Friday, April 22, 2011

I Want A Chevy Volt!

The Chevy Volt is out, and I want one!

It's the 2011 Motortrend car of the year, and for good reason. All the benefits of a pure electric, with a small gasoline motor to act as a safety-net for longer drives. Nice! And with gasoline prices blowing the ceiling right off of gasoline station rooftops, we could all use one, couldn't we? Looks like the Volt has arrived just in time to save America's economy from yet another gasoline-induced economic recession.

Well, guess again. GM has produced, for 2011, 10,000 models of the new Volt. Ten thousand! That's it! To put that in perspective, the village of Greendale has a population of 14,400. The Bradley Center seats 18,000. You could fit the entire run of Chevy Volts for 2011 in the parking lot of Miller Park, and it wouldn't come close to occupying half of it!

It'll be easier to buy a ticket for the Superbowl than it will be to buy a Chevy Volt.
So much for the rescue.

Why are we, who are so starving for this needed product being tossed these few, paltry crumbs? Why is the free market not rising to the challenge?

The answer is simple supply and demand. GM has produced one hell of a car, but it cost them one hell of an investment. The price tag for this new vehicle would have been equivalent to that of a gas-guzzling sports car, without all the traditional flash. So GM pledged to hold the price down below $35,000. As it turns out, the car has smashed through that ceiling, and is going for something like $44,000. Worth it? You bet. IF you can find one!

You see, if left to the free market, GM would be rolling Volts off by the hundreds of thousands, for the initial price of around $60,000. But because they made a pledge to hold the price down, they simply cannot make money if they produce high volume. So they produce low volume, take a small gain, or possibly even a calculated small loss, and make plans to ratchet up the production gradually. It makes good business sense, but hurts the rest of us, for whom this technology is sorely overdue.

It's 'Tickle Me Elmo' all over again. Remember 'Tickle Me Elmo?' Christmas of 1995, I believe. The manufacturer of that toy pledged to only sell at a set, low price. But then demand went through the roof as everyone's kid wanted one. To meet demand, the price should have been raised to pay for the cost of increased production. But no, the price had to stay the same -- they promised. The result? No Elmos on the store shelves. And when they did materialize, parents stampeeded for them like herds of wild buffalo, at times getting into fisticuffs with other parents who dared get to the toy first.

It's the effect of price-fixing. You can't force the market. If the price is forced to stay low, manufacturers cannot make money unless they produce far less. The Soviet Union learned this lesson the hard way. If one forces prices of bread to be low by law, then prices will be low -- but the bakery shelves will usually be empty. The "invisible hand" fights back against attempts to force prices lower than what the free market demands.

The manufacturers of 'Tickle Me Elmo' lost out on the opportunity to make billions. Likewise, GM is going to lose billions. Oh, it won't be operating under red ink. In fact, the Volt sales will likely show a small profit. But that's because they didn't have to break the bank on producing very many. What SHOULD have happened is for prices on 'Tickle Me Elmo' to have been raised, production lines increased, and vastly more money made, to say nothing of there being lots stress-relieved parents as a result. The following year, demand would come down, and the price would have dropped dramatically. Investments in production for the company would have been made, and the cost of production would be dramatically less. Lots more parents could get Elmos for a reasonable price. And GM? It should be selling Volts at $60K or more, making money hand over fist, then, next year, the 2012 models can come down in cost. The manufacturing infrastructure will have been expanded and improved. People will finally be able to flip the bird to the overpriced gas stations forever.

And GM will be rolling, rolling, rolling in cash. But nah, that would mean the corporate executives would have to be smart!

And in case you're wondering where else I'm going with all this, it's very similar to the situation with collective bargaining and teachers' salaries. Give legislators the ability to fix the price of hiring an inner-city school teacher to what they THINK it should be, and the salary will be affordable to the taxpayer -- but good luck finding anyone to teach science or math!

In the meantime, we'll have to make do with what other options are out there. A Toyota Prius is still an affordable option, with the power of a wet noodle and the mileage of a Harley Fat-Boy. Nissan has a nice all-electric car, the Leaf, if you're willing to never drive out of the city. Most don't. In fact, Nissan may be poised to run away with this thing! Or how about a Ford? Ford now has hybrid Fusions, Fiestas and Focuses (Foci?). If you want a hybrid, that's the most affordable way to get one, with prices under $20K. (NOW you're talking!) Nissan may have the best all-electric, but Ford has gone hybrid-crazy, and is now the leading car manufacturer again. Or, maybe one could go extra fancy and buy a Tesla. Those sports cars are not only all-electric and could take you from Milwaukee to the Twin Cities, they're SWEET! But they cost the equivalent of a luxury yacht.

Meanwhile, BMW is producing the electric crossover model, the Megacity, Mercedes Benz is producing the Blue Zero, and even Minicoops are now coming out with a "Mini-E" version. But look out! China's car-company, BYD, is producing the E6! The Panda has seen the future!

All this is happening because the demand for electrics and hybrids is so high. Ford saw it, and is currently #1 again. GM could have seen it, but stubbornly stayed married to the idea of too little, too late.

Just think of how wonderful GM's stock would be, and how stable our economy would have been, had GM not been stupid enough to kill the EV-1 model back in the early 90's!

Oh, the folly of it all!

Eric

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