Profit margin on manufacturing a car

[pistonheadforum]

For people who work in vehicle manufacturing/business/marketing.

What is the profit margin on a typical car?

The cost and time to develop and manufacture a new vehicle must be staggering. Where does the profit come from? Is it the gross profit in spitting it out the production line (i.e. they can design, buy the raw materials assemble it for less that they charge - hence profit), or is it that small/non-existant in comparison to costs for service, repair manufacture etc over the lifetime of the vehicle.

Add in all the marketing/documentation/launches/dealer support etc it much be a considerable outlay.

Does a new model make a loss for a couple of years then the profit come after it’s in production and being stamped out in high volumes?

When producing a new model do manufacturers work out how much profit the need to make and then design to that value? Presumably they must do.

Anybody able to put some numbers on this

i.e. over the run of a new 3 series it will be £xxx million/billion profit

Thanks.

[pistonheadforum]

Also, what proportion of the parts in a new car are subsidised from other manufacturers - ie Bosche reduce the price of a water pump to the manufacturer so they can have a steady stream of repeat purchase in 5 years time?

Presume the same is done with other components from manufacturers - reduced price of windscreen in BOM as it's a replacement revenue in the future. Same with tyres, oils etc?

Would be interested in the details behind the business of manufacturing a vehicle.

[anonymous-user]

vag report an average 10% profit margin, porsche cars can be up to 50% profit.

[pistonheadforum]

The Spruce goose said:

vag report an average 10% profit margin, porsche cars can be up to 50% profit.

Thanks - but where does this come from 10%/50% on each vehicle from day one or is this over a longer period of time with larger profits at the end of the production run?

Many thanks

[sidicks]

pistonheadforum said:

Thanks - but where does this come from 10%/50% on each vehicle from day one or is this over a longer period of time with larger profits at the end of the production run?

Many thanks

Obviously, many of the costs of the car are incurred upfront - design, marketing etc, so the profitability is subject to achieving a certain volume of sales.

[anonymous-user]

pistonheadforum said:

Thanks - but where does this come from 10%/50% on each vehicle from day one or is this over a longer period of time with larger profits at the end of the production run?

Many thanks

it is very complicated, say for example options the markup will be up to 100%. you g=have to read the vag accounts as the margins are in there. the Cayenne was marked at 40$ before options, whereas a Porsche gt3 will run at a minimal profit margin. you really need to link each car to the BCG growth-share matrix.
i think the overall industry is 2-3% net profit.
smaller cars have less margin over luxury cars.

[Dr Jekyll]

I think this topic came up once before and someone reckoned that the cost incurred by building an 'extra' car that's already been designed advertised and tooled up for is typically about half the selling price. Not sure if that included production workers pay.

[john2443]

sidicks said:

Obviously, many of the costs of the car are incurred upfront - design, marketing etc, so the profitability is subject to achieving a certain volume of sales.

Cost might be something like £100m spent up front, they hope to sell 1m cars so that's £100 per car. Then there's say £5000 of parts plus £5000 of labour plus £5000 of factory overheads, so cost at the factory gate would be £15100 plus 10% profit margin and then a % for teh dealer. At one point many years ago Ford put 18%.
If they sell more than a million they're making an extra £100 per car, then they'll do a facelift which only costs £1m and keeps the model going for 4 more years at a better profit margin.

The £100m up front is why so many cars use the same engine, suspension and drive train (EG VW/Skoda/Seat/Audi make 97 cars based on the Golf)

On a McLaren there's still the £100m up front cost but they'll only sell 1000 cars, so they are much more expensive than the production cost.

(All figures made up!)

[Storer]

It is worth noting that the design costs of a new model are being paid for by the model currently in production (predominantly). Therefore the profits for today's car pay for tomorrow's.

Porsche are a great marketing example. You have 'halo' cars that make relatively small profits (if any), but they boost sales of the more mundane but highly profitable models.
The 911R and Cayenne are good examples.

Each sector of the company will have budgets that they will be expected to achieve. Factories will have running cost budgets, which are then sub-divided to things like energy, labour, equipment replacement, rates and building costs.
However, all these costs will be quantifiable to give a unit build cost. New processes will normally reduce the unit cost.

All cars are designed to have part life upgrades (facelifts) most of which have been designed in at the beginning of the model life.

Marketing is the difficult one. Very few manufacturers now produce bad cars. Lots of research helps to avoid that. But many factors will affect how many of a new model will be sold. Politics, fuel pricing, taxation, bad publicity (VW emissions), media opinion, and competitors offerings.
Once a model has been on sale for a while the manufacturer will have a good idea of how profitable it will be over it's life. They may then 'tweak' the price, standard spec, warranty, finance package, etc. to boost sales if need be. They may also build a 'halo' model to raise the vehicle's profile or extend model life.

So basically when a car goes on sale most costs are known, almost down to the last penny. Profits will have been projected based on sales assumptions. Only time will prove those assumptions correct.

[FiF]

It all depends, the factory door price for a Volvo that retailed in the 20s at the time was 9kish.

When the Daewoo Matiz first arrived, it's price landed UK docks was about 900 quid.

[williamp]

I remember an article in Autocar a while back on this topic. They said that BMW made very little, if any profit in selling a base model. However the mini is very profitable for them as no two are alike: everyone has options, have packs etc and these are highly profitable for them.

Its also why JLR make large profits and have lots of cash despite making relatively fer vehicles: very, very few customers buy a stock jaguar, land rover of range rover (this might chnage with fleet buyers of the XE, but thats OK as its not their profit car: its the car you start out in, before moving to the F-pace, Xf etc etc)

It also depends on where you put the R&D cost: if thr mfr thought they'd sell 500,000 and sold more, then the profit is greater s its spread over more sales.

The opposite, of course is vehciles like ther Veyron an Phaeton. famously they lose money on every car sold, as the technology isnt transferable to other vehicles so the cost per vehcile is high. Mind you, my understanding is they are doing very well from servicing the Veyron, so maybe its might be a profitable car afterall...

[davepoth]

Storer said:

It is worth noting that the design costs of a new model are being paid for by the model currently in production (predominantly). Therefore the profits for today's car pay for tomorrow's.

Porsche are a great marketing example. You have 'halo' cars that make relatively small profits (if any), but they boost sales of the more mundane but highly profitable models.
The 911R and Cayenne are good examples.

The 911R is a bad example - it was a kit-bash of stuff that Porsche had hanging around the factory that they threw together and sold for a frankly obscene profit margin. Something like the 918 would be a better example - bespoke everything, tiny production run, and likely a loss for the whole project.

[MagicalTrevor]

williamp said:

I remember an article in Autocar a while back on this topic. They said that BMW made very little, if any profit in selling a base model. However the mini is very profitable for them as no two are alike: everyone has options, have packs etc and these are highly profitable for them.

Its also why JLR make large profits and have lots of cash despite making relatively fer vehicles: very, very few customers buy a stock jaguar, land rover of range rover (this might chnage with fleet buyers of the XE, but thats OK as its not their profit car: its the car you start out in, before moving to the F-pace, Xf etc etc)

It also depends on where you put the R&D cost: if thr mfr thought they'd sell 500,000 and sold more, then the profit is greater s its spread over more sales.

The opposite, of course is vehciles like ther Veyron an Phaeton. famously they lose money on every car sold, as the technology isnt transferable to other vehicles so the cost per vehcile is high. Mind you, my understanding is they are doing very well from servicing the Veyron, so maybe its might be a profitable car afterall...

I think the Veyron story comes from the initial build that they expected to make. I don't recall how many but let's say 50 at £1m each (or whatever the cost was) but it cost them £60m to make the 50, therefore a loss.
What then happened is that they made more than the 50 and it's now a profitable car.

[Silver Smudger]

Storer said:

... So basically when a car goes on sale most costs are known, almost down to the last penny. Profits will have been projected based on sales assumptions. Only time will prove those assumptions correct.

It was not always this way - "...the other issue with the Mini that must be addressed is whether it made or lost money for its maker. The price for the base model of the world’s most advanced family car was £496.95 – astonishingly low. According to some historians, Austin had based the pricing of its cars in the pre-BMC era by mirroring what Morris charged. Austin supremo Leonard Lord believed that William Morris was the master in cost control and simply assumed that Longbridge’s cars cost a similar amount to manufacture. With the formation of BMC, the corporation now looked at Ford for its pricing policy. It appears that BMC simply decided to sell its new baby at a similar price to the sit-up-and-beg Ford Popular, which ceased production in 1959.

The launch of the Mini upstaged Ford’s own debutante, the Anglia 105E, and both cars were aimed at the same market sector. The base Mini compared with the £589 – the Dagenham product costing a whopping £93 more. How could BMC do it undercut the Anglia so handsomely?

One of the legends about the Mini is how Ford bought an example and took it apart down to the spot welds to see how BMC could sell it for such a low price. Terry Beckett recalled: ‘We then determined how much it would cost us to build it. On our cost analysis, which we thought was ahead of theirs, we really didn’t see how the car could be produced in this way to make a profit.’

According to Beckett, Ford calculated that BMC was losing £30 on every Mini it made.

http://www.aronline.co.uk/blogs/cars/mini-classic/...

[Ken Figenus]

Storer said:

Porsche are a great marketing example. You have 'halo' cars that make relatively small profits (if any), but they boost sales of the more mundane but highly profitable models.
The 911R and Cayenne are good examples.

I think this can backfire too! If someone walks in with a big 'dream car' bit of wedge and gets told 'on yer bike' you can only have the GL version but is able to get the best of the best elsewhere...

[Jagmanv12]

I recall a friend who worked at Vauxhall said there was a staff discount of 40%. Obviously Vauxhall would not sell at a loss so they were making a profit even with this discount.

[exelero]

Someone I know worked for Toyota in Derbyshire. The production of a single car from raw materials until is a road ready car costs just under 800 quid, yes 800. They sell for around 20-25 K (Avensis and Auris)

[sidicks]

exelero said:

Someone I know worked for Toyota in Derbyshire. The production of a single car from raw materials until is a road ready car costs just under 800 quid, yes 800. They sell for around 20-25 K (Avensis and Auris)

But, even if true, that tells you nothing about profit margins!

[GroundEffect]

At launch, a B-series car (Polo, Fiesta, Corsa) will make ~$0 profit/car. Sometimes a loss. They are loss-leaders.

Bigger cars have bigger margins - SUVs being particularly good for the OEMs.

Porsche were mentioned above - I have spoken with suppliers who deal with them and they do indeed see >40% operating margin.

Be very clear though I mentioned OPERATING margin, not profit. You cannot ignore the $Billions in overheads for an OEM.

[anonymous-user]

exelero said:

Someone I know worked for Toyota in Derbyshire. The production of a single car from raw materials until is a road ready car costs just under 800 quid, yes 800. They sell for around 20-25 K (Avensis and Auris)

that is a meaningless statement.