No, GM Is Not Losing $49K On Every Volt; Reuters Just Fails at Basic Business Math

  Someone Is Wrong On The Internet!

If it's so great, why does The One ride around in an armored Cadillac, huh?If there’s one characteristic that distinguishes conservatives from liberals, it’s business acumen, right? Libruls may occasionally be able to sell some patchouli-scented hemp-based iPod cozies at the Lesbian Sisterhood crafts fair, but conservatives are the folks who REALLY understand how Bidness works! That’s pretty much the premise of every Republican campaign in the last 30 years, after all. So how is it that when a journalist made a pretty obvious error in a story, the supposedly business-savvy folks in the right-wing blogosphere went nuts passing on the story’s erroneous conclusions?

Here’s the skinny: A Reuters story on Monday featured this shocking lede:

General Motors Co sold a record number of Chevrolet Volt sedans in August — but that probably isn’t a good thing for the automaker’s bottom line.

Nearly two years after the introduction of the path-breaking plug-in hybrid, GM is still losing as much as $49,000 on each Volt it builds…

ZOMG, said the wingnutosphere, Government Motors (get it? get it?) is losing tons of money — our money!! — on every single one of those horrible cars that nobody wants and that Obama’s socialist vehicular commissars forced GM to build as a condition of getting a bailout with OUR MONEEEEEE!!!!!!!

Only that’s not, like, accurate at all.

As this International Business Times analysis points out — with the kind of patient tone one would use when telling a five year old that, no, the department store’s escalator will not eat your feet — the Reuters loss-per-vehicle estimate is based on crappy math that NO ONE IN BUSINESS WOULD REALLY USE. (Caution: Math follows. Do not be afraid. We understood it, and we were English majors.)

Reuters derived its loss-per-unit estimate by dividing the total development cost for the Volt (between $1 billion and $1.2 billion) by the number of Volts sold to date (about 21,500 so far), then adding in the estimated production cost per car (“between $20,000 and $32,000, a wide margin to be sure”) and subtracting the price for which each Volt sells (base price $39,145), which gave them that $49,000 loss figure.

Unfortunately, Reuters screwed the mathematical pooch in that first bit of ciphering:

The issue with Reuters’ math, though, is that it only takes into account the 21,500 Volts sold so far, as if GM would never sell another one. If that is taken to be true, then each Volt sold has cost GM around $55,000 in development costs. However, each Volt sold spreads out the development costs incrementally, pushing down the R&D cost per unit. GM has acknowledged that it has not yet sold enough Volts to break even, but it suspects that it will reach the break-even point by the time the second- generation Volt is introduced onto the market in about three years’ time.

Once again, we must emphasize that we are mushy-headed liberal arts majors, not business majors, but it seems like a pretty major fail to assume that the development costs of a new technology represent an irrecoverable loss. And the Reuters story even acknowledges (about halfway through) that the average per-unit costs for “development and tooling costs…will, of course, come down as more Volts are sold.”

But look at the capitalism experts at sites like The Blaze, or Free Republic, or Townhall, or the hideously named “Twitchy.com” — The typical comment goes something like this: “They’re losing $50K per car, but don’t worry, they’ll make it up in volume!!! HAW HAW HAW!” Um. Yeah. Actually, that is how development costs work. We thought you guys understood business?

The decision to develop the Volt, by the way, was entirely GM’s, and the program began in 2007. Just another example of time-travelling Obama interfering with private industry, we suppose.

Strangely, it seems like maybe the crazy libruls might understand manufacturing a bit more clearly when it comes to this story:

As the blog InsideEVs pointed out, rather sarcastically, in response to the Reuters feature, “In a related news item, I heard that Ford has delivered the first dozen C-Max hybrids, and it cost the company about $500 million to develop the program, and therefore Ford is losing $41,666,667 on every copy they sell.”

So remember, conservatives understand how businesses really work. And math is hard.

[Reuters / International Business Times]

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About the author

Doktor Zoom lives in Boise, Idaho. He acquired his pseudonym after being differently punctual to too many meetings. He is not a medical doctor, although he has a real PhD (in Rhetoric and Composition).

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173 comments

  1. comrad_darkness

    Shhhh. Real capitalists don't look past the next quarter's profit and personal 10 million dollar bonus for the CEO. That's the secret here.

      1. Rotundo_

        Don't bring Ryan's High School football team into this. The Parasites were one helluva football dynasty back in the 80's. Still are, and the tapeworms on the cheerleaders skirts haven't changed a bit.

      1. Chet Kincaid_

        I am too cool to let on that I don't know precisely where and how it originated, but I have always seen it used to suggest that the purveyor of a typed sentiment is a wingnut spewing venom so enthusiastically that he/she is not careful to hold down the "shift" key when vomiting exclamation points all over the Demonrats.

        1. WhiteyMcFlyover

          It's even cooler when you send it from a mobile device and have to switch back and forth between alphanumeric and symbols to pull it off.

        2. Designer_Rants

          I read on a 'history of memes' type of site once that it originated (as all memes do) from 4chan, some kid very excited about a video game-related thing. But it's still relevant to all pants-pissingly ignorant rantoids, including The American Wingnut.

  2. FakaktaSouth

    Jesus with the liberal fact-biased math here. What's with all the do-gooders pretending this is the way business works? If it ain't killing something and making a billion in profits NOW it is worthless. Or less than worthless, 50K less.

    1. MaxNeanderthal

      I remember reading an interview with the then head of Toyota's R&D dept, now Toyota CEO, about 6 years ago- "What's the development budget for the Toyota Hybrids?" he was asked.
      "$4.5 billion", he replied.
      You do the math (or if you're a republican, you don't do the math, because you probably can't…)

      1. Doktor Zoom

        Actually, I saw pretty much this discussion in one of those wingnut comment threads:

        Commenter A: Toyota spent over $4 billion on the Prius, and they're only now becoming profitable.
        Commenter B: Yeah, but Toyota only spent their own money!! Not taxpayer funds!!!!
        Commenter A: Actually, hybrid development was heavily subsidized by the Japanese government.
        Commenter B: Japan is soshulist!!!!!!!!!!!!

        Frankly, I'm surprised the second guy didn't call for trade sanctions to save our free market.

        1. Negropolis

          BTW, this has always made me mad, domestically, when people talk about how much better Japanese autos were. Well, yeah, their companies essentially outsource R&D to the government, so they have a lot more money to work with.

  3. RRoccoco

    Paul Ryan must be tutoring math at Reuters on the side–while smoking the marijuana, of course. With some AC/DC blasting in his iPod earbuds. Can't blame him.
    He's going to need another job soon.

  4. AdamGR

    Oddly enough they seem to understand the concept when we're justifying that patented medications need to cost $789.00 a pill…

  5. JohnnyQuick

    Indeed, Good Doktor, the Volt was started under Bob Lutz at GM before the bailout.

    And Lutz is a global-warming denier, anti-union piece of shit who penned a recent Forbes story about how Caterpillar execs made the right decision in trying to cut workers' pay and give themselves raises, even as they've made massive profits. (I'm saying Romney would like the guy.)

    (Also. I would like a Volt. That people have said they're still driving theirs with the gas in the tank from when they bought it sounds pretty appealing.)

    1. Preferred Customer

      I don't agree with Bob Lutz on everything, but I agree with him on cars. Which, until he runs for office, is all that matters.

      Of course, even though Lutz has a sterling reputation in the enthusiast community, his actual win/loss record is…shall we say…somewhat spottier. It's not entirely clear that, as a rabid car enthusiast, he really understands how important beige is to the American consumer. Merkur, GTO, G8, Volt…all cars I'd love to own, but my and my 2 dozen enthusiast friends are about the only ones.

      1. JohnnyQuick

        When I was first into cars at around 15, I would read all the mags and Lutz was heralded because of his love of good 'ol muscle cars that the writers loved.

        But at this point, the heyday of those cars is over 40 years ago, and I feel like the old dudes who call themselves car enthusiasts can't accept what fucking year it is — they can't feel as excited for a Tesla as for a new Camaro. I think the average American nowadays would be more excited for a car that works like a new iPhone, efficient and stylish.

    2. Negropolis

      I hope you take this to mean that even a blind squirrel can find a nut every once in awhile. For whatever his faults, it's absolutely essential that he got the Volt started for the future of GM. Whether the Volt succeeds, I don't know, but this had to be done and I couldn't care less who had the idea to push it.

      1. JohnnyQuick

        Oh, I do agree. In fact, that's why I wanted to put in that bit in the end about wanting a Volt, which I do.

  6. anniegetyerfun

    I studied Chinese in college, so all I can really tell you is when China will finally officially take over the US (probably 2023).

  7. Maman

    We have to nut up and understand numberz and economicz so these asshats can't fuck with up anymore with their magical "invisible hand"

  8. veritass

    GM CFO freaked out after they sold the first one for $40k. Employees overheard him screaming "WE JUST LOST $999,960,00."

    Maths are hard.

  9. Callyson

    Definition of "Research and Development Costs" according to an actual financial dictionary:

    The costs a company incurs in process of developing new goods and services to best suit the company's and consumer needs. For example, a vacuum cleaner company may spend a significant amount of money researching and developing profitable vacuum cleaner improvements. The costs decrease the company's profit in the short term but create the potential for higher profits in the medium and long term. As a result, many analysts consider it a positive sign when companies devote a large amount to their research and development costs.

    http://financial-dictionary.thefreedictionary.com

    Definition of "Research and Development Costs" according to the wingnuts:

    ZOMG it's socializm!

    1. zumpie

      Ummm or even more simply:

      1) You have to spend money to make money

      2) Back when the US was a manufacturing based economy (you know, that same time that all the fundies harken back to, oh, so nostalgically), most companies had the established practice of spending quite a bit in R&D (and less in marketing). Makes sense to me!

  10. Nibbler of Niblonia

    That's like saying it costs $60 every time you turn on your TV because that's how much your cable bill is each month

  11. Boojum

    No snark.

    This is the kind of thing which demonstrates why government funding of basic scientific research is so important. Many businesses simply will not (or cannot) lay out the funds necessary to develop an entirely new technology, especially if it will require a new infrastructure to support it. That is why government has always funded basic scientific research.

    Counterbalanced against that is SOCIALIZMS!, ZOMG I see a Muslin!!!

    1. chicken_thief

      research requires edjumakation therefore commuhniss therefore FUCK NO KENYAN PRETENDER-IN-CHIEF I WANT MY 'MURKA BACK!!!!

      Also too please Mr Preznit, make sure the postman delivers my SS check by the 4th of every month. He was late this month blaming stupid Labor Day or sumton.

    2. Oblios_Cap

      That's a good explanation. Now please elaborate how corporations make money on the back end by externalizing their costs – treating the environment and its occupants like dirt and expecting the taxpayers to cover the cost of fixing their messes.

      1. Boojum

        I think you just did that quite well. Of course, laying off R&D, infrastructure, and environmental costs on government is no kind of excuse for taxing retained profit, dividends, or capital gains. That would be Kenyan anti-colonialist theft!

    3. Negropolis

      I said this above, but this is why the Japanese auto industry was kicking our asses for so long, and continue to do so, now, but to a much lesser degree as we've finally caught up. Toyota, Honda, and the rest can basically outsource their R&D to the Japanese government, which is going to be more benevolent in what they come up with, and has the effect of pushing down the cost-per-unit for the corporations. If Corporate America knew what was good for them, they'd be begging that the government do more R&D, but that means higher taxes and that's a total non-starter for the mob (i.e. tea party yokels).

  12. Preferred Customer

    Bob Lutz is a biased source, but he's forgotten more about building cars than those twits at Reuters and/or Fox News will ever know.
    http://www.forbes.com/sites/boblutz/2012/09/10/th

    I admire the engineering in the Volt, and think it was an incredibly gutsy call for Lutz et al. to push it through in the face of impending bankruptcy. Whether it succeeds or fails as a commercial proposition, it's the kind of bet-the-company innovation that really moves things forward. Screw Fox and the right wing blogosphere for trying to turn it into a political punchline. Makes me want to buy one just to spite them.

  13. SmutBoffin

    Good god, the only things I really know about business I learned from Das Kapital, and I can understand why the "loss"-per-unit figure is made of dumb.

    I am a Socialist but I am still better at Capitalism than you, Wingnuts.

  14. Blueb4sinrise

    R&D on bombers and missiles and space lasers however, cost nothing.

    Plus think of the ROI for those!!!!!!!!!!!!!!!

  15. ColHeightsChic

    Damn liberal media with your fucking fact-checking and elitist math explaining. I suppose next, you're going to tell us that if we just all believe that uppity president when he says we SHOULD all go to college, then we'd be able to do this arithmetic stuff.

    1. chicken_thief

      And the Cadillac health insurance plans that no one needs. Because OBAMACARE is rooning the country!!!!!!!!

  16. Self-Uploader

    Now that you've managed to explain the maths so even an idiot progressive like me can understand, would you mind explaining the physics of time travel? I don't get how Obama keeps going back to in time to close factories and have 9/11 happen on his watch, while Mitt Romney goes back and kills Bin Laden and bails out the auto industry retroactively. Couldn't Mitt just ask his friend Jesus to send him back to prevent 9/11 and the housing crash in the first place?

    1. Biel_ze_Bubba

      Since Obama went back in time and talked GM into developing the Volt, he's certainly got a lot of 'splaining to do.

    2. kittensdontlie

      In the world of physics, the anti-particles are those depicted traveling back through time.

      Now, real Obama is forthright and does no wrong, whereas his anti-self travels back in time and screws things up. On the hand, since real Mitt is such a dumbass, his backward time-traveling anti-self is smart, rather pleasant and honest, though tends toward drunkenness at odd hours.

      QED

  17. weejee

    While Bamz is time traveling, can he tie Lee Harvey Oswald's shoelaces together say on the morning of 11/22/63. Hey, there might be a book in that would be worth a King's ransom.

  18. Oblios_Cap

    You are horrified at our intending to do away with private property. But in your existing society, private property is already done away with for nine-tenths of the population; its existence for the few is solely due to its non-existence in the hands of those nine-tenths. You reproach us, therefore, with intending to do away with a form of property, the necessary condition for whose existence is the non-existence of any property for the immense majority of society.

    Are we there yet?

  19. kittensdontlie

    Forget the Volt, I want to invest in those"patchouli-scented hemp-based iPod cozies", so I just need to find one of those Lesbian craft fairs.

    1. UnholyMoses

      I sure as fuck don't.

      Think about it: Most folks haven't mastered the two-dimensional art of driving forward and back, left and right. And now you want to add up and down to the mix?

      Hell. No.

      Not unless everyone takes flying car training in Finland. Then maybe.

  20. johnnyzhivago

    American companies should stick to businesses like mining or at least making simple things like hammers or nails which don't require all this "Research & Development" which is nothing but a welfare program for over educated engineers.

  21. actor212

    This introduces the accounting concept of fixed versus variable costs.

    The costs to develop the Volt are fixed. They are spent whether GM sells one or a million. GM allocates those costs (in its own ledgers, but not on its books) to each Volt sold, based on an amortization schedule of how many cars it projects to sell. If they undersell, they take a loss on the Volt, full stop. If they oversell, it's pure profit to the tune of the amount budgeted.

    This is not unlike figuring out your budget for the year. You know you have to pay rent (or a mortgage) every month, so you automatically include that when you try to figure out how many hookers you can fuck.

    Variable costs are the costs to produce each unit (generally) and, um, vary based on how many you produce. If you produce a million Volts, your variable costs are $X million. If you produce one, your variable cost is $X.

    I'd use the accounting terms of art but they get really fucking confusing.

    1. Oblios_Cap

      That sounds suspiciously like educational material, you elitist scum!

      I never read that in the Bible, so I doubt it's true.

      1. actor212

        Oh, well, see, that's easy to explain: When Christ made the loaves and fishes feed the multitudes, that was creative accounting, kind of like how Hollywood studios lose money on movies that gross hundreds of millions of dollars. He wanted it kept hush hush

  22. fuflans

    once again, we must emphasize that we are mushy-headed liberal arts majors, not business majors, but it seems like a pretty major fail to assume that the development costs of a new technology represent an irrecoverable loss

    not if the president is black.

  23. Tequila Mockingbird

    But… if SUVs are outlawed, how will ordinary folk declare to the world that they have a tiny penis?

    1. YasserArraFeck

      It's not like they can wriggle the aforementioned penii on the open air – I mean, who would see them?

  24. Bezoar

    I remember back when Texas Instruments used to lose $6,000,000.00 on each integrated circuit it sold. And nothing they learned developing those ever had any other role in any other product, ever. And don't get me started on the size of Hewlett-Packards losses with each primitive calculator sold.

  25. prommie

    I represented a partner in a real estate development project who was unceremoniously dumped by his other partners when the project was only half completed. It was a 300 unit condo complex. Well, of course, half way through the project, they had spent tens of millions of dollars and had only sold about one-third of the units. OMG, they lost tens of thousands on each and every unit sold prior to my client's departure! He was owed NOTHING. Because you see, they only made profit on the last 50 units sold, and thus, since my client was gone by then, he gets none of that. All $10 million in profit was theirs, see.

    You can get into some tricky situations by drawing arbitrary divisions. Profit and loss on a venture can only be determined looking at the venture as a whole. A product run is the same as a real estate development, profit and loss on the venture can't be determined until the end.

  26. mavenmaven

    Friends, how much did Jesus spend on "research"? Nothing. Yet who invested 30 shekels of silver in "research and development"? Case closed.

  27. Biel_ze_Bubba

    GM should never have started on this ridiculous, wasteful project, which is clearly the fault of the Preznident who was in office at the time…. oh, wait.

    1. Negropolis

      Yeah, fuck the environment! Fucking mooche; get a jerb. Mother Earth is a whore, anyway. I mean, did you see the trees she was wearing? They weren't even the right height! Slut.

  28. PinkoPopulist

    I wonder what it would be like to be completely oblivious to things like facts, science and math. Just for one day I'd like to be a tea bagging, neo-con GOPer…

    1. Biel_ze_Bubba

      You can do it with a pint or two of bourbon. The mystery is how they can still stand with minds that thoroughly impaired.

  29. GunToting[Redacted]

    The Reuters transcriptionist who typed this probably makes, what, $75k per year? Maybe 3 people read the article. Therefore, it cost Reuters $25,000 PER PRINTING!

  30. kissawookiee

    When even a dirty godless librul hippie like me understands amortization (I justified laying out big bucks for these Tevas twelve years ago with the knowledge that by the time I would be ready to replace them, their annual usage fee would come out to the equivalent of weekly coffee money) and Reuters doesn't, there is a problem.

    And as of this year I'm averaging $6.66 annually for those sandals, so, naturally, SATAN.

  31. Lionel[redacted]Esq

    It must be so nice being a Conservative where you can just make up any fact you want. No wonder they think Fact Checking is the product of the Devil.

    In fact, the next time I have to pay a bill, I will explain to the company that if they had just put my first payment into an investment, they could cover all my other bills with the interest. I do not see why I have to pay more because they are making bad business decisions.

  32. DahBoner

    Republicans just don't 'get' how R&D works because they've never had an original thought in their lives….

  33. OneDollarJuana

    Actually, I had a friend in high school who was buying his girlfriend her birth-control pills and kept a running calculation of price-per-fuck. I'm sure he's Republican.

    1. Doktor Zoom

      I don't know about that. If you followed the Sandra Fluke fracas, plenty of Rush's pals seemed to think that anyone paying $200 a month for birth control has to be having a hell of a lot of sex.

  34. GuyClinch

    I spent about 5 minutes reading this post plus comments. I make $12/hr, so that means that reading this cost me, the way I figure it, $60,000 (5 minutes=$1.00; I'm 42 and will probably work another 30 years, 40 hrs a week 50 weeks a year, so, carry the one and… Yep: $60,000.) Can I have a job at the Blaze now?

  35. metamarcisf

    It's called fixed cost versus unit variable cost. Anyone who ever took cost accounting knows the difference. Then again, these are the same monkeys who dispute evolution and climate change, so what else would you expect?

  36. zumpie

    No snark here, a perfect illustration in another way that fundies don't really understand how teh bidness works:

    Here in Oregon we have a shut down, dilapidated dog track sitting empty just outside PDX. Yes the area is lower income, higher crime and has a large population of old white crackers (why do you ask?).

    Anyway, a Canadian firm is seeking to develop an upscale resort/casino/water park/entertainment facility on the land—with no public funding whatsoever. The project would create short term construction jobs and 2000 permanent jobs once it's complete. Oh and large amounts of tax revenue for schools that Native American casinos are exempt from.

    Because they're seeking a one time exception to the tribal only casino laws, it's on the ballot and will sadly, probably fail. Guess who (besides the tribal casinos) opposes this? Yep, conservatives. Because it isn't a "respectable way to make a living", is antifamily, will immediately turn everyone into crazed gambling addicts (despite all the state lottery games, horse track and tribal casinos never having done so).

  37. En_Buenora

    I guess that means when the next version of the Corvette comes out, the first one sold will have lost GM like $2 billion.

  38. carlgt1

    I can see this "fuzzy math" making sense for RepugliKKKans though — as any early-stage scientific research (using this idiotic "cost-benefit analysis") would thereby be doomed as "losing money" — from penicillin through space travel etc.

  39. rickmaci

    I am a fuzzy headed humanities majoring left wing radical private enterprise hating commie and even I understand about amortizing R&D costs. Jeebuzz, why would we let these "business knows best" asshats be in charge of anything more complicated than collecting tickets for a clown show?

  40. Negropolis

    I was told there would be no math.

    BTW, the Chevy Volt is assembled at a factory in Hamtramck, an ultra-diverse (40% foreign born) enclave of Detroit, and the area is proud of that thing as all kinds and types of fuck, so eat it, conservatives.

  41. Smithboy

    Screw Castro type health care and helping an American automotive manufacturer build a communist car that doesn't guzzle gas…. that's a waste of time and money. Let's listen to closest ally in the middle east….paranoid, war crazy Netanyahu and his demand that we bomb Iran….and then watch the dark skin people's body parts explode! YE-HAW!!!

    USA>>>USA>>>USA!!!

  42. iamrrm

    This car stuff is all whatever but the department store escalator absolutely WILL eat your feet if your shoestrings are not properly tied.

  43. Noitzie

    OK, let's do it as "capitalist math." COUNTING the research and development, so far GM is running a loss of $49,000 per unit. So NOT COUNTING the R&D, which so far is $55,000 per unit, there is a CURRENT PROFIT of $6,000 per unit.

    All you need to do is have GM "write off" the R&D investment, and they're currently running a profit of $6,000 per unit on an item that sells for $40,000 or so — so they have a CURRENT ACCOUNT PROFIT MARGIN of 15%. Where I come from, a profit margin of 15% is considered a great outcome.

    1. Doktor Zoom

      Yeah, but Reuters said they lose $49,000 per car. It's right there. So clearly, your version is crazy talkin'.

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