The madness of the Volt

I???ve long been fascinated by the Chevy Volt, GM???s fantastically expensive electric car ??? not because I???d ever want to buy one, but because the sheer economic stupidity of this sputtering battery-powered disaster is absolutely captivating.  It???s a textbook example of seizing a staggering amount of money from taxpayers, and plowing those resources into an utterly failed attempt to create a ???market??? for something nobody wants to buy.

The true price of a Volt, which is vastly higher than its sticker price, stands as an enduring testament to the superior wisdom of capitalism.  No true capitalist enterprise could produce a disaster on the scale of the Volt ??? it takes government compulsion and central planning ideology to screw up this royally.

I have no beef with anyone who does want to buy a Volt, or any other electric car.  I merely insist they actually pay the true price of the vehicle, rather than using coercive force to make the rest of us subsidize the purchase.

The Volt lists for $41,000 ??? an absurdly high price for such an unappealing vehicle ??? but how much does it really cost?  To get that number, one must add up the titanic subsidies plowed into its initial production: ???$240 million in Energy Department grants doled out to G.M. last summer, $150 million in federal money to the Volt???s Korean battery supplier, up to $1.5 billion in tax breaks for purchasers and other consumer incentives, and some significant portion of the $14 billion loan G.M. got in 2008 for ???retooling??? its plants,??? according to a 2010 article in the New York Times, and that???s not counting the $50 billion taxpayer bailout that kept GM???s doors open.

Then you???ve got to add the direct subsidy extracted from American taxpayers for each Volt purchased.  That???s currently $7,500 per car, although President Obama proposed increasing it to $10,000 per vehicle in his 2013 budget proposal.

Add it all up, divide by the number of Volts sold, and you???re well north of $250,000 per Volt.  Many other cars, and big-ticket consumer goods, have some subsidy pixie dust built into the price, but the Volt emits a choking cloud of the stuff.  It???s been a longtime contention of mine that government taxes, regulations, and subsidies distort the ability of consumers to fairly estimate the value of virtually everything, but in the Volt???s case, the out-of-pocket price bears absolutely no resemblance to the car???s true unit cost.

No one, save the most wealthy and foolhardy hobbyists, would be interested in buying a Volt for anything approaching its real price ??? the thing would cost more than a Ferrari.

The response typically offered to these grim calculations is that eventually Volt sales would flatten out the massive original subsidy.  As more cars are sold, the amount of subsidy per unit will decrease.  Eventually, it would work out to less than the sticker price of the car ??? small comfort to the taxpayers looted to finance this ridiculous little electric lemon, but at least a moment would arrive when Volt production made some sort of enduring economic sense.

There are two problems with this line of thought.  For one thing, Volt sales have been absolutely abysmal.  This would be more common knowledge if reporting on the Volt was not hopelessly politicized ??? an inevitable consequence of the marriage between government and its favored business cronies.  The failure of the Volt would reflect badly on General Motors; General Motors??? performance reflects directly on President Barack Obama; therefore, the failure of the Volt will not be reported accurately.

As Seton Motley notes at NewsBusters, headlines of a ???surprising??? ???increase??? in Volt sales, taking the car to its ???second-best sales month,??? erupted throughout the media when the June 2012 numbers came in??? but the Volt only sold a miniscule 1,760 units in June.  That???s twice as good as the previous month, but still microscopic.

Furthermore, even at $41,000 per car ??? a price possible only because of a $7,500 government subsidy – the Volt produces ???little or no profit.???  None of that massive initial development cost is being recovered??? and GM is still throwing good money after bad, spending millions of dollars to advertise a product that could only move 1,760 units during its second-best sales month.  What purely capitalist operation, divorced from compulsory taxpayer support, could survive several consecutive years of realizing virtually zero profit on a product that cost $700 million to bring to market?

Those poor sales are going to make the economics of the Volt even worse.  The already unprofitable price tag will have to be discounted further, perhaps in combination with higher taxpayer subsidies, as President Obama envisions.  More subsidies will likely be needed to keep essential components in production.  Every missing aspect of genuine consumer demand must be ???simulated??? with a blizzard of public money.

The Volt exemplifies command economics.  It???s an ideologically-driven product, with absolutely no real demand, beyond what the government can artificially create.  It makes no economic sense to buy or produce it ??? most buyers have six-figure incomes, because anyone else can plainly see that it would take over a decade of ???savings??? on gasoline to compensate for the far lower price of purchasing a more appealing and reliable gas-powered car.

Companies that spend $700 million producing ridiculous junk deserve to go bankrupt??? but they won???t, as long as they have the right political connections.  Irrationality is very expensive, but that???s not a big problem when you can force taxpayers to cover the bills.