This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

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.
2 of 4

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
GM $27.87 0.00%
AAPL $94.99 0.00%
FB $99.54 0.00%
GOOG $678.11 0.00%
TSLA $148.25 0.00%


Chart of I:DJI
DOW 16,014.38 -12.67 -0.08%
S&P 500 1,852.21 -1.23 -0.07%
NASDAQ 4,268.7630 -14.99 -0.35%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs