Will the Chevy Volt's 'Shaky' 230 MPG Save General Motors?

Aug. 12, 2009— -- After years of building big trucks and SUVs, the Big Three Detroit automakers for the last year have been pegging their hopes on fuel-efficient hybrid cars.

The most-dramatic and hyped of these is the Chevrolet Volt, which General Motors now says could get up to 230 mile per gallon, the first mass-produced American vehicle to ever achieve triple-digit fuel economy.

It's an eye popping number that critics say is misleading, but GM is planning to center it's marketing campaign around the number.

The Toyota Prius gets only 50 miles per gallon, granted the Prius is already on the road and the Volt isn't expected to hit showroom floors until late next year.

But let's back up a minute: that 230 mpg is a great attention-grabber but it might not really be accurate on a car that will in some cases not use any gas at all.

That's because, unlike most hybrids, the Volt runs only on electric power for the first 40 miles after a recharge. After that, a small gasoline engine takes over to recharge the battery, giving it a total range of more than 300 miles. On other hybrids, the gasoline engine kicks in from the start, whenever the driver demands hard acceleration or the car is going up a hill.

Detractors, like the tech Web site Endgadget.com says GM's 230 figure, which has not been verified by the EPA, is "shaky," pointing out that people who drive more than 40 miles a day will never enjoy that kind or efficiency.

GM says the figure was arrived at using the EPA's revised methodology for electric cars and is a "composite" number.

Regardless, most Volt drivers will see their gas bill dramatically drop. But what about their household electric bills? Each night they will have to plug in the car just like most Americans also recharge their cell phone, iPod and BlackBerry.

Right now, electric bills are relatively affordable. According to GM, the U.S. average cost of electricity -- approximately 11 cents per kilowatt hour, that a typical Volt driver would pay is about $2.75 for electricity to travel 100 miles, or less than 3 cents per mile. A conventional car getting 25 mpg would use four gallons of gas to travel that same distance. At $3 a gallon, that trip would cost $12 or 12 cents a mile.

On ABC's "Good Morning America" today, correspondent Bianna Golodryga summed up the Volt this way: "This is not your grandfather's GM."

And that's exactly what the troubled automaker hopes people will think as it tries to rebuild itself after bankruptcy.

"A car that gets triple digit fuel efficiency will be a game changer for us," GM CEO Fritz Henderson said yesterday.

But GM has competition in the race to dominate the hybrid market.

Nissan is set to unveil its new all-electric Leaf next year, while Honda will roll out the hybrid gas/electric Insight. The Leaf promises to get more than 350 miles to the gallon. Both are expected to cost between $10,000 to $15,000 less than the $40,000 Volt.

Don't expect the Volt to be the silver bullet that will save the auto industry. GM will only roll out 60,000 Volts by 2013 and the technology could take 15 to 20 years to become mainstream, according to some analysts.

Rising Gas Prices

While analysts, Congress and Detroit all appear to be sold on hybrids, consumers have yet to pile on in large numbers.

The key may be gas prices.

Maryann Keller, who runs an automotive consulting company, said that people lined up to buy more-efficient cars only after gas topped $4 a gallon.

"Short of that, people are going to buy what suits their pocketbook and suits their needs," Keller said. "It's sort of human nature to want to buy the biggest and fastest, if you can afford it. And you're not gong to think necessarily about the environment in that purchase. At least, the vast majority won't."

Jack Nerad, executive market analyst for Kelley Blue Book, said that hybrids tend to have better resale value than say SUVs, but it doesn't mean the cars are the panacea for the automakers.

"Certainly a hybrid alone will not save Detroit," Nerad said.

In the 1980s, American automakers profited off the sale of minivans. Then in the '90s and first part of this decade, the SUV and pickup took over. Call it the age of the Hummer.

But when gas prices started to climb in recent years, Americans turned toward more-efficient vehicles. That -- along with higher labor and production costs -- in part have crippled the Big Three automakers. (The current recession and limits on borrowing were the nail in the coffin.)

"We're a nation where there's sort of an underlying assumption that we have a birthright to cheap fuel," Keller said. "The car has shaped our lives. It has shaped where we live, how we live, where we work and we're paying the price for it now."

Hybrid Sticker Shock

Keller said that there are plenty of enhancements that automakers could make to conventional vehicles to improve gas mileage without the cost of the hybrid.

After all, hybrids typically cost $4,000 more than a conventional vehicle, according to Stephen Spivey, senior auto industry analyst with Frost & Sullivan.

When gas prices were at $4 a gallon, that extra cost would be quickly recouped by city drivers. But for those primarily on the highway, the heavy weight of the battery and lack of braking -- which charges the battery -- didn't make the cars economical.

Now that gas is below $3 a gallon -- although nobody is sure how long that will last -- hybrids don't make sense on price alone.

Spivey said hybrid sales track closely with the price of gas.

To see this in action, look no further than the Toyota Prius. In April 2008, when gas was climbing fast, 21,757 of the popular hybrids were sold. But in November, after the return of cheap gas, only 8,660 of the cars sold. (Sales have been sporadic in 2009 for all types of cars.)

So why are automakers centering their recovery plans, in part, around hybrids?

Spivey said there is a growing demand in Congress for better fuel economy and they are "sensitive to their audience."

The Gas-Price Factor

The automakers might start ramping up hybrid production, but it doesn't mean that drivers will buy them.

"The problem is, in the short-term, if gas prices stay low, there won't be any demand for these vehicles," said Ron Harbour, an auto industry analyst with consulting firm Oliver Wyman.

Harbour said that larger Americans, in particular, may be turned off by smaller cars, even if they are fuel-efficient.

"I'm 6 foot 3. There's not much motivation for me to buy a small Ford Fiesta if gas is a $1.69 a gallon," he said.

Historically, large vehicles have been the most profitable. Meanwhile, fuel-efficient vehicles rely on expensive technologies and are, therefore, less profitable for automakers.

"The government wants all the automakers to move in the direction of smaller, more fuel-efficient vehicles … [but] they're very cars that make the least amount of money," Harbour said.

But Gregg Lemos-Stein, a credit analyst at S&P who covers the automobile industry, said that for some there is an appeal to the hybrid that goes beyond price.

"There's also the good feeling you get for being more attentive to the environment," Lemos-Stein said. "It's kind of like a badge of pride that you are doing the right thing and burning less gas."