The Straight Dope

Go Back   Straight Dope Message Board > Main > General Questions

Reply
 
Thread Tools Display Modes
  #1  
Old 11-12-2010, 11:44 PM
R. P. McMurphy R. P. McMurphy is offline
Charter Member
 
Join Date: Jun 2002
Posts: 3,744
What is the actual, most basic production cost of a car that costs $25k.

Hypothetical.

What if the world suddenly went generic and there was one model of car that costs about $25k in today's market became the only car of choice. All R&D, advertising and marketing costs were eliminated. It was just bare bones acquisition of materials, assembly and distribution. No other frills like engineers working on future models, advertising, corporate managers in white shirts sitting in meeting rooms, fancy publication of owner's manuals or other "feel good" unnecessary BS. Just the car, from raw materials to being driven on the highway. Materials in one door, finished car out the other door.

I'm not complaining about the cost of cars or any of the other stuff we consume. Just wondering how much of the price is in corporate overhead, testing, lobbying, R&D and other BS that is a necessary part of doing business and keeping the system running.
Reply With Quote
Advertisements  
  #2  
Old 11-13-2010, 03:19 AM
Absolute Absolute is offline
Charter Member
 
Join Date: Apr 2000
Location: In flight
Posts: 3,813
The term you are looking for is known in economics/finance as marginal cost - the cost to produce one more unit of something that you have already made a lot of.

I found a cite on Google that suggests cars were priced at 10% above marginal cost in 1978. I suspect that number is much higher now, maybe 20-25%.
Reply With Quote
  #3  
Old 11-13-2010, 06:58 AM
LSLGuy LSLGuy is offline
Charter Member
 
Join Date: Sep 2003
Location: Miami, Florida USA
Posts: 7,155
Marginal cost is a starting point. But it's not the whole story. The OP is essentially asking what the cost would be in a stagnant communist planned system where we can eliminate all the costs associated with competition and progress.

You still need to amortize the factory and pay to train workers since both of those are consumables, albeit at a slow rate.

The OP's assumption you could eliminate all management & admin overhead just because you're not dreaming up new models is faulty. You'd still need a bunch of it, although not so much as now. It's not like they could just pay the electric bill once, or just hire one set of employees once, or write up one work schedule once. All those things need to be done on a regular basis. Suppliers & dealers will both still go in or out of business ...

Lack of model years will reduce the amount of change in schedules, but cars sales will still ebb & flow with the seasons of the year.

Last edited by LSLGuy; 11-13-2010 at 06:59 AM..
Reply With Quote
  #4  
Old 11-14-2010, 07:57 AM
andrewm andrewm is offline
Guest
 
Join Date: Apr 2010
And do you still want a warranty? That's part of the price, too.
Reply With Quote
  #5  
Old 11-15-2010, 10:43 AM
FasterThanMeerkats FasterThanMeerkats is offline
Guest
 
Join Date: Sep 2010
Quote:
Originally Posted by R. P. McMurphy View Post
Just wondering how much of the price is in corporate overhead, testing, lobbying, R&D and other BS that is a necessary part of doing business and keeping the system running.
Toyota Income Statement

Cost of Revenue $180B/yr + SG&A $20B /yr, or about 10% of total cost. Ford is about the same. You could go into more detail if you looked at the annual reports and 10-ks, but the question is very vague and it's hard to dissect the data.

Hope that helps.
Reply With Quote
  #6  
Old 11-15-2010, 12:49 PM
kunilou kunilou is offline
Charter Member
 
Join Date: Apr 1999
Posts: 17,991
Chrysler tried something close to that in the 1980s. They took the Dodge Omni and Plymouth Horizon, basic models that were already 10 years old, and eliminated just about all options and anything else that could be considered advanced design and engineering. Then they cut the base price ($6,209 at the time) by $710 -- about a 12% drop.

Then there was the Yugo, sometimes called "the worst car ever made" -- built in a Communist country using 14-year old technology from Fiat. In the mid-1980s, when the average cost of a compact car in the U.S. was about $9,100, you could buy a brand new Yugo for $3,990. It's an apples-oranges comparison, but the Yugo was about as cheap a car as has ever existed.

Henry Ford originally sold the Model T for $950. By the end of its production run, it had incorporated every production efficiency Ford had developed (although no real improvements in design) the price had gotten as low as $280. But that was in an era with tremendous improvements in manufacturing, and I don't think that scale of reduction would be possible today.

Last edited by kunilou; 11-15-2010 at 12:50 PM..
Reply With Quote
  #7  
Old 11-15-2010, 03:11 PM
Philster Philster is offline
Guest
 
Join Date: Aug 2000
Quote:
Originally Posted by R. P. McMurphy View Post
Hypothetical.

... It was just bare bones acquisition of materials, assembly and distribution.
These things fluctuate. One day, it costs X, then a month later, it costs X x 1.5. These are not fixed costs. Heck, they might not even be predictable.

There is no actual 'just bare bones' anything. E.G., Acquisition of materials is not a fixed cost.

The answer to your question becomes something such as "10k" or 30k", depending on variables that cannot be fixed, even hypothetically, unless YOU provide the fixed (imagined) cost. Then it becomes completely moot.

Last edited by Philster; 11-15-2010 at 03:12 PM..
Reply With Quote
Reply



Bookmarks

Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is Off
HTML code is Off

Forum Jump


All times are GMT -5. The time now is 06:13 PM.


Powered by vBulletin® Version 3.8.7
Copyright ©2000 - 2014, vBulletin Solutions, Inc.

Send questions for Cecil Adams to: cecil@chicagoreader.com

Send comments about this website to: webmaster@straightdope.com

Terms of Use / Privacy Policy

Advertise on the Straight Dope!
(Your direct line to thousands of the smartest, hippest people on the planet, plus a few total dipsticks.)

Publishers - interested in subscribing to the Straight Dope?
Write to: sdsubscriptions@chicagoreader.com.

Copyright 2013 Sun-Times Media, LLC.