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Lutz: GM not losing US$50,000 on every Volt it makes

Former General Motors executive Bob Lutz has defended the brand's Chevrolet/Holden Volt plug-in hybrid vehicle against claims that the manufacturer loses almost US$50,000 ($47,000) on each one it produces.

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Lutz's remarks were in response to a Reuters report published earlier this week, which claimed each US$39,995 ($38,300) Volt costs up to US$89,000 ($85,300) to build.

Lutz says Reuters’ figure, purportedly generated by “industry analysts and manufacturing experts”, was obtained using an overly-simplistic method, dividing the Volt’s total development cost by the number of vehicles sold so far.

“That’s like saying that a real estate company that puts up a $10 million building and has rental income of one million the first year is “losing” $9 million, or several hundred thousand per renter,” Lutz wrote in his Forbes column.

“That’s not how car business cost accounting works.”

Reuters quoted Dennis Virag, the president of Michigan’s Automotive Consulting Group, who said the problem with the Volt is that it is “over-engineered and overpriced”.

In a lengthy rebuttal, Lutz explained that it makes no sense to rate the car’s success against its first two years of sales, but rather against the total number to be produced over the lifetime of the vehicle and any related spin-offs.

“The Volt, by my estimate, is either close to ‘variable break-even’ or may be on the cusp of a positive gross margin,” he said.

“Deduct the per-unit allocation for all fixed cost, depreciation and amortisation and it is, surely, still ‘under water’ … but not by much, and less and less so as the volume builds and other, higher-margin GM cars, like the Cadillac ELR, piggy-back off of the Volt’s initial investment.”

Lutz admitted the first-generation Volt may “never really make a decent profit”, but insisted “succeeding generations of the same technology will”.

He said the “knee-jerk Volt bashers” could say what they liked about the innovative plug-in hybrid: “The car doesn’t care: The volumes are building globally and it’s doing exactly what it was designed to do”.

GM has sold roughly 13,500 Chevrolet Volts in the US this year, and will fall well short of its initial 40,000 sales target for 2012.

GM confirmed late last month it would stop production of the Volt at its Hamtramck plant from September 17 to October 12 because of soft demand for the range extender.

The Holden Volt goes on sale in Australia on November 1, priced from $59,990 before on-road costs.