Last week at the EDTA conference we had opportunity to sit down with Vehicle Line Director for the Chevrolet Volt, Tony Posawatz, to discuss myriad issues including future cost cutting.
Posawatz said his days start at 5 a.m. and the Chevrolet Volt is keeping him even more busy now that it is in production. When we caught up with him around 6 p.m., he was still on the go, manning the Volt display, energetically engaging visitors and industry peers.
As we were talking, a man came up smiling, shook hands all around, and greeted Posawatz.
He was a leader from Delphi automotive components, Posawatz explained.
“So, we’re seeking he and his team to develop us a lot of good, highly efficient, low-cost components for the future.” Posawatz said with humor in his voice.
“We’ll get it,” came the reply with a grin.
“See, and he is committed,” Posawatz said to laughter.
As we had already been discussing the car, I could not help but take the bait and open up the broader question.
“Is that how you are going to cut the cost for the Volt,” I asked.
“We have a lot of ways, lot of ways to cut the cost,” Posawatz said.
I replied everyone is curious because a couple weeks ago GM’s Vice President of Global R&D, Alan Taub, stated unequivocally that GM was “on track” to meet a target. So, how would GM get production costs down? Would it consider stripping the Volt, making it cheaper somehow?
“None of that,” Posawatz said, “But I just told the last gentleman: like any new technology, whether it be the $4,000 cell phone, plasma screen TV, you know, computer storage – they all have their costs. It’s no different from the first high-volume battery.”
In a nutshell, Posawatz said Volt supply contracts were made when GM’s credibility was at a low point. To some, the Volt was possibly another experimental car with no guarantees.
“So some of the original cost we have is cost that is probably higher than it needs to be because the suppliers were either reluctant to enter the business, there was no competition for it, or there was no assured high volume,” Posawatz said, “Some of those things have changed.”
Earlier that day, Posawatz had told a breakout session audience his theme centered around the Bob Dylan lyrics: “The times, they are a-changin.’” While he was referring to GM’s overall involvement in the EV industry, it seemed clear this theme was resonating deeper into contributory aspects, including the Volt’s production cost.
“As we increase our volume, contractual relationships will change with higher volume price comes down,” Posawatz said. “As we resource [battery] cells and they no longer come from Korea, and they are going to come across the state from Holland, Michigan, do you know how much money is reduced?”
After the Holland plant is up and running, he said, a major part of the Volt’s cost will come down, without stripping any quality out of the car. This will happen after GM is sure its domestic plant can reliably produce LG Chem’s “secret recipe” for its batteries.
“So, some time in 2012, we haven’t stated the date, they are on track to build their plant, upgrade their facilities, their capacity,” Posawatz said, “But that’s just one example where I don’t think shipping the cells across state versus from Korea with duties, tariffs, special refrigerant – expensive refrigerant – and temperature control [will cost nearly as much].”
“Can you put a dollar amount on it,” I asked.
“No, no, we’re staying away from that. Posawatz said. “I know Alan quoted a dollar amount.”
“No, he actually didn’t and he didn’t answer specifically,” I said of a question whether it was a $10,000 target set by GM CEO Dan Akerson.
“Oh, OK,” he said, “I thought he quoted that, but we have thousands of dollars that will come out of the car.”
“’On track’ implies $10,000,” I added, “but he didn’t state it.”
“Well again that’s speculation as to what the ultimate target is, but we feel very good that some of these enablers that I identified and levers that I indicated [will have their effect],” he said, “I challenge people to be able to see if they know where the cost comes out because so much of it is commercial.”
“Another thing,” I replied, “is some are saying even if you do reduce production cost, you’ll just say ‘great, we’ll just keep that as profit,’ and keep selling the car at the same MSRP assuming the market bears that. Would you do that?”
“I think we have a lot of options in the future,” Posawatz said, “I think that the possibility of having a broader price range in the Volt is highly likely including lower price points to start off – especially if you want to have greater volume.”
Would you ever sell the Volt for $35,000,” I asked.
“We’ll see how that all plays out in the future. We don’t make those kinds of pricing decisions now,” he said, “Then again the simple fact is the Volt in 2011 comes with nav[igation] standard. Future cars won’t have nav standard. It comes with the Bose Energy Efficient Sound System standard. It comes with so much stuff loaded into the car; the five years of OnStar.”
“What’s going to change when you get your U.S.-made engine on line,” I asked.
“Not much. Effectively it’s another example of a cost reduction,” he said, because it will be another major component now made in-state, without international shipping fees.
“We feel very, very good about where we’re going, and its not like this is a new plan,” Posawatz said, “This is the plan all along to work the cost out. Some of the contacts were set up frankly because our first year volume was low.”
In his outgoing, engaging manner, Posawatz commented on those who have tried to research GM’s initial Volt production cost.
“This is why we laugh a little about people who claim they know what the cost of the car is,” he said, “OK, that may be the cost for the first 10,000 cars, but it is not [the cost for] the lion’s share of the cars that we will produce at high volume for mass market.”
Our thanks to Tony for taking time to graciously answer questions at the end of a long day.
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