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Is the Chevy Volt 'a huge mistake' for GM?

The bad news just keeps coming for General Motors (NYSE: GM). The beleaguered auto giant has announced that it will offer 0% financing to help get rid of its growing inventory of inefficient trucks and SUVs, even as it is forced to raise prices due to higher raw material costs. Its once proud Hummer brand is now an albatross that the company is considering unloading. And its market cap of $7.5 billion is lower than not only Toyota (NYSE: TM) but also ailing Ford (NYSE: F) -- GM has lost so much value that a writer at CNNMoney is making the argument that it should be removed from the Dow Jones Industrial Average.

One bright spot for GM has been the Chevy Volt, a hybrid car that has generated considerable excitement in the automotive press. The design of the car is groundbreaking, with a large battery that is recharged by a small gas engine. This is an advance over the popular Toyota Prius and other hybrids, which are essentially gasoline-powered vehicles that use batteries to improve mileage and emissions. With the Volt, scheduled for production for the 2010 model year, GM could claim a real technological advance for the first time in years, and maybe regain some market share.

But there's only one problem: it is highly unlikely that GM will be able to deliver the Volt as promised, according to an Atlantic piece about the car. The article is filled with fascinating details about the ongoing development of the car, especially the frantic pace and rapid innovation required to get the car into production shape. But an unnamed executive told the magazine that this is exactly the problem. The development process has been too compressed, which will force GM to either fail to meet its target date or, worse, to deliver an inferior product. As the executive put it, "They're making a huge mistake."

Ordinarily, it takes years to develop a new car, even with a rapid development schedule. And when new technologies are involved, it takes more time rather than less. For one thing, auto companies need time to test the reliability of a new vehicle. The design of the Volt's most important feature, its lithium-ion battery, is still in flux; in fact, GM is still taking bids for its production, with three manufacturers in competition. This means that if there is a Volt in 2010, it will be a bit of a mystery car, with unknown reliability as it ages.

Another problem with the Volt is its likely cost. Even is the car is a hit, it won't make GM much money. It may even cost GM money on every unit sold, since the company will probably have to subsidize the car for quite some time. Even with a subsidy, though, the car will be expensive for consumers, with a sticker price of at least $35,000, possibly more.

Optimists say that there is much to like about the Volt, even if it experiences a rough start. For one thing, GM is finally doing something to turn the company around. The Volt's development team has been working outside of GM's sluggish bureaucracy and has already made considerable progress. For another, GM is finally ahead of the pack with a new technology.

So even if the company over-promises and under-delivers, as seems likely, the Volt will have served the important purpose of waking GM from its SUV-induced slumber. Of course, that's assuming that the company survives the process.

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Last updated: October 14, 2008: 12:00 AM

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