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With the Chevy Volt, GM Is Actually Building Cars to Meet Demand -- For Once

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Call it 16,000 to 60,000 -- that's how significant a production increase General Motors (GM) is considering for its Chevy Volt extended-range electric car. But what's more significant is that GM is retooling an entire plant for ramped up Volt production in response to -- get this -- actual demand.

Getting away from overproduction
The Volt is kind of an unusual case. At the moment, it's serving more as a proof-of-concept than an actual moneymaker. GM wants to show that a new kind of hybrid -- one that runs on electricity before switching to gas to make more juice when the initial charge is exhausted -- can provide the real-world range to transition us from the current generation of Prius-type hybrids to full-electric vehicles.

Still, the production uptick is significant, in the context of a new GM that's trying to amend the errors of its past. Before bankruptcy in 2009, GM would routinely overproduce vehicles, then discount them in the marketplace to maintain market share. Not exactly a formula for profits, as GM found out when it quit making money in 2005.

Beyond limits
GM has sold less that 2,000 Volts since the car's introduction earlier this year. But that's not really a meaningful figure. Volt production isn't yet on a scale to meet even the initial demand -- which is largely early adopters.

The next wave of actual demand is why GM is preparing to build more Volts that it first anticipated. It could also be reacting to the Japan crisis, as that country's automakers struggle to maintain production on popular hybrids -- and see their next-wave vehicle introductions hampered due to the aftermath of the quake and tsunami.

Stock market upside
There are even some indications that GM may finally be in a position to move the stubborn needle on its stock price. This is from Seeking Alpha:

GM already sells more cars in the U.S. than anyone else, and in 2011, GM stands a chance of wresting the title of global leader from Toyota in sales. Now, by becoming a leader in the electric car market, GM can make inroads in areas that simply were not available to it prior to the disaster in Japan. Finally, we have an American car company thinking beyond just the next quarter....

If investors can stop and think outside the box, they will see that GM is entering a market that that it once ignored, and it is entering it in a big way. For once, timing seems to be on GM's side, and while it will take the market some time to adjust to this newly developed market for GM, the benefits will be realized soon enough.

So when you look at the decision to up Volt production, you can see GM making anything but a gambler's bet. In fact, management is probably a bit irked that it acted so conservatively with the Volt roll-out.

There is a larger question, however, which is: Will Volt demand be both sustainable and scalable? The trick here will be for GM to not lose sight of what the Volt is: a new idea that won't be new forever. You can envision a situation when Volt sales could top 100,000 annually in a few years.

Then GM may be tempted to play defense, which would be a mistake. Because by then real demand will have moved on to something else -- and GM needs to be there, rather than once again protecting old market share, even if it's in new vehicles.


Photo: Matthew DeBord
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