Quote:
Originally Posted by cRiPpLe_rOoStEr
Gotta agree with you that the ForTwo is too expensive, but actually it's kinda surprising to me that it's not profitable at all.
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When you have to literally reinvent the wheel (wheel hub, lugs, model specific PCD, lug count and all) just to make a small car... don't expect to see much in terms fo economies of scale versus the guys who simply use the same wheels everyone else is using.
Quote:
Originally Posted by duncan
Nope - no relationship at all
Why is a bigger car more expensive? - pennies in materials in the cost
But it's more expensive because we expect it to be more expensive
So people simply won't buy small cars at the same price
The manufacturers know this
Why build and sell a micro car when it will have lower margins?
It's NOT the cost - its our expectations and the PRICE we are willing to pay
As far as "loss leaders" go
These are like hen's teeth or rocking horse **** - mythical beasts
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I feel like there really is no point in arguing, because I don't see any contradiction there? I've never disputed that the market sets the basement and ceiling prices for automobiles.
That doesn't change the need to balance cost against selling price. Especially in a competitive market, where your competitors will sometimes be willing to spend more on each car (sometimes selling at a slight loss) to steal market share away from you. That's actually the whole point of model changeovers... while some manufacturers hedge their bets on simply selling old cars over multiple model years, other manufacturers spend extra updating their cars more vigorously (whether engineering-side or cosmetically only) in order to increase sales.
It's worth noting that competition makes the profit margin for most automakers is relatively flat.
Intense competition leads to low profit margins for automakers - Market Realist
(I'm actually surprised it's that high... but this is before taxes, loan interest and depreciation... so in real terms... everyone is still under 10% or so...)
Carmakers with bigger profit margins earn them by trading on name value... a name value built on the back of extra spending on engineering, product-planning and marketing. (In BMW's case... a whole lot on the last factor)
American manufacturers got those huge margins on their truck lines on the back of government policies that purposely exempted those trucks from many of the regulatory requirements facing cars. If regulatory requirements and taxes were more proportional, I'd expect profit margins to go down, accordingly. Given how much Ford, Dodge and GM are spending on their new trucks... that's probably happening already.
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Loss leaders are, indeed, unicorns (in America... outside, lots of people actually do buy strippers), but are often important marketing tools for getting people to walk into showrooms.
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Speaking of which, rough calculations put the loss per Nano for Tata at about $3k per car. Of course, that loss could go down if sales improve... how much it goes down depends on how much extra margin they're making with the new Twist and the amount of capital they had to burn over the past few years in order to keep up with loan payments due to massive underproduction, and how much of the capital tied up in the production facility can be recovered by repurposing the plant for a different product line if the whole thing collapses.