Sunday, September 16, 2012

The Volt and Farming

The Post runs a Reuters piece on the GM Volt today, in which I think they distorted the picture.  (The gist of the article seems to be here, though it's not quite what appeared in the print edition.) The headline was that GM is losing $50,000 on each Volt they sell. The reality seems to be that GM and farmers share something.

In the article, there's this sentence: "Each Volt then costs around $20,000 to $32,000 to build, including materials, labor and factory operations"  And the Volt is supposed to sell for $39,145.

What that says to me is while GM is taking a loss on each Volt because of the accounting for the development costs and the overhead of the company, they've actually got positive cash flow on each one (assuming they don't discount the price much).  That's like a farmer.  As long as she can sell her crop for more than the out-of-pocket cost of growing and harvesting it, she can keep going, hoping next year the prices will be better and the yield will be higher.  That's rational, at least assuming the farmer is emotionally invested in farming.  So too is it rational for GM to continue to produce and sell Volts, assuming next year the prices will be better, the yield higher, and the company and its customers will be higher on the learning curve.

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