I think you will find that the cost to design the new Mustang is alot higher than you think.

I mean we are probaly talking $300,000,000 or more to retool the plant. I am guessing the new car will fall between $500,000,000 and $1 Billion.

Also on regular cars there is very little profit. GM still looses money or just breaks even on the J-body and makes a small profit on the Malibu and Impala..especially with the rebate battles. Same holds true for Ford..especially with the Focus and Taurus. The Neon SRT-4 is the first Dodge compact to turn a profit [b]EVER![b]

As for the F-body...the V-6 cars lost money....that simple. I am gonna be sraight forward with this...GM strangled the F-body slowly unill it died. Rewind to 1995-1996 for a minute. You have a F-body that sells well and makes a pretty decent profit for a car. There are just a few problems...The car is built at a factory that is one of the oldest GM plants in operations. The plant is designed to make many more cars than the F-body ever will sell and has efficiency and quality issues that will cost a lot to resolve. It also would cost hundreds of millions in remodeling money to move a modern car line there…To make matters worse the F-body is growing old quick and needs to be replaced. However it’s sports coupe market is rapidly shrinking before you eyes because of the SUV/Truck boom (an area where GM product horribly lagged at the time). If you are GM you realize that one decent selling truck line will be much more profitable than a new F-body ever will be and have to make a business decision over which product to invest in. Invest in trucks and make lots of money in an area you are quickly loosing ground and cancel the Camaro, thus eliminating the massive funding needed for a replacement and the plant that is a thorn in your side. The question of what investment was right for GM was a simple one..since right now trucks are a leading source of income for them. However now that your GM you need to figure out how to kill off the F-body without angering the plant and all the enthusiasts…how do you do that? Well the second sales start to slip from SUV sales and sports coupe market erosion you cut one of the two shifts at the plant. This cuts maximum production of F-cars from north of 120,000 units to around 70,000. Now you can say that sales are down and can publicly question whether or not the car is even worth replacing. Also by cutting production you make V6 cars unprofitable even with a higher price…further hurting sales. Also you eliminate the car from the public eye through advertising ect. If you can only make so many cars…why advertise it? After 3-4 years of stagnant sales you have an excuse to cancel the car and justify why a replacement wasn’t worked on, when in reality you strangled the car to death because you had to develop your truck line with all your development funds…and as a nice little extra you got rid of a plant that was a thorn in your side. Now fast forward to 2003….you now realize you need to revamp your car line since your trucks are solid. Suddenly if a good business case could be made for a new Camaro…you will defiantly fund it and make everyone feel all warm and fuzzy. By the time it’s ready 4-5 years down the road…no one will ever know what the real motives for the car getting canned were in the first place…

Kinda neat huh? My theory at leastJ

 

Even if the number is $1 billion the development costs per car only comes to $1250 over 800,000 units. So even if you keep the profit margin the same as the current car and add development costs you come up with $1250 price increase assuming the previous car's price had $0 development costs built in, which we know is not true.

And I think $1B is a huge overestimate. GM only spent $1b and change on the the new full size truck, and that's a model that sells 500K+ units per year. Ford would have to be insane to spend over $500m on Mustang.

Its one thing to say $300-$500m, but $500m-$1B is a HUGE range there. Its like saying I'm guessing the temperature tommorrow will fall somewhere between -20 and 105*F.

 

You'd make a great accountant for the Big 3. You forgot to include the money you would LOSE because every year you don't update the car, you sell fewer.

If you do that kind of analysis every quarter, and pay no attention to your decreasing sales, it makes sense to keep making the same car FOR YEARS until you've given away all your market share and to continue producing the car (or replacing it) makes no financial sense.

 

QUOTE]Originally posted by formula79
[B]I think you will find that the cost to design the new Mustang is alot higher than you think.

I mean we are probaly talking $300,000,000 or more to retool the plant. I am guessing the new car will fall between $500,000,000 and $1 Billion.

Also on regular cars there is very little profit. GM still looses money or just breaks even on the J-body and makes a small profit on the Malibu and Impala..especially with the rebate battles. Same holds true for Ford..especially with the Focus and Taurus. The Neon SRT-4 is the first Dodge compact to turn a profit [b]EVER!

As for the F-body...the V-6 cars lost money....that simple. I am gonna be sraight forward with this...GM strangled the F-body slowly unill it died. Rewind to 1995-1996 for a minute. You have a F-body that sells well and makes a pretty decent profit for a car. There are just a few problems...The car is built at a factory that is one of the oldest GM plants in operations. The plant is designed to make many more cars than the F-body ever will sell and has efficiency and quality issues that will cost a lot to resolve. It also would cost hundreds of millions in remodeling money to move a modern car line there…To make matters worse the F-body is growing old quick and needs to be replaced. However it’s sports coupe market is rapidly shrinking before you eyes because of the SUV/Truck boom (an area where GM product horribly lagged at the time). If you are GM you realize that one decent selling truck line will be much more profitable than a new F-body ever will be and have to make a business decision over which product to invest in. Invest in trucks and make lots of money in an area you are quickly loosing ground and cancel the Camaro, thus eliminating the massive funding needed for a replacement and the plant that is a thorn in your side. The question of what investment was right for GM was a simple one..since right now trucks are a leading source of income for them. However now that your GM you need to figure out how to kill off the F-body without angering the plant and all the enthusiasts…how do you do that? Well the second sales start to slip from SUV sales and sports coupe market erosion you cut one of the two shifts at the plant. This cuts maximum production of F-cars from north of 120,000 units to around 70,000. Now you can say that sales are down and can publicly question whether or not the car is even worth replacing. Also by cutting production you make V6 cars unprofitable even with a higher price…further hurting sales. Also you eliminate the car from the public eye through advertising ect. If you can only make so many cars…why advertise it? After 3-4 years of stagnant sales you have an excuse to cancel the car and justify why a replacement wasn’t worked on, when in reality you strangled the car to death because you had to develop your truck line with all your development funds…and as a nice little extra you got rid of a plant that was a thorn in your side. Now fast forward to 2003….you now realize you need to revamp your car line since your trucks are solid. Suddenly if a good business case could be made for a new Camaro…you will defiantly fund it and make everyone feel all warm and fuzzy. By the time it’s ready 4-5 years down the road…no one will ever know what the real motives for the car getting canned were in the first place…

Kinda neat huh? My theory at leastJ [/QUOTE]

So if I read you right Branden, you would logically oppose producing ANY cars that didn't produce profit levels of SUVs.

There is so much you are missing in all this:

1) Cost is spread out over the cycle of the model, not the 1st or 2nd year. If ford runs the new Mustang chassis for 10 years with styling & interior revisions, they will do alot more than make their investment up.

2) V6 Camaros lost money when V6 sales dropped. Over the entire bredth of the Camaro line, it was still profitable. Johnny can probally refer you to the edition of his magazine where he ran an interview with a GM executive that came out & said that.

3) It seems you completely missed the entire concept with Corvette. The C5 program broke alot of ground. It was far from the "low tech" car you paint it. As a "from strach" program, it most certainly was more complex, and inheritedly very expensive. Also, the C5 program most certainly was NOT a "blank check" in the area of development. If anything, the C5 program was starved to death many times over. Read "All Corvettes Are Red", then tell me how generous GM was with funding the C5 program.

4) Also what seems to be missed is Corvette sells about 25,000 cars per year, while Mustang sells just short of 200,000. Even discounting the fleet cars, which Ford does get back a percentage , you still are talking 150,000 cars per year. I think it's safe to say that since Mustang is a parts car & C5 is a ground up car, If C5 is profitable, the new Mustang will most definately be as well.

5) Again, the most expensive parts of the Mustang are paid for. You are operating from the flawed belief that just because the parts are on a luxury car, it's going to always be an expensive part. Basic economics 101, higher production= lower cost. If the LS chassis's development cost has been made up, then beyond the cost of materials & production (which is greatly automated, so cost is very low once start up costs are recouped) the part is basically free. Mustang will no doubt clear more money the 1st couple of years than Corvette did.

6) You are also going by "GM Logic" that you should put no money into your cars & should run them forever. GM has 2 new chassis which are more advanced AND more cost efficient to produce. The Ion & Malibu will run about the same or slightly less than Mustang, yet because of the way they are engineered, and the automation and volume planned, they will make money. The Cavalier looses money because it's an obsolete design that dates back to 1982! Also, once upon a time ALL the GM divisions made a version of the Cavalier, whereas now, only Chevrolet (and Pontiac, with only the coupe). Firesale prices, rebates, & 0% probally don't help either.

7) Finally, Mustang is selling at the volume to pay for a nice redo without great price increases. Making a case for redo like that for a car selling 30,000 cars per year, at Mustang prices is an uphill battle, which is a really big problem our guys are having getting us a new Camaro on the streets.

8) The 4th gen, while argubly the best F body ever made, was a disaster. The production estimates were way off, as you point out the factory it's made at is too big, At the last second, that windshield was added in which drove up the project's cost, and created problems that contributed to it's demise (though it was not nearly the only reason by a long shot), and with Corvette in the mix, there are people who wonder why Chevrolet needs a Camaro anyway.

In conclusion, lets say Ford makes only an average of $500 on each Mustang sold (considering $5,000 profit margins on some SUVs, that's a really conservative figure) after engineering and production costs are factored in. In just 1 years time Ford will pull in $75 MILLION on 150,000 annual sales. If you are hemmoraging money, I'm sure $75 million isn't chump change.

Btw, Focus & Taurus do actually earn Ford a small profit (if you compare it to F150 trucks & Lincoln Navigators).

 

That's the only part of your post that confused me guionM. I thought the general consensus was that the older the platform, the more profitable it would be (assuming sales are still respectable) because it has been paid for many years ago. I honestly don't see how a 20 year old Cavalier that moves 200,000 units a year isn't profitable but I'll take everyone's word for it...

 

Toyota Cavalier

 

We must remember Guion knows all.....

Looks like we will have to wait untill priceing on the new car comes out. There is no way you will convince me that Ford will make the same money they currently make on each Mustang when they release the new car unless they raise the price.

 

GM supposedly loses around $2,000 on each cavalier they sell.

There is some truth to your thought though... once the tooling is amortized, the car is the most profitable (usually), but after that, volumes drop and eventually new technological advances (that you can't use without a redeisgn) allow you to make the same car cheaper and better. As your competition adopts this technology and you don't, your car becomes becomes less profitable.

This type of scenario is part of why a Honda Civic, which has been redesigned several times in the last 20 years is a money maker, while the Cavalier, which has only been "freshened" a couple of times in the same period is a money loser.

 

I completely reject the premise that a modern platform can't be produced economically! You need to look no further than Honda or Toyota to disprove this theory.

To paraphrase Werm....using the absolute cheapest and most archaic components is false economy if no one wants to buy your car.

 

I am not saying that the car can't be made economicly. All I am saying is that to assume you would make the same profit at a given price level when you move the Mustang from a 20 yo platform that is long paid for to a modified Lincoln platform with a new plant and tooling is simply farce. If Ford keeps the price level the same as it is now they will make less money on the new car....that simple..

 

Also saying that sales go down because a model gets older is not always the rule. The Cavalier sells quite well to this very day, same with the Mustang.

 

And while the basics of the Mustnag may date to 79, and the Cavalier to 82, mostr of it has been redone....

So lots of money had to be re-pumped into these cars to keep them relatively fresh.

Bottom line: There is NO WAY that the base Mustang is goignt o rise in price anymore than $500-$1000... and I'd probably stick more to the bottom end of that estimate.

Brandon, you need to realize... new cars come out every year, replacing cars that were on old platforms.... most of those cars stay in the same market segment, and there have even been times when the new car has actually stickered for less money! (Those few and far between, it has happened)

 

No offense taken.

Just because a car is a luxury car is pricey, don't assume it's chassis is. Examples:

Lincoln Town Car & Crown Victoria: $40,000+ vs $27,000
300M & Intrepid: $28,000 vs $21,000
ES300 vs Camary: $31,000 vs $20,000
Seville vs Bonneville: $45,000 vs $26,000

Don't forget the Fox cars of the 80s that spawned everything from a very expensive Lincoln Mark 7 to a cheap base Mustang coupe.

The LS starts just under $34,000, six under the Town Car. It is most certainly likely a Mustang could be made for six grand under a Crown Victoria, at around $20,000. Especially since it's chassis in now paid for, and is in production underneath 2 other cars.

Sure, you'll loose money at first (as happens with ALL new cars) but it will easily be made up after the first year or 2. Also, the current Mustang wasn't a freebee. Ford redid the entire car save the basic floorpan in 94 (and was going to use the MN12 first, till the project was killed because of weight). But luxury car parts doesn't equal mandatory luxury car price.


You could also check in with R377, Werm, RP, or a few of the others here who actually work in the industry (I'm going by what was explained to me a few times over, and what I have actually read myself... I didn't always know all ).

I'm sure you'll hear the same thing.

 

A car manufacturer can be faced with a dilemma when a single platform covers a number niches.

I think the Mustang is such a platform. You'd be surprised what the marketing demographics as far as competitive perceptions go. By this I mean what cars are the one folks that buy Mustangs consider as alternatives. For many F-body fans they may well think there is no competition existant for the Mustang... this isn't true.

A segment of Mustang buyers also consider:

Pontiac GrandAm

Honda Accord

Nissan Altima

Dodge Stratus

Chrysler Sebring

Volkswagen Jetta

Maybe this wouldn't surprise you much. It does become an issue of where a car can be priced accross the spectrum of versions, from the most basic to the most optioned if you are looking to keep market share. It can become a loss of market share if not designed and priced right for the buyers that seek a certain appeal. The more wide the appeal needs to be the greater the chance for too wide a range of prices < customer might be suspicious as to why the "same" car is $18K and $40K, particularly the ones asked to spend the $40K> , styling for one segment will alienate another, basic vehicle underpinnings will either have to be sold at a loss for the segment price point or engineered at a compromise for the high end segment.

I suggest that any notion that how the Mustang sells or competes with the F-body was never the whole story, IMHO. Mustang has to cover a diverse segmented part of total vehicle market share.

Pricing is a big issue in all but the smallest niches. We may see if a retro styling excercise will be embraced by the present market for the car or alienate a portion of that market.

 

haha, you must write for BON

I think you're too used to $3M wheel designs on Camaros there, guy.

PS: I know if the price comes out higher, you'll be like "You all heard it first from me guys, I was right, ha ha!"

Do you do that when you're wrong too? I'd love to see it!

"Hay guys I think Ford will jack up the price of the Mustang cuz it's been redesigned and we all know new car = huge price that's why the Astro van is still the same"