Filed Wednesday, March 11. 2009
Was money spent on the automobile industry just flushed down the toilet?
The U.S. automobile industry (and our economy) would have been a lot better off if Congress just let the big automobile companies declare bankruptcy in 2008 and restructure. That’s now what they probably will have to do anyway. As I mentioned in a column back in Dec. 2008:
Nothing is going to change once the automakers get their bailout of billions of dollars. Once they get it, will that change the buying habits of the populace? Is it going to change your buying habits?
With all the money sent out to the automakers in Dec. 2008, the government would have been much better off sending that money directly to the consumers. That’s right: to the consumers. They have always been counted on to bring the country back out of a recession. The problem is they’re no longer in a position to do so.
There is enough blame to go around that I’m not going single out upper management, union management, the general attitude of Detroit or the local and state politicians who can’t face reality. Instead, let’s take a look at the future market.
GM’s Big Comeback: The Volt?
Some think a hybrid or electric car is the answer. The Chevy Volt is supposed to be GM’s big comeback to the market advancement in hybrid and electric cars using lithium-ion batteries. This should be viewed with some skepticism, though, when it comes to reliability and cost.
At between $38,000 and $40,000, the Volt is too much money for most of the car-buying public. Here are some consumer comments from GM’s own blog.
I was really amped up about the Volt (pun intended) until I heard the $40,000 price tag! That knocked it off my list. I turned in my leased 2006 G6 GTP Coupe in [Dec. 2008], and frankly, there was nothing in the GM stable I wanted. I bought a lightly used 1997 Aurora.
If the Volt is popular, expect the dealers to pull what they always do on any in-demand car. Remember the introduction of the Mazda Miata? They jacked the sticker price with about a $6,000 dealer premium so you would have paid $28,000 instead of $22,000 for the car.
The same type of premium tag was slapped on the Ford Thunderbird when they were relaunched in the early 2000s.
The car was slightly overpriced to begin with (around $41,000), but when you added an $8,000 dealer premium fee on it, you were talking $48,000 to $49,000. Most of the “real” car buyers smirked at this and walked away. This left the Thunderbird on the lot for more than a year and dealers finally sold them for cheap to get rid of them. Ford pulled the plug on the Bird thereafter.
With this being the history of car dealers trying to maximize their profit on a “hot” car, will we see an $8,000 “dealer fee” on the $40,000 2010 Volt to try to make up for these last two years? That wipes out any government incentive (i.e. the $7,500 credit that is proposed).
When the eco-friendly types start getting giddy about reducing carbon footprints, they forget to add many costs that should be added into the formula. First of all, energy is not free. While you may save on gas, what about the electricity needed to power the batteries? What is the cost of fuel to recharge the batteries?
It may be less expensive today, but with the hefty carbon tax that U.S. President Barack Obama has proposed on utilities using coal, that tax will be passed directly to the consumer. This will make everyone’s fuel calculations today obsolete when it comes to comparing the price of gasoline to electricity.
How Much Does a Battery Cost?
Let’s talk about lithium-ion batteries. There is some talk from other manufacturers about leasing the battery to the user instead of putting it in the price of their car.
That would drop the price of the car dramatically since a lithium-ion battery goes for $12,000 to $16,000 (depending on who you talk to). What if you lease the battery in the car? That jumps your monthly “fuel” cost to $300 to $400 a month for the battery. Remember: that’s not the bank note on the car. That’s just to lease the battery.
Remember the Sony batteries in laptops? They were lithium-ion batteries. This is from a 2007 Wired magazine article.
“In their charged state, lithium-ion batteries are intrinsically unstable,” said Bart Riley. [Riley is] the CTO of A123Systems, [which is] a Watertown, Mass. company that is using nanotech research to create a new and safer version of lithium-ion batteries.
In Illinois, Argonne National Laboratory is heavily involved in trying to build a safer battery. Michael Thackeray of the vehicle technologies program gave a good presentation on this in 2008 that cuts through all the posts in the comment sections of different blogs that sometimes proclaim erroneous information. Here are some real concerns:
As battery developers work to create larger lithium-ion batteries, they are faced with four main challenges: safety, cost, (calendar) life and performance (power and energy) over a wide temperature range (negative 30 to 52 degrees Celsius).
The lithium-ion car batteries are the here and now whereas hydrogen cell power might be in the near future. Could there be a combination power system? While Thackeray says there could be in the future, right now the focus is to make the lithium-ion batteries safer by using alternative materials like high-capacity electrodes. Cold-cranking power is also an issue.
A Sucker is Born Every Minute
The success of the Volt seems to be hinged on the success of the battery and its acceptance by the consumer as well as the infrastructure. Where are all these plug-in stations going to be? What is the plug-in cost going to be to “fill ’er up”?
With the issue of the plug-in capability for recharging, will downtown parking lots have a plug-in section for convenience? What premium will they charge for that space above the $30 parking fee that they already collect? Do you think you’re going to get a free electricity plug-in service at a parking lot? Dream on.
Also, what is the cost of energy to build all this new support infrastructure? When you add all that into the grand equation, I still say you’re better off buying a different vehicle that has a proven maintenance track record. A next-generation diesel in an SUV might be more practical.
The same questions go for plug-in stations around other suburban and rural areas. Do you have to stop for a couple hours to recharge the car or is it the same time as a fill up at the pump?
Maintenance also means replacing worn parts and tuning up the engine. It’s one thing to buy a $100 battery. It’s totally different if I have to replace a $12,000 to $16,000 battery. These are questions and issues that the already “sold” customers typically haven’t yet asked.
How many of you went out years ago and just had to buy that Cadillac with the V8 engine to save fuel? What about buying the famous Oldsmobile diesel to conserve fuel costs? What about that styling classic called the Pontiac Aztek? P.T. Barnum was the Nostradamus of the car industry because he pegged it right: “A sucker is born every minute.”
Carlinism: Let capitalism work in America. We haven’t yet tried that in this crisis.
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