When a new mainstream car is introduced in the market, typically how many units need to be sold to break even R&D and production cost?
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epends on so many factors, including the total cost of R&D, which cares share the same platform, the profit margin for each car etc.
FIAT would have to sell a lot more Pandas to break even than BMW would 7 series for example, as the profit margin for the 7 series is a lot higher.
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Less if everyone orders the 'sporty' one ;-)
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How long is a piece of string - far to many variables to guess.
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>> How long is a piece of string - far to many variables to guess.
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Particularly in an age of platform sharing, where maybe 80% of a 'new' model is bits from other models/manufacturers.
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>> Particularly in an age of platform sharing, where maybe 80% of a 'new' model is
>> bits from other models/manufacturers.
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And many generic "off the shelf" parts.
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>> How long is a piece of string - far to many variables to guess.
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Which is why they don't.
That number is worked out before its been cleared for production development
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Very, very closely guarded secret.
In practice the manufacturers work on a number of scenarios based on the likely product mix - which engines, trims and options are likely to be specified as well as likely directions of raw materials prices. They develop target costs for the overall car and for the subassemblies before development starts.
Once production starts, the actual figures are followed up rigorously along with a close eye kept on exchange rates, such is the international nature of supply chains these days.
The effective profitability of a product range can be influenced positively or negatively by the success or failure of currency and raw materials hedging as well as the more obvious manufacturing oriented activities.
Some manufacturers (actually not just automotive) made a lot of money on currency hedging bets during the devaluation of the pound, dollar, etc. against the Euro in 2008/ 2009.
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You buy an old model floorpan, engine design and gearbox from Mitsubishi as Hyundai did with the original Pony (IIRC)- sell that and make some money - over 30 years assuming you run a solid business you then start building your own chassis, engines etc and have become one of the biggest car companies in the world.
Hence the Chinese have now bought the rump of Rover, all of Volvo, looks like all of SAAB...........
R&D costs much lower than starting with a pencil & paper, so say 7 years is condensed into 3/4 years, if the company you buy is still trading you will get a network of contacts, distribution /spares etc.
It was said that 1 million cars / year was needed to make money, this might be several million if they are i10s and a few hundred thousands if they are 5 & 7 series and you farm out a lot of work.
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In the case of most British Leyland models the break even figure was 0. Everything they produced lost money.
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The underlying platform (in different 'lengths') of my Passat CC is used in the Passat (of course) but also:*
- A3
- Q3
- Beetle
- Golf (all variants and includes MkV and MkVI)
- Eos
- Jetta
- Scirocco
- Tiguan
- Octavia
- Superb
- Yeti
- Altea
- Leon
So the costs are spread across a lot of models. And then the heating controls or sat nav might also be shared. So I'd say it's impossible to say how many you need to sell because it's nowhere near that simple anymore.
* I think the Passat is on a variant of the platform used by the above list. PQ46 as opposed to PQ35. Tiguan might be the same as the Passat. So the biggest car on the list (Superb) shares a platform with the Golf.
Last edited by: rtj70 on Sun 13 Nov 11 at 21:43
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>> - A3
>> - Q3
>> - Beetle
>> - Golf (all variants and includes MkV and MkVI)
>> - Eos
>> - Jetta
>> - Scirocco
>> - Tiguan
>> - Octavia
>> - Superb
>> - Yeti
>> - Altea
>> - Leon
TT.
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Missed that. And the Touran. And the Caddy. And the Toledo. The latter is easy to forget with the Altea, Altea XL and the Toledo.
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What about the Roomster? Is that another variant, like the Yeti, or is it based on the smaller platform I wonder?
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Reminds me of a cartoon many years ago. An American bloke ripping apart an MGB:
"What are you doing?"
"They say they lose $100 in every car they ship to the States. I'm looking for it in mine...."
The one I really liked came up when Aston-Martins were sold recently, apparently the first time the company had been sold as a going concern. As an illustration of the underlying problems, a story was retold of David Brown showing Clark Gable around the factory back in the day:
"Well Mr Brown. I am very impressed with your cars and I would like to have one. However, the association of my name with your company will obviously benefit you, so I am only prepared to pay the cost price."
"Thank you Mr Gable, that's very generous. Most of our customers pay rather less than that....."
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Minimum units to break even new car development - RattleandSmoke
