, fully equipped. You can’t touch a Chevy Tahoe for under about $65 [thousand] now,” he said. “Yukons are in the $70 [thousands]. The Escalade comfortably hits $100 [thousand]. Three or four years ago they were about $60,000. What this is, is companies trying to recover what they’re losing at the other end with what I call compliance vehicles, which are Chevy Volts, Bolts, plug-in Cadillacs and fuel cell vehicles.”
Better, said Lutz, would be collaborative agreements between carmakers, and for the past several years even former competitors have been partnering to share costs and intellectual property on advanced technology intended to save fuel and cut emissions.
“Yeah,” said Lutz, “Just do one fuel cell vehicle and have about six companies each participate in the architecture so that at least they might attain a volume of maybe 100,000, so that everybody can have their 5,000 or 6,000, which they’re going to need to comply with California.”
Lutz also said the auto industry is losing money.
“For the last 30 or 40 years, investors and analysts have been saying the automobile business is a great consumer of capital and does not return economic value to the shareholders,” said Lutz candidly of past history that the car business can be a money loser, and things are now getting worse.
“The automobile business consumes enormous amounts of capital, which is why our fixed cost is so high and why when there’s a downturn and the volume collapses, we’re all into the multibillion-dollar losses and hemorrhaging cash,” he said.
Five years since the launch of the Chevy Volt and Nissan Leaf, the plug-in market has seen fits and starts as it works against all manner of resistance, including automakers not as gung ho, say, as Tesla’s Elon Musk, or Nissan’s Carlos Ghosn.
Whether Lutz’s statements are all on point, or some miss the mark, the roundtable is an eye opener of been-there-done-that industry leaders talking shop.
Regulations are tightening, they all know it, and as they are looking to develop alternative tech, how to do it profitably appears to be of real concern.