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TheStreet Open House

Setting it Straight: Chevy Volt vs. the Government

The Volt is only the first car in a 25-year program to bring out new propulsion technology into every new GM car and truck. Some of these vehicles will be extended-range electric just like the Volt. Others will be pure electric, such as the announced Chevrolet Spark Electric in 2013. Yet other models in the future may be hydrogen generators feeding a battery. Body styles will range across the board from family cars, minivans and trucks. The technology will evolve in numerous rounds going forward, much of which is naturally impossible to predict.

The absurdity of the math used can be further shown by asking what the study would have yielded if it had been done six months ago or a year ago. Six months ago, 3,000 Volts had been sold and therefore the implied subsidy was $500,000 per car -- half as many cars, twice the subsidy per car. One year ago, the first Volt was sold and therefore this one car must have cost $1.5 billion, according to the reasoning by the people who wrote the headlines around this study.

This is the way it works in almost every industry. The first iPad manufactured probably cost Apple $100 million or whatever. Does that mean Apple lost $100 million minus $500 on this iPad? Of course not. The development cost for any product is written off across large volumes, typically multiple generations, where both hardware and software accumulate constantly.

The first new pill Pfizer makes can cost billions as well. But everyone recognizes that you don't say that the first 6,000 pills manufactured cost millions of dollars each. I think you get the point. The methodology yielding the "$250,000 subsidy for every Chevrolet Volt" is absurd because it is based on only the cars sold to date.

I am, by the way, totally opposed to government subsidies. Government power and money leads to corruption and inefficiencies, if world history has taught us anything. Economists have won Nobel Prizes on this subject of "rent seeking" (James Buchanan, 1986, comes to mind), and I agree.

Obama Didn't Invent the Volt

There is a separate but related myth around the Chevrolet Volt that has to be crushed. It is often being suggested that the Chevrolet Volt is basically a government project, sort of like a mini-NASA, insisted on by the U.S. government. As far as the evidence shows, nothing could be further from the truth.

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