What the Chevy Volt Will (and Won't) Do For GM

It might be a revolutionary car, but that doesn’t mean it will boost sales or juice profits.

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Four years after a fanciful "concept car" revealed General Motors's plans for an electric-powered, plug-in vehicle, the Chevrolet Volt is finally arriving in showrooms. The next challenge will be spotting one on the road.

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The Volt is one of the most hyped cars in history, and given GM's marketing muscle, that's an achievement in itself. The automotive press is buying it, so far. Motor Trend named the Volt its 2011 Car of the Year, saying that it's a "game-changer" and "an investment in the long-term future of automaking in America." Green Car Journal dubbed the Volt Green Car of the Year, thanks to fuel efficiency that's the equivalent of 60 miles per gallon. That eclipses every major production car except the new Nissan Leaf, an all-electric hatchback that gets the equivalent of 93 mpg. No doubt the gee-whiz Volt will rake in a few more awards over coming months.

It's clearly a triumph for GM, which kept the Volt alive and on schedule while killing four entire divisions and making other severe cuts to survive its 2009 bankruptcy filing. Yet the jury is still out on electric cars, which remain prohibitively expensive for most consumers and come with tradeoffs that undermine their usefulness. So here's a cheat sheet listing what the Volt will truly accomplish for GM, and where the hype will fall short.

What the Volt WILL do for GM:

Restore some luster. GM looked like America's biggest flop when it declared bankruptcy in 2009 and accepted a $51 billion bailout from Uncle Sam, which drove away millions of potential customers who wanted nothing to do with "Government Motors." The Volt shows that GM can do something right after all. The technology is unique, and for the most part, the Volt is the car that GM said it would be—an important credibility boost for a company that has often overpromised and underdelivered. The Volt's official all-electric range, for instance, is 35 miles, and it can travel nearly 400 miles once the small gas engine kicks in, before needing a refill. Some of the numbers are lower than GM's early estimates, but the bottom line is that the Volt will feel like a normal car to most drivers. And the gas engine does in fact solve the "range anxiety" problem by guaranteeing that drivers won't get stranded if the battery runs down. As long as there are no unexpected problems, the Volt looks like a promise kept.

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Draw people to showrooms. "Halo cars" like the Volt don't usually set sales records, but they do spark interest in the brand and build showroom traffic from shoppers who want to have a look. Chevy could use the jolt. Its Corvette and Camaro sports cars are popular, and the new Cruze could help Chevy nab a larger share of the compact market. But Chevy's mainstream family car, the Malibu sedan, is aging, and other models like the HHR and Impala are outdated holdovers best suited for rental fleets. GM has made strides improving the overall Chevrolet lineup, but it still needs a few more hits. The Volt shows that Chevy can pull it off.

Provide a technology edge. GM fell so far behind Toyota, Honda, and Ford on traditional hybrids that it still doesn't have one, more than a decade after the technology debuted. When GM first dreamed up the Volt, the idea was to develop a leapfrog technology that would make GM a leader again, without years of playing catchup. It might work. Electric vehicles are just one alternative to regular gas-powered cars, and if they catch on, it will take awhile. But the trend seems to be more than a science experiment. GM said recently that it plans to hire 1,000 engineers and technicians to help expand its electrification expertise. Nissan, Toyota, Ford, Honda, and other automakers are making big investments in plug-ins and battery technology as well. If electric cars go mainstream, GM will be in a strong position.

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What the Volt WON'T do for GM:

Boost sales. For all the hype, Volt sales will be infinitesimal. GM plans to sell just 10,000 in 2011, and for awhile the Volt will only be available in California, Michigan, and Texas, plus the Washington, D.C. and New York City areas. So most Americans couldn't buy one if they wanted to. If GM hits its sales target, the Volt will account for far less than one percent of the automaker's sales in 2011. And while the Volt may help improve the brand image of GM and Chevrolet, other trends could actually crimp GM's sales. After several new model introductions over the last couple of years, for instance, GM is facing a shortfall of new models for 2011 and 2012. That usually means lost sales and steeper discounts to keep buyers interested.

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If all goes well, Volt sales could rise to 45,000 in 2012, and GM plans to introduce it overseas as well. Other electric vehicles, like a plug-in crossover under the Cadillac nameplate, could follow. But it's still not clear if the Volt or any electric cars will ever account for a significant chunk of GM's sales. J.D. Power & Associates predicts that a decade from now, electric cars will account for just one percent of total industry sales. GM, Nissan, and others think it will be much higher. But the cost of the technology still needs to come way down, and there's no guarantee that will happen quickly or smoothly.

Earn profits. The Volt is extremely expensive, and it will be a net drain on GM's finances for years—with no guarantee it will ever be a money-maker. Because of the steep cost of battery packs—as much as $15,000 per car—the Volt's base price is about $41,000, which is far beyond what most Americans will pay for an otherwise unremarkable four-passenger compact. Government tax breaks lower the cost by $7,500 or more, depending on where you live, which will lure some environmentalists, tech fanatics, and early adopters. But it will still take more than 10 years of ordinary driving to recoup the extra cost through savings on fuel.

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It took Toyota at least five years, and perhaps 10, to reach a break-even point on its investment in hybrids. "We expect electric vehicles to follow a similar trendline," says John O'Dell of car-shopping site Edmunds.com. "The takeoff will be fairly slow, with peaks and valleys, depending on gas prices." Like J.D. Power, Edmunds thinks it could be 10 years or more before electric cars reach critical mass and start to become mainstream. There are some wild cards, though. Plug-ins would get a lot more popular if Congress hiked the gas tax by a dollar or two, or world events produced a spike in oil prices.

Push it far ahead of competitors. For now, the Volt is garnering much of the limelight shined on plug-ins, with the Leaf being its only major competitor. But Toyota will introduce a plug-in version of the popular Prius in 2012, with Ford and others planning to roll out whole new fleets of electrics. So GM will have to continue making strides to compete for the technology lead. Plus, other gas alternatives like diesels, diesel-hybrids, natural-gas vehicles, and even hydrogen-powered fuel-cell.

Twitter: @rickjnewman