ProudPony:

Are those manufacturing costs you gave for the Explorer and Tahoe based on extrapolations, or do you have some real insider data? Not a flame, I'm genuinely curious.

 

And one comment on the overall premise of the thread:

If GM expects to sell a Camaro replacement for $38K (or a GTO, for that matter) when a new '05 Mustang GT can be had for $25K, they are in for a serious reality check.

 

Alot of good points, but as far as the actual cost of materials to produce a car, I believe the markup is the same with all manufactured goods from tables to pizzas.

When pricing is set, one has to make sure not only that you pay for materals, utilities, & facilities, but everything else is thrown in there as well. Using a $10 Pizza for example, there's about 50-75 cents of material going into it, the person making it for $8 per hour probally spends about 5 minutes making it, so that $10 pizza actually takes just over $1 to make. There was a excellent article in Business Week a couple of months ago that explained GMs situation. I'll dig it up when I get home.

You brought up a really good point about the performance spread, and I think you also unwittingly explained why performance cars from the 60s are looked at with such awe, though many are no quicker than an average car today.

The spread between performance cars and regular cars was horrendous! Most all the cars that were a step below the full blown models are about where base model cars are today. When was the last time you saw a base car take 15 seconds to get to 60 mph? How about the top non muscle version take 10-12?

Because of cars like this, no wonder people were willing to pay amazing amounts for better performing cars. Create a few high powered cars, and make just enough...maybe a few dozen... to say they were production vehicles (for braging rights), and it begins to look like a little racket.

Again, very interesting points.

 

I really doubt it would go that high (except for the SS maybe). But I'm pretty sure the 2005 Mustang GT won't be only $25,000. I'm guessing closer to $27-28K. I'd wager Cobra will stay where it is at $37-38K, and GTO will go for about $5K less (around $32,000).

The thing that moved me to post this thread (in addition to getting more feed back & ideas...why I'm monitoring this so much) was the fact that not one of the big 3 I talked to thought performance cars priced in the $30-40,000 range wasn't affordable!!! Not a one!

Again, when you look at all those people who paid $5,000 for a $25-28,000 Z28 with maybe $1,000 worth of equptment, while stripped base Z28s sat on the lots, you don't need a business degree to make a really good decision in this case.

 

I DO HAVE an actual article carried in our local paper (hard newsprint) from about 2 years back. I can dig it out and scan it for you or see if it is in their archives (might cost $2 or so) - It's the Winston-Salem Journal. I think the article was AP or UPI written. It was on exactly this kind of thing - car prices.

I recal them saying that Explorer models like the Limited or Eddie Bauer (that run $40k or more ) cleared $16,200 for Ford. That kind of number STICKS IN YOUR HEAD, DON'T IT?

If I get a few minutes tonight, I'll see if I can dig it up for more data.

 

Just think, I was accuse of giving a low blow when I offhandedly said a $53,000 H2 cost about $22,000 to make.

I was probally very close if not over afterall.

 

Too bad the Z28 sold poorly because it was plain, uninspiring, and homely compared to the SS. It also looked just like the base model. Who wants that? GM. They had to make the Z28 look that way because if it was sharp looking, the $3500 SS package would not have had much appeal.

I agree that the people running the big 3 need a reality check. Hello!? There are lots of people who can't or won't buy a $35,000 car.

 

Those kind of numbers definitely do stick in your head, ProudPony. Something to bring up when another airhead is unjustifiably proud of their new SUV. Good information.

As far as the GT being $27-28K base, that's not "today adjusted for inflation." With too many options and dealer gouge, sure, but not base. I guess we'll know soon enough, though.

The real problem seems to be that prices have been decoupled from payments via leasing. Nobody cares that they're paying $60K for a Ford truck (new Navigator) if the monthlies are $599 with $5k down. No matter they never own it. It would bother me, but I guess I'm hopelessly old-fashioned.

 

Is it the fact that Z28 looked like the V6 that bothered you or vice-versa? I feel there is a difference. My brother just bought a black '99 Z28 and with the stock chrome 5 spokes and tinted windows I still think it's one sharp car, personally. Only thing I like more about mine are my headlights.

 

OK centric - I went through ONE of my 3 boxes of old stuff, and came up empty, then had to quit. (Wifey wanted to go out for din-din! ) But I did get a chance to go online and found some similar data. You can search too and find all kinds of data on these. It looks like the $15k/vehicle profit dropped sharply after the Explorer/tire debacle 2 years back, but still $2300 to $9K each ain't bad - and after a full model retooling too!!!

The Explorer from which comes the following quote - "When the SUV market took off in the late 1980s, there were few models to choose from, the most popular being the Explorer. It was built using the same frame as the Ranger pickup to save money, and it brought in billions in profits for Ford. GM, Ford and the Chrysler side of DaimlerChrysler AG used pickups as the base for larger SUVs that could share parts with trucks to save money, yet command prices from consumers that would allow up to $15,000 in profit per vehicle. "
(go about 2/3 down the page under "Safety Takes A Larger Role In New SUV Designs" )

The Excursion from which comes the following quote -"In 1997, Ford banked $5 billion in pretax earnings from SUVs, 57.5 percent of its total, according to the article. And SUVs account for nearly one-fifth of Ford's total vehicle sales, up from 5 percent a decade ago. Analysts say pretax profits on the Excursion could reach $20,000 per vehicle."
(go to bottom of page)

I'll hunt up some more if you like, but you guys are computer literate too...
If I do come accross that article I clipped, I'll scan it and mail you (or post it if the thread is still going), but I'm a little thin on time right now for hunting through old boxes of mags and articles. I get EASILY sidetracked doing that!

I don't have direct inside numbers on manufacturing costs, but working for a tier 1 supplier, I have a great idea what they pay for components - and guionM ain't far off with his $1-pizza example. The actual material costs are near the bottom of the actual cost list. Machining, finishing, labor, and utilities (like compressed air, lights, etc.) compose about 85% of the cost of the physical vehicle, which typically runs below 10K for the average SUV. THEN add the benefits, insurance, union fees, pension, retirement, consumables, overhead (like engineering and management salaries), and so on - you have just DOUBLED the price. Add in advertising costs, dealer incentives and dealer cash, and the healthy margins we were just discussing (like a $20k markup on the Excursion) and you arrive at the $45,000 window sticker.

No rocket science, just basic accounting, some level of internal secrecy to keep this fleecing under wraps, and the participation of ALL carmakers to keep the system going...
Oh yeah, and a gullible Joe Q. Public to keep throwing hard-earned cash at the dealers for these things like they are $1 hot dogs.

Study hard guys.
Proud

 

ProudPony:

Thanks again for the information! Please take your wife out to dinner--research is great, but there are more important things.

When I was in engineering (high end audio), the rule of thumb was retail cost = 6X parts+labor cost. But this was after a high-end dealer making his 50 points, after our target margin of 60 points, and for very limited-production, handmade items. I had hoped it would be different with cars, especially given that dealers don't see 50 points.

Hmm . . .

 

Ya, she got me out of the basement and said,"Clean-up, we're going out tonight." I replied as married men must, "OK dear."
We had agreat dinner, and since I was cleaned up and nearing bed time, I decided not to go back into the basement and grub in the dusty dirty boxes. I hit the web instead while the news was on TV!

I hope nobody thinks I'm a grumpy ol' curmudgeon that has a beef with EVERY car or truck sold, or that I'm a pinch-penny. That's not it at all. But like with most LARGE operations (oil/gas companies, WalMart, GE, etc...) there are things that go on behind the scenes that we never get to know of. Car/Truck/SUV pricing is one of those things. The public would go NUTS if they knew just how little the average things in life cost to make. I know just enough to know something ain't right, but I can't get the information I need to "blow the lid off", you know what I mean? There are "systems" in place to keep things working smoothly, as they are.

I'll say this much though, with the exception of maybe 1 or 2 new Mustangs or some other "collectible" car that you would want paperwork and windowstickers for, I will NEVER buy a daily driver new from a dealer, because I am aware of the mark-ups, dealer cash, and plain old gouging that takes place. I wait and buy used (preferably from an individual) vehicles that still have warranty remaining, get the maintenance record, and pay cash for it instead of financing. I work too hard for my money to give it out funding huge dealer conglomerate accounts and multi-miilion dollar CEO bonuses, not to mention the banks interest.

 

I don't think you're a grumpy old curmudgeon . . . I think you sound a lot like me!

Uh-oh . . .

But seriously, though, it seems like everything, from new cars to health care, is needlessly complex and larded up with every trick in the book in order to generate sales, where the BEST trick might be simply to say, "Here's what we got. This is the price. It's the best thing on the planet because of X, Y, and Z. Take it or leave it."

 

Agreed. At this point in the game, we are loading up our side to pay for the loading up on the other side. Or we load up our product to generate enough money to pay for the loaded-up things WE NEED to do our job, etc. It's all a paperwork/accounting game, and it's silly IMO.

The only difference inthe auto example is the unforeseen, yet now-maturing issue of pensions and retirements. I honestly feel that the designers of the pension plans of the 60's used the 64/67 year average life expectancy range that was current then for their design, and failed to anticipate that the life expectancy would grow as rapidly as it has. Now people are routinely living well into their 80's, bringing the average life expectancy well into the 70's for men and women. This throws and extra DECADE of disbursements from the fund into the mix. Throw in the corporate robbing/looting of many pension funds to stay in business (like Northwestern and US air are currently doing BTW), the blatant corporate robbery (like with Enron and WorldCom), sky-rocketing cost of health care that the company pays for the employee, and you can see why pensions(especially) and benefits are now such a big deal. Companies like Ford and GM have become slaves to their overhead, with pensions, retirements, and benefit payments looming in the background like death itself waiting for them to slip-up.

Enjoyed the conversation centric. You sound well-versed in this area.

I'd like to apologize to everyone for hijacking this thread.
It was unintended, but the info we have been discussing was related to the original topic, and I feel very strongly about US (the car buyers) being informed on what's really going on around us.

Sorry to those who expected different material, but THANKS for reading it anyways! Hope we all learned something...
Proud

 

Yes, I have to apologize for hijacking the thread as well.

However, I think there are a couple of things you can get from this banter that are relevant to the thread:

1. Not everyone thinks that $35-40K for a performance car should be entry-level, no matter the historical excuses.

2. There are some people who would like to see a company think about rewriting the value equation, rather than using threads like this to justify a higher cost. What if you could do something like a Dodge Razor with a V8 for $19k? This would force others to respond to a new pricing model, or be left behind. That's how you get market share. That's how you WIN.

And that's the attitude that GM needs to have if they want to take back a good chunk of the market.