How much does it cost to build a car?
Discussion
I was asked this recently by a mate, and I had no idea what the answer was. What is the approximate relationship between price and cost of production for a mainstream car? can anyone shed any light?
Obviously, it costs VW more in both materials and labour to build a Bentley in the UK than to build a Skoda in the Czech Republic, but how much more? The Bentley sells for 10x the price of the Skoda, but does it cost 10x more to build?
Obviously, it costs VW more in both materials and labour to build a Bentley in the UK than to build a Skoda in the Czech Republic, but how much more? The Bentley sells for 10x the price of the Skoda, but does it cost 10x more to build?
No it doesn't cost 10x more to build. The general rule is that the larger the car the more cost effective they are to build. A 5 series doesn't cost much more than a 3 to build for instance. The best example of this I have seen is the cost of build of a Porsche Cayman vs a 911. Not much in it cost wise but much more profit margin in the 911. I think you would find it hard to get exact figures as manufacturers don't really want you to know the dealer margin etc.
I can't offer an answer in currency, but the cost of a car at the point of sale has so many considerations, it's very difficult to paint a picture without inside knowledge.
As food for thought, in your example with the Bentley and Skoda, economies of scale will play a massive role (for every 1 Bentley sold, how many hundreds of Skodas go?).
On the 'cheaper wages in the Czech Republic' bit, production efficiency plays a bigger role than wage savings. Late 1970's General Motors was building and selling the most cars in the world by numbers, yet because they had the biggest costs by far (due to various corporate inefficiencies), Toyota was making far more money per unit. You could therefore argue that an 80's Corolla cost far less than an 80's Chevy to build, yet still manages to be the better car.
But to round up, the RRP on a car covers the cost of materials, assembly, advertising, dealership, dealers themselves, etc etc, so vehicle material value is quite a difficult thing to accurately get at without strong inside knowledge.
As food for thought, in your example with the Bentley and Skoda, economies of scale will play a massive role (for every 1 Bentley sold, how many hundreds of Skodas go?).
On the 'cheaper wages in the Czech Republic' bit, production efficiency plays a bigger role than wage savings. Late 1970's General Motors was building and selling the most cars in the world by numbers, yet because they had the biggest costs by far (due to various corporate inefficiencies), Toyota was making far more money per unit. You could therefore argue that an 80's Corolla cost far less than an 80's Chevy to build, yet still manages to be the better car.
But to round up, the RRP on a car covers the cost of materials, assembly, advertising, dealership, dealers themselves, etc etc, so vehicle material value is quite a difficult thing to accurately get at without strong inside knowledge.
The biggest costs are the hardest ones to place, such as development, marketing and promotional costs (such as lowering the margin to increase sales). All of these are costs to build.
Low volume vehicles are often higher margin, but they need to be as tooling costs and development work cannot be absorbed by the number of units you sell.
Low volume vehicles are often higher margin, but they need to be as tooling costs and development work cannot be absorbed by the number of units you sell.
craigjm said:
No it doesn't cost 10x more to build. The general rule is that the larger the car the more cost effective they are to build. A 5 series doesn't cost much more than a 3 to build for instance. The best example of this I have seen is the cost of build of a Porsche Cayman vs a 911. Not much in it cost wise but much more profit margin in the 911. I think you would find it hard to get exact figures as manufacturers don't really want you to know the dealer margin etc.
Isn't the rumour that Porsche make more per car than any other volume manufacturer? jon- said:
Isn't the rumour that Porsche make more per car than any other volume manufacturer?
<troll> Not employing designers has got to cut them a big competitive advantage on R&D costs </troll>That's believable, since their cheapest model has a high RRP relative to most manufacturers, without any cheap low margin models to sully the accounts.
I believe the "raw" cost of manufacturing a mainstream car, i.e. the bits that go into it and the labour is generally 1/3rd of the retail price.
Not included in that is the other costs to the manufacturer, development, tooling, building factories, marketing, distribution, taxes etc etc.
I guess that would change with the number of cars produced, the life span of a model and many other variables.
Not included in that is the other costs to the manufacturer, development, tooling, building factories, marketing, distribution, taxes etc etc.
I guess that would change with the number of cars produced, the life span of a model and many other variables.
The relationship between manufacturing cost and selling price isn't that straight forward, for various reasons.
For example, Skoda have a more normal price for their Golf based boring hatch than volkswagen - the percived value of the latter increases it, and the price for a Golf from volkswagen its about the max the market will stand.
(No Offence to boring silver Golf based hatch owners Intended.)
Similarly, in the Panamera/911 comparison above, porsche are masters of selling less for more, particularly with the 911...
Also, numbers they are making have an impact. For a given new car, it will have been developed, obviously. This is a cost, however, it is not a direct cost per vehicle, it is spread over all your vehicles of that model/base platform. (It is how Volkswagen started making money on the Veyron, eventually.) This is the reason why there are so many sorts of Golf based boring silver hatches. (NOI) Can't afford a VW Golf? Get a Skoda/Seat etc instead. More money for very little extra cost.
To put some numbers on it, lets say you make one car a year, at 500 million development, 1 million on launches/journalist bribes/events, 20k on manufacturing (It's a high quality Golf based boring silver hatch (NOI)
All your costs are spread over one vehicle, making that one vehicle possibly tens of thousands times more expensive.
But, lets say you make 10 million of your Golf based boring silver hatch (NOI) Suddenly, you costs are spread over 10 million times as many vehicles. Yay, they cost less! You might sell them now.
Add in brand value features (Germanic quality, resale f
king grey, etc) and suddenly you make money.
For example, Skoda have a more normal price for their Golf based boring hatch than volkswagen - the percived value of the latter increases it, and the price for a Golf from volkswagen its about the max the market will stand.
(No Offence to boring silver Golf based hatch owners Intended.)
Similarly, in the Panamera/911 comparison above, porsche are masters of selling less for more, particularly with the 911...
Also, numbers they are making have an impact. For a given new car, it will have been developed, obviously. This is a cost, however, it is not a direct cost per vehicle, it is spread over all your vehicles of that model/base platform. (It is how Volkswagen started making money on the Veyron, eventually.) This is the reason why there are so many sorts of Golf based boring silver hatches. (NOI) Can't afford a VW Golf? Get a Skoda/Seat etc instead. More money for very little extra cost.
To put some numbers on it, lets say you make one car a year, at 500 million development, 1 million on launches/journalist bribes/events, 20k on manufacturing (It's a high quality Golf based boring silver hatch (NOI)
All your costs are spread over one vehicle, making that one vehicle possibly tens of thousands times more expensive.
But, lets say you make 10 million of your Golf based boring silver hatch (NOI) Suddenly, you costs are spread over 10 million times as many vehicles. Yay, they cost less! You might sell them now.
Add in brand value features (Germanic quality, resale f
king grey, etc) and suddenly you make money.
CBR JGWRR said:
Wow, I started when it was only 2 posts...
This might be of some interest to you:http://tinyurl.com/7anuejv
jon- said:
Isn't the rumour that Porsche make more per car than any other volume manufacturer?
I have heard such a rumour but not sure its entirely true. Companies like Porsche / Ferrari make an awful lot of their profit on tailoring options. You want your wheels painted sir? £1000. Contrast stitching sir? £1000 etc when the physical cost of these options is far less.craigjm said:
jon- said:
Isn't the rumour that Porsche make more per car than any other volume manufacturer?
I have heard such a rumour but not sure its entirely true. Companies like Porsche / Ferrari make an awful lot of their profit on tailoring options. You want your wheels painted sir? £1000. Contrast stitching sir? £1000 etc when the physical cost of these options is far less.Newc said:
And don't forget the joy of profit in the markup through a range. For instance, retail price of a BMW 520 - an amount. Of a 550 - an amount plus quite a lot. Difference in marginal cost of manufacture to BMW - close to zero.
Quite so - yet still people don't seem to understand why a company like Lotus selling a relatively low volume specialist car can't be expected to compete on bang-for-buck basis with a hot hatch which is based on a model that sells profitably for 10k less.Jazoli said:
I was told by a Vauxhall employee that to make my Vivaro van it costs Vauxhall circa £2k.
Whether that is true or not I have no idea, it certainly feels like it.
Perhaps in raw materials or labour, but factor in design, R&D, tooling, having to license patents, having to pay out on endless waranty claims because you are in a partnership with Renault, shipping and all that and it adds up to a lot more. Whether that is true or not I have no idea, it certainly feels like it.
There are 2 elements, the fixed costs such as design, rent, rates, insurance. Say £100,000,000 a year. Make a hundred cars, a million a car, make a million, £100 a car.
The add the variable cost of actually making the car - components, labour, electricity, warranty, etc. This depends on the car and volume. This bit is roughly 15% to %50 of the retail price. Cheap, basic cars at the %50 end, expensive luxo barges and premium at the %15 mark.
Then add things like marketing/selling, which may be counted as a fixed and/or variable cost. And taxes. And fleet discounts, etc.
End of the day, the manufacturer makes a profit (VAG, Porche, MB) or not it Saab, Rover, Vauxhall). They'll recover some money on spares sales, but not a huge amount.
Then add creative accounting...
The add the variable cost of actually making the car - components, labour, electricity, warranty, etc. This depends on the car and volume. This bit is roughly 15% to %50 of the retail price. Cheap, basic cars at the %50 end, expensive luxo barges and premium at the %15 mark.
Then add things like marketing/selling, which may be counted as a fixed and/or variable cost. And taxes. And fleet discounts, etc.
End of the day, the manufacturer makes a profit (VAG, Porche, MB) or not it Saab, Rover, Vauxhall). They'll recover some money on spares sales, but not a huge amount.
Then add creative accounting...
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