Are cheaper variants of a model more expensive to produce?
Discussion
I was thinking about the economics of manufacture and came to the conclusion that it might be cheaper, per unit, to produce the more expensive variant of a car. However is this true? I was only thinking about the normal models in a range, rather than any super stuff.
Starting from scratch I have decided to produce a range of a rear wheel drive four door saloons with reasonable performance. One such exists in the real world and it should be obvious but this is only a hypothesis.
Logically I would have to start with the top model first, as it would have the highest requirements for the body shell. I decide to fit a straight six engine coupled to a six speed manual gearbox. I go off and design the engine to produce 350 horsepower reliably and submit it for emissions and fuel consumption testing. The homologation certificates come back so it is deemed roadworthy. I go on to manufacture a gearbox capable of withstanding its torque and build the rest of the drivetrain into the body shell. In turn that goes off for crash testing and all the required shakedowns before mass production. I start here as I know that the various components all have to withstand the power produced and the handling has to be up to scratch.
I go on to consider a base model variant. This uses the same architecture however will be powered by a four cylinder and has a five speed box. I already have a body shell, but this will require modification to fit the smaller engine. The bare body, once done, shouldn't cost any more than the six cylinder car. It uses the same amount of metal but there are differences under the bonnet. The smaller engine upsets the handling balance so this has to be re-assessed, new suspension designed and further testing done. I also have to design a new gear box with different ratios to cope with the revvier but less powerful nature of the small engine.
Having already developed the fast variant there will be considerable costs involved in adapting it to become the base model. I know that the components of the slow car will be slightly cheaper, in that the engine might used cast internals over forged, and will be smaller but does the cost of designing and perfecting all of those outstrip the savings? Of course the counter argument is that the cheaper car will cater to a different audience thus improving my overall sales, but I don't know whether it would be worthwhile. After all I would have to consider two production lines and have separate tooling for each variant.
There could be cost savings in component sharing, there are certain "upgraded" parts from the fast car that could be swapped on to the small one. But again these would be minimal. The brakes would have to be re-designed as the weights would differ. Similarly final drive ratios would be different. Basic stuff like drive shafts and differential casings could remain the same, however.
I haven't gone into interiors, optional equipment and spangly bits as I was merely thinking about the mechanical side of things.
Starting from scratch I have decided to produce a range of a rear wheel drive four door saloons with reasonable performance. One such exists in the real world and it should be obvious but this is only a hypothesis.
Logically I would have to start with the top model first, as it would have the highest requirements for the body shell. I decide to fit a straight six engine coupled to a six speed manual gearbox. I go off and design the engine to produce 350 horsepower reliably and submit it for emissions and fuel consumption testing. The homologation certificates come back so it is deemed roadworthy. I go on to manufacture a gearbox capable of withstanding its torque and build the rest of the drivetrain into the body shell. In turn that goes off for crash testing and all the required shakedowns before mass production. I start here as I know that the various components all have to withstand the power produced and the handling has to be up to scratch.
I go on to consider a base model variant. This uses the same architecture however will be powered by a four cylinder and has a five speed box. I already have a body shell, but this will require modification to fit the smaller engine. The bare body, once done, shouldn't cost any more than the six cylinder car. It uses the same amount of metal but there are differences under the bonnet. The smaller engine upsets the handling balance so this has to be re-assessed, new suspension designed and further testing done. I also have to design a new gear box with different ratios to cope with the revvier but less powerful nature of the small engine.
Having already developed the fast variant there will be considerable costs involved in adapting it to become the base model. I know that the components of the slow car will be slightly cheaper, in that the engine might used cast internals over forged, and will be smaller but does the cost of designing and perfecting all of those outstrip the savings? Of course the counter argument is that the cheaper car will cater to a different audience thus improving my overall sales, but I don't know whether it would be worthwhile. After all I would have to consider two production lines and have separate tooling for each variant.
There could be cost savings in component sharing, there are certain "upgraded" parts from the fast car that could be swapped on to the small one. But again these would be minimal. The brakes would have to be re-designed as the weights would differ. Similarly final drive ratios would be different. Basic stuff like drive shafts and differential casings could remain the same, however.
I haven't gone into interiors, optional equipment and spangly bits as I was merely thinking about the mechanical side of things.
Bear in mind you'll sell roughly six of the high performance model, and eleventy billion of the cheaper one. If you have any sense you'll design the bodyshell from the outset to take the smaller engine and gearbox, and then modify it to take the larger engines (that's the way everybody does it at least).
5 USA said:
Best value is generally at the bottom of the range,
And least - relatively speaking - profit for the manufacturer? It seemed to be this way in the '80s, and I presume it hasn't really changed - but am happy to be corrected on this guess - You still get all of the R&D and engineering
- Price point is massaged downwards by the marketeers
- Avoid expensive "options".
.Futuramic said:
I was thinking about the economics of manufacture and came to the conclusion that it might be cheaper, per unit, to produce the more expensive variant of a car. However is this true? I was only thinking about the normal models in a range, rather than any super stuff.
Starting from scratch I have decided to produce a range of a rear wheel drive four door saloons with reasonable performance. One such exists in the real world and it should be obvious but this is only a hypothesis.
I think you're thinking about this from the wrong angle.Starting from scratch I have decided to produce a range of a rear wheel drive four door saloons with reasonable performance. One such exists in the real world and it should be obvious but this is only a hypothesis.
Look at what BMW does with the five series. Yes, the bigger engined / higher spec variants have to be catered for, but the reality is its 520d SE's / M Sports that make up the bulk of the sales.
Where BMW will make a killing is from the options list for example £2400 for sat nav, or enticing people up the engine size range for example charging £10,000 more for a 535d over a 520d.
So it certainly doesnt cost more to make the entry level models, but they are probably least profitable - the caveat to that being the 'M' cars which *may* cost a disproportionate amount in development costs, but are really there as halo models.
I have to say, BMW really have it down to a fine art.
Edited by daemon on Sunday 29th July 09:11
The key words in modern OEM vehicle manufacturing are "commonality" and "cross platform"
The body shell is designed at the outset to be shared across all variants without BIW (Body In White) modifications, hence all the hardpoints for all variants will exist on all shells. That way a single part number and process can be written down across the whole production volume. Further to that entire architectures (platforms) are now shared across different products, further reducing component costs as volumes rise.
No OEM individually sources specific parts any more, they simple can't afford to do so.
What is still the case is that the profit margin on the higher performance or premium models is significantly higher than for the cooking models. Hence are very tastey looking and tempting options list to try to get a bit more cash from the customer.
These days there is very little change in actual hardware, everything is done in the end of line software programming step. Hence you see cars such as the 330d and 325d sharing the same engine (6cyls 3.0 litres) but with entirely s/w designated atributes (power / torque etc)
Further to all that, Tier 1 suppliers will furnish the OEM with components that are availible to all OEM's, further increasing volume and slashing costs. Things like injectors, MAF, alternator, etc, even infotainment and HVAC systems share a huge commonality across different models and brands!
The body shell is designed at the outset to be shared across all variants without BIW (Body In White) modifications, hence all the hardpoints for all variants will exist on all shells. That way a single part number and process can be written down across the whole production volume. Further to that entire architectures (platforms) are now shared across different products, further reducing component costs as volumes rise.
No OEM individually sources specific parts any more, they simple can't afford to do so.
What is still the case is that the profit margin on the higher performance or premium models is significantly higher than for the cooking models. Hence are very tastey looking and tempting options list to try to get a bit more cash from the customer.
These days there is very little change in actual hardware, everything is done in the end of line software programming step. Hence you see cars such as the 330d and 325d sharing the same engine (6cyls 3.0 litres) but with entirely s/w designated atributes (power / torque etc)
Further to all that, Tier 1 suppliers will furnish the OEM with components that are availible to all OEM's, further increasing volume and slashing costs. Things like injectors, MAF, alternator, etc, even infotainment and HVAC systems share a huge commonality across different models and brands!
mike9009 said:
Why does the latest generatio M3 always come out after the 'run of the mill' models?
it's simple:A "new" platform car will have cost something between £500M and £1bn, all that money has to be spent up front on development and homologation. Hence you want to start to recoupe that investment immediately and as quicly as possible. Therefore you absolutely would be foolish to release the lowest volume variant first. You need to get your new cars selling in high volume, so releasing the 320d first is a no brainer!
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