General Motors Co (GM) said on Tuesday it is slashing the price of its Chevrolet Volt electric car by $5,000 to help boost demand for the plug-in hybrid in a segment still struggling to gain a foothold in the U.S. auto market.
The price cut for the 2014 model will lower the price to $34,995, including delivery fees before federal tax credits. Pricing could fall as low as $27,495 with the tax credit.
"We have made great strides in reducing costs as we gain experience with electric vehicles and their components," Don Johnson, U.S. vice president for Chevy sales, said in a statement.
GM did not quantify the cost savings for the 2014 model, but has said the next version of the Volt, due in 2015, will cost $7,000 to $10,000 less. The 2014 models will begin arriving at dealer stores later this month.
Cutting the price WILL NOT BOOST DEMAND! The price cut is due to decreased production costs (read paragraphs 3 and 4). The decreased production costs shift the supply curve down to the right. Decreased This increased SUPPLY puts downward pressure on the price which will increase the quantity demanded. The law of the demand is straight forward: As price goes up, the quantity demanded goes down. As price goes down, the quantity demanded goes up.
A 'boost in demand' means that producers are hoping that consumers preferences have changed and they are willing and able to buy more at the current price. A boost in demand actually results in higher prices!
Over the years, I've come to believe that John's way of thinking about this is right: a lot of confusion would be avoided if we changed terminology. Let's see if this makes more sense?
"General Motors Co (GM) said on Tuesday it is passing on cost savings to reduce the price of its Chevrolet Volt electric car by $5,000 to help increase the quantity consumed of plug-in hybrids in a segment still struggling to gain a foothold in the U.S. auto market."
