Will GM Pull the Chevy Volt's Plug?

Will General Motors (NYS: GM) pull the plug on the Chevy Volt?

It looks like it has -- but only temporarily. GM said that its Detroit-Hamtramck assembly plant, which builds the innovative plug-in hybrid, would stop production for five weeks, beginning on March 19.

GM insists that this is a normal -- and temporary -- production adjustment to "match supply to demand". But why is demand so low? And what are the prospects for GM's troubled halo car?

Falling short of low expectations
GM CEO Dan Akerson has said that the company's goal is to sell 45,000 Volts in the U.S. this year. Absent a big sales turnaround, that isn't happening: The company sold just over 1,000 examples of the plug-in hybrid in February. At that rate, they'll be lucky to reach a third of their goal for the year.

Of course, the Volt fell short of much more modest sales goals last year. The problem isn't the car itself. It's one of GM's best vehicles: thoughtfully designed, well-finished, and genuinely innovative. But there are two factors holding it back:

  • It's expensive. With a sticker price near $40,000 before various incentives and tax breaks, it's not a value-priced proposition. Not only is the Volt more expensive than Nissan's (OTC: NSANY) all-electric Leaf, it's a lot more expensive than Toyota's (NYS: TM) Prius. And the Prius, fairly or not, is the default choice for a lot of folks who might otherwise be prospective Volt buyers. It's no surprise that Volt-owning households tend to be high-income ones.
  • It's had some really bad PR. Last year's disclosure of a fire in a crash-tested car fueled a media outcry, fed by election-year politics that have sought to position the Volt as an Obama administration boondoggle. It's arguable whether the safety fears -- which are unjustified, say Federal regulators -- or the political kerfuffle have done more damage to sales, but both have hurt the Volt's cause.

GM halted Volt production while its engineers and Federal regulators sorted out the fire-safety issue, but it restarted early in February after design improvements were incorporated and the government declared the Volt safe.  Clearly, even with that halt, supply of the car is still exceeding demand, despite a big marketing push that included a Super Bowl ad.

Ironically, one of the biggest challenges to the Volt's success might be right on Chevy dealers' lots.

This might be the Volt's toughest competitor
Have you checked out the Chevy Cruze? It's not a high-tech plug-in hybrid; it's just an ordinary compact, with an efficient four-cylinder engine. But it's a good little car, easily the best compact GM has ever sold in the U.S. It looks pretty conservative on the outside, but inside it looks and feels like a luxury car -- and it drives well, too.

Even better, and more to the point, it gets 42 miles per gallon on the highway. That won't challenge the Volt's green cred, but it's quite good for a quiet, comfortable car ... and a Cruze starts at less than half of what you'll pay for its high-tech sibling.

The Cruze was the best-selling compact in America for a while last year, and has continued to be a strong seller even as Toyota (NYS: TM) and Honda (NYS: HMC) have rebounded aggressively. While GM has said that the Volt has pulled a lot of people into Chevy dealerships, the sales numbers show that few of those folks actually bought Volts. I would not be surprised to learn that curiosity about the Volt has led to quite a few Cruze sales.

If that's true, then the Volt might be indirectly contributing more to GM's bottom line than many have realized. But while the Volt might eventually transcend its PR problem, its high price is likely to keep sales at the niche-product level, at least until GM figures out a way to bring it down without losing money.

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At the time this article was published Fool contributor John Rosevear owns shares of Ford and General Motors. The Motley Fool owns shares of Ford. Motley Fool newsletter services have recommended buying shares of Ford and General Motors, as well as creating a synthetic long position in Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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