Chevy Volt Resale Values Plunge as Lease Returns Hit Market

NLPC ^ | August 8, 2014 | Mark Modica

[jazusamo]

It has been two years since General Motors admitted that there was little demand for the Chevy Volt (as reported here)due to there being "no plug-in market." Their answer was to "create market" to drive sales for the politically popular but economically-nonviable Volt. GM manipulated sales for the Volt through the use of subsidized leases at a time when President Obama's favorite, green wonder-car was being criticized for low sales as it failed to live up to the early hype.

GM was able to use taxpayer money in the form of electric vehicle tax credits to help drive down costs to lessees. Taxpayers chipped in $7,500 for each Chevy Volt placed on the road for terms as low as two years. The taxpayer subsidies, along with inflated residual values and other GM incentives, provided for low monthly lease payments and led to a full two-thirds of all Volt "sales" being attributed to leases. That's about three times the lease rate for the overall industry.

So, what happens to resale values of vehicles with little mass appeal that are forced upon the public with subsidies and manipulated leases? The result was predictable; those leased vehicles are now being returned and resale values are plunging. Having won many awards in the past, the Chevy Volt is now the front-runner to be the recipient of the highest depreciating vehicle award.

A search on the Manheim auction site, a primary indicator of vehicle wholesale value, shows that 81 Chevy Volts, model year 2012, were sold at auction for the week ending August 2^nd. The average price was $14,871 for vehicles that are only two or three years old, primarily coming off of the manipulated leases. That equates to an absurd loss of values for Chevy Volts of about 65% in only two or three years.

To quickly review how lease terms are calculated, lessors (in the case of GM vehicles that would have been crony, government-owned financial company Ally Financial) set the residual values for vehicles at the expected time of lease termination. The residual value is the amount of money the lessors expect to receive when they have to sell the leased vehicles after they are returned. The lessee pays the difference between the original price of the leased vehicle and the residual value, plus a small lease rate. The higher the residual value, the lower the monthly payment.

So, we now have Chevy Volt resale values suffering as a result of lack of demand and manipulated leases. Financial institutes that lease Chevy Volts to consumers will need to recalculate residual values lower to reflect market conditions. At least they would in a free market devoid of political intrusion. GM and/or Ally Financial will have to absorb losses for the Chevy Volt lease returns that sell for less than the original residual values. The already low sales numbers for the Volt will be hurt if leases stop being manipulated through the use of artificially high residual values and politically-driven incentives. The supply of low-priced, two year old Volts on lots will not help new sales either.

The Chevy Volt fiasco has been one more example of how government should not intrude upon industry and free markets. The Volt obviously had political roots as it was thrust upon the public with media-driven hype that it was to be a savior for GM and the answer to America's reliance on foreign oil. The wonder-car was to save us from terrorism and global warming all at once!

The management at GM was, and still is, reluctant to admit that the Volt has been an utter failure. The slim demand would have been even slimmer without GM "creating demand" as it loses thousands of dollars on each vehicle. GM management tried to deceive the public by blaming low sales on a lack of supply, even as it became evident that the demand did not exist for the car that President Obama said he will buy in just two more years.

I do not expect GM to back down from its strategy to focus on money-losing green vehicles like the Volt. In fact, GM is doubling down by offering a Cadillac version of the Volt, the ELR . Not surprisingly, that car is also a failure at double the price of a Volt.

Those who outright purchased their Chevy Volts will lose out on the high depreciation but there may be beneficiaries as those looking for a good deal on a Volt now have a supply of low-priced, used models to choose from. And President Obama can get some consolation in knowing that he should be able to get a heck of a deal on a two year old Chevy Volt when he leaves office.

Mark Modica is an NLPC Associate Fellow.

[ZirconEncrustedTweezers]

Holy depreciation, Batman!

[chajin]

Holy depreciation, Batman!

Isn't this the free market telling us what the car is actually worth? There must be a market for 100%-electric cars at just under half the listed price. At a low enough price, I might purchase one myself for the toodle-around-town "other" car.

Now, a truly entrepreneurial car company would figure out how to do this and do it, but Government Motors will continue its central-planning-command-and-control paradigm, as long as it makes the crony capitalists and the socialist-environmentalists happy.

[tanknetter]

Agreed. But it would depend on how long the battery would last. Getting a low mileage used Volt for $15k where I could expect to drive it without major issue for 5-7 years might be worth it.

[BlueMondaySkipper]

Getting a low mileage used Volt for $15k where I could expect to drive it without major issue for 5-7 years might be worth it.

Sorry to rain on your parade, but you're talking about a GM product. No such thing as "without major issue for 5-7 years".

[sjm_888]

I have a 03 Impala that just turned 175k miles. Other than the regular maintenance items, haven’t had an issue with any of the major components. Still has plenty get up and go when I need it.

[dfwgator]

[tanknetter]

I know there are hits and misses with them. Of the two GM products members of my family have owned recently one was a Pontiac GrandAm that made it just fine to being traded in at 10 years and 140k. The other is a 10 year old (as of today) GMC Yukon XL that’s only had one major issue: needed a new electrical harness, courtesy of a pair of field mice who chewed up the wires to make a nest in the engine compartment. Can’t really blame GM for that one.

I’m opposed to buying any new Government Motors vehicle, on principle. But certain ones I’d be open to buying at the right price (ie deep discount) used and with low mileage and in good condition, if they fit a specific need. Ok, I’d probably buy a new one (certain models) too, if the price was exceptionally low and I knew it was being sold at a loss.

A Volt actually appeals to me as a car I could hand off to my teenager, knowing that she would have very limited driving range ... ;-)

[LogicDesigner]

Well, I know that defending the Volt on Free Republic might be like nailing jello to a tree but there are a few facts that NLPC glossed over in this article in order to arrive at the 65% loss-of-value figure.

First of all, that figure does not include the fact that the 2014 Volt’s price was dropped to $35k whereas the previous years were $40k. Any time a new model’s price drops, all the older models’ resale value drops along with it. (For example, if you buy a widescreen TV for $3,000 and then the next day it goes on sale for $2,000, good luck trying to sell it to your neighbor for $2,500.)

Secondly, and more importantly, the figure does not include the $7,500 tax rebate that anyone can get when they buy a new Volt. So to get the true cost for a new Volt you have to take the MSRP and subtract $7,500. That is the number that you can then compare to the used value in order to calculate the true “loss-of-value” percentage. So if you pay full MSRP for a new Volt then your true cost will be $35,000 minus $7,500 which is $27,500.

Using that value you get 46% for your loss-of-value figure, which is pretty good by industry standards. In fact, back in 2012, Kelly Blue Book rated the Chevy Volt as the “Best Electric Car” in its 2012 Best Resale Value Awards. Granted, the Volt didn’t have much competition back then.

@tanknetter, you might not have much success limiting your teenager’s range with a Volt. It gets 38 miles on battery power and then when the battery runs out it switches automatically to gasoline. It basically turns into a normal car whenever the battery runs out. It does it automatically and you might not even notice the switch while you are driving.

[jazusamo]

Yep, but no matter what or how you figure it anyone that bought a new Volt in 2012 payed a minimum of $32,500 after the $7,500 tax credit.

That Volts value is now about #14,900, that’s a loss of $17,600.

[LogicDesigner]

Even so, that would put it at 54%.

I guess I just want people to be careful about posting articles from NLPC. They have a pretty deliberate agenda.

As someone that voted for Bush, it disappoints me to see that conservative media have tried to malign the Volt and tie it to Obama in order to score political points against him. I don't think it is a bad idea for us as Americans to be excited about cars that could reduce the demand for global oil and put the governments of Iran and Russia in the poor house.

I like the idea of potentially not having to care so much about foreign oil-producing countries. That way, next time a country like North Korea is developing nuclear weapons we will be willing to do something about it even though it doesn't have any oil, and worry less about countries like Iraq that do.

@TurboZamboni, all that stuff about fires was totally overblown. Conservative pundits unfortunately relished in exaggerating it and tying it to Obama. The only Volts that have ever caught on fire were two that had been demolished in a crash test. The test engineers mistakenly failed to drain the damaged batteries and they only caught on fire a week after the test. If you get in an accident and it takes you a week to get out of the car, you have bigger problems to worry about.

[jazusamo]

I thought your screen name sounded familiar.

LogicDesigner is a Chevy Volt troll. He’s made a total of four posts and he signed up 7-14-2013.

His first two posts were on a chevy volt thread that Kaslin posted and he accused Kaslin of being the author of the article posted.

LOL!

[LogicDesigner]

Yea, I made a mistake when I was brand new to Free Republic. I thought that the person posting the article was the author. I admitted my mistake at the time.

However, if dispelling misinformation makes me a troll in your book then so be it.

[jazusamo]

You also made a mistake in calling out NLPC and throwing your 46% figure out when in fact you didn’t take into consideration the point being made in the article, but I suppose you consider yourself beyond reproach like most trolls do.

[TurboZamboni]

[LogicDesigner]

Actually, I was directly addressing NLPC’s figures and the points they were trying to make. As often is the case in anti-Volt articles, facts are left out in order to paint a negative picture.

If someone were to read that article and think to themselves that it would be a bad idea to buy a Volt as a result of that 65% loss-of-value figure then they would be mistaken. But that is what NLPC was trying to do: massage the facts in order to inject fear surrounding the Volt.

I pointed out in my response that the 65% figure is misleading because it does not take into account the $7,500 tax credit and the $5,000 price reduction. Anyone who was thinking about buying a Volt would benefit from a figure that was more representative of all the facts. Which is why I calculated the 46% figure.

Since the Volt has the highest customer satisfaction of any car that GM has ever made, I don't think the owners of the 2012 are too upset that the 2014 model got a discount. However, someone who was in the market for a new Volt today might want to know these nuances.

[Mark Modica]

The vehicles in question had msrp’s of at least $40,000 when they were leased. Depreciation isn’t based on today’s price! The point that GM had to lower the price and still can’t sell them only makes my points more valid. Do you think the residuals on these leases were anywhere near the dollar amount that they are now selling for?

You bring up another important fact that folks like you misrepresent. The cost of a Chevy Volt is not LOWERED by the $7,500 tax credit. The cost is only shifted to taxpayers. That’s what I dislike most about the Volt, along with the lies of those promoting the car. I’ll put my facts up against those who claimed that demand was high and the reason they weren’t selling was because of lack of supply. Really now, who is telling the truth about the Volt, those who said the car had huge potential and they couldn’t keep up with demand or those who said from the start that the car was not commercially viable?

[St_Thomas_Aquinas]

And President Obama can get some consolation in knowing that he should be able to get a heck of a deal on a two year old Chevy Volt when he leaves office.

Being sentenced to drive one of these for the rest of his life is the least he deserves.

[St_Thomas_Aquinas]

What’s up with Leftist greenies and wimpy folk music? Blecch.

[LogicDesigner]

Well, you are putting up a straw man. We are not debating GM’s once-upon-a-time sales hopes, we are debating my contention that your 65% loss-of-value figure is misleading. Furthermore, it is misinformation in articles like yours that have partially contributed to the poor sales. It is like John Wilkes Booth blaming Lincoln for missing the end of the play.

But back to the point in question. Using the value of $40k to determine loss-of-value is plainly deceptive. The value of a base 2012 Volt was *never* $40k. At most it was $32,500 because the tax credit has always been there. I guarantee you that the residuals have always included the price of the $7,500 tax credit. We can argue about whether the tax credit should exist, but there is no arguing against the fact that the true value of a new Volt is $7,500 less that the MSRP.

Furthermore, the fact that the price has dropped $5,000 makes a huge impact on the loss-of-value of a used Volt. Depreciation is not based on today's price, but it certainly is directly affected by it. Yet you fail to mention it anywhere in the article, probably because it erodes your usual narrative that the Volt is over-priced. (Heaven forbid that someone might find out from one of your articles that the Volt is now within their price range, right?)

In summary, you could be forgiven if you had used the figure of $32,500 that jazusamo mentioned, then arrived at a loss-of-value figure of 54%, and then acknowledged that the $5,000 price drop made a significant impact on that number.

But you didn't do these things. NLPC has a history of having an axe to grind against the Volt in an attempt to score points against Obama. (By the way, the $7,500 tax credit was originally signed into law by Bush, Obama just extended it.)

I think it is a shame that some Americans want to malign the Volt when it is cars like these that could put Iran and Russia in the poor house. We as conservatives need to be championing the Volt, not using it to score political points.

[jazusamo]

NLPC has a history of having an axe to grind against the Volt in an attempt to score points against Obama.

And therein lies the motivation of this Chevy Volt/GM troll. GM and the lib enviro crowd hate NLPC and you, Mark for speaking out with the truth about the bailout, GM's false hype about it and their outright lies trying sell an overpriced car that they lost money on in the beginning and lose more on now.

In LogicDesigner's own words, "However, if dispelling misinformation makes me a troll in your book then so be it."

You have been dispelling GM's misinformation since the phony bankruptcy and the fleecing of American taxpayers, Mark.