[Closed] How much does a new car really "cost" to make?

heard somewhere that Land Rover's margins are 3-400%

I'd be quite surprised if margins are high to be honest. Supply chain isn't exactly long. Manufacturer takes a cut, dealer takes a cut, that's more or less it.

There's a huge amount of work goes into that car you buy for ten grand. You get vastly more effort for your money than if you say spent ten grand on software.

hmmm, looking at the US market we seem to have a decent mark-up over here, unless there's a big tax-thingy I'm missing

Is it still cheaper to buy abroad and import U.K. spec cars?

A few years back a bod high up in Vauxhall told me the car company only makes 60 euro on every Corsa that leaves the factory, he mentioned that it was the dealers that made the most out of the whole transaction, not the car company. Mind you i guess that was pure profit after expenses, so for company producing many thousands of cars i dont suppose its that bad...

I work for a large car manufacturer.

I don't know how much the other cars cost to build but I do know that our most expensive car, at about £80,000, made us a profit of £17,000. So about 20%.

That was the previous model because we just replaced this car. I have no idea how much profit the replacement model makes 😀

IIRC Margins are about 4-5%. LR might have made those insane margins on the Disco 1 as its development costs were incredibly low; in fact it was the most profitable car in its day, but I doubt those margins exist now.

Metro and MG TF made zero, but they kept longbridge open. They lost money on every 800 and 75 made.

i remember reading that larger/more expensive cars have much higher margins because after r+d and tooling it doesn't cost much more in materials to make a porsche versus a corsa etc.
iirc porsche has the highest margins of all the makers.

JAG - Member

I work for a large car manufacturer.

If only there was a clue as to which manufacturer!

They lost money on every 800 and 75 made.

What does this mean? Seems unlikely that the unit costs of each car manufactured weren't covered by the selling price.

Many years ago, I was on a work placement in Peugeot-Citroen.
I asked what the real cost of a car was and the answer was as follow.
The true cost of a car will only be known once the car is out of production.
When a car is designed and starts production, they estimate how many cars will be made.
They will purchase the tooling accordingly, small volume, cheap tooling, large volume, expensive tooling.
If they do not sell as many cars as planned, the unit cost is higher as the tooling and manpower cost is divided by a lower number.
Also, they do not how much will have to be spent in advertising.
If the car sells well, low advertising cost.
If it is more difficult to sell, more advertising and more 'special' offers to lower the price.
I currently work for a car manufacturer and the word is small cheap car, hardly any profit, mid size car, small profit and large cars better profit.
A car can make or break a company due to the investment required.
I know it does not answer the OP's question but is there an answer?

I'm sure read somewhere once ford bought an original mini when it came out, took it apart and concluded they couldn't even buy the materials for the purchase price of the car.

What does this mean? Seems unlikely that the unit costs of each car manufactured weren't covered by the selling price.

Sounds more like they didn't sell enough to cover the costs (no surprise)

They never truely know until the model reaches it's end of line.

One of the motorbike magazines did an interesting thing one year they priced a Yamaha R1 built by ordering everything as spare parts, and it was something like 4 times the cost of buying it built and brand new.

3-400% LOL

Depends what you mean by margin - you can look at the figures for the big car groups, VAG, Toyata etc and see the final figures. I'd guess the car costs maybe 50% of list price to manufacture. The dealers do very badly with a few % margin. The manufacturers take the majority of the margin, but then they have the overheads of R&D, advertising, warranty recalls etc etc which eat into the gross margin considerably. Designing a new car can cost billions in R&D, so that has to be paid for etc.

They lost money on every 800 and 75 made.
What does this mean? Seems unlikely that the unit costs of each car manufactured weren't covered by the selling price.

Mudshark, yes the unit costs weren't covered by the selling price as mentioned!

Basically the powerplant & transmission costs for the 800 rose rapidly throughout its production ( a long story) rendering it unprofitable. Honda did well out of the deal tho'!

The 75 was priced too low from the outset as Rover didn't think people would take it seriously at a higher price. Sadly no one took it seriously because it was too cheap; it was in fact a good car with good engines and should have been much more.

The margins are extremely tight on the cheaper cars on the market. The Mini is a particularly painful example as it lost money for decades. The new MINI on the other hand can turn a decent profit because hardly anyone buys a basic One (which is premium priced anyway) with no options - as soon as a car starts getting spec'd up, the profit goes up.

It's obvious if you think about it - for example, if you're making a modern 16v turbo direct injection 4 cylinder engine that is clean, efficient, responsive and powerful for its size, how much more does a 2.0 cost than a 1.2 to manufacture? You need all the same parts but the ones for the larger engine need to be larger - and the raw material cost is tiny compared to everything else. Even if the brakes, transmission and suspension are upgraded to match it's just bigger discs, thicker cogs and thicker springs - cost differential is tiny. But you can sell the more powerful engined car for a lot more.

Building supercars is easy compared to building superminis!

Don't know the ins and outs of the car market but I've just bought a VW Up and there was NO movement on the price AT ALL. All the online advice, reviews and haggling guides told the same story.
The salesperson was very apologetic when I attempted a haggle, and told me that Polos and Golfs are haggleable (?is that a word?) but not Ups.
To me that ties in with the smallest car = lowest profit views already stated. They must be right on the edge to recoup their costs.

Hmmm, sorry but I believe there's a reasonable markup on new cars.
Dealers are prepared to drop their prices significantly all the time. You don't get large knock downs on low sale goods with tights margins.

The buying parts to make a vehicle business is nonsense. A car/bike manfacturer doesn't go away and buy a tyre for each bike. Yamaha buys 100,000 tyres at once and get a massive discount.

if factories are making cars at a loss, it's not because the parts and manufacturing costs are particularly expensive, it's because the people running the plant are rubbish at it. That's why Rover went under, not because the margins are so low. Stick someone who knows what they're doing in the main office and you'll see major profits and large markups on every car sold.

Jam bo - Member
I'm sure read somewhere once ford bought an original mini when it came out, took it apart and concluded they couldn't even buy the materials for the purchase price of the car.

I was taught that last year, and I'd say it's true. I'll see if I can get an answer from an Auto guy as-to the markup on a car. The guys talking about the R+D costs are right, some cars are in development for 10 years, all-in.

The Freelander Mk 1, OTOH, took 18 months from beginning to end. It was the extreme other end of the scale!

After the release of "Goldfinger", a friend of David Brown, Aston Martin's owner, asked him for a DB5 at cost price. After much pestering he finally relented, and presented his friend with a brand new Aston and an invoice for £500 more than the usual sale price

looking at the US market we seem to have a decent mark-up over here

Don't even compare the two. The cars in the USA are way behind those in Europe as far as tech goes. The 2nd hand car prices also seem much higher in the USA than in the UK. You get a crappier car in the USA for your money.

samuri - Member - Quote
Hmmm, sorry but I believe there's a reasonable markup on new cars.
Dealers are prepared to drop their prices significantly all the time. You don't get large knock downs on low sale goods with tights margins.

Ok so bring some evidence...
There are 2 sets of costs here, component & assembly cost on which there will be a mark up ie the sum of the parts and labour will be less than the cost sold.
After that there is the overhead of R&D, H&S, Testing, marketing, employing the HR department, covering warranty and that is before it gets to the dealer.
As a few have said until the last model is sold we don't know the overall price.

In terms of big discounts sometimes people just need to clear the decks, be in the right place at the right time and take advantage.

The big reason for the end of good ol rover from the outside was that they only seemed to make cars on a Friday afternoon or that they have the Friday afternoon mentality every day.

The big reason for the end of good ol rover from the outside was that they only seemed to make cars on a Friday afternoon

my cousin worked there; they had three shifts of three blokes just to make sure the snow chains fitted.

I have a couple of Audi A2's.
Now theres a car that shows the effect of R&D costs VS Unit sales effects margin.

The tooling costs were huge, sales were low as people didnt appreciate the tchnology.
The same factory now makes the R8 for a much higher price!

The tech:

Don't know the ins and outs of the car market but I've just bought a VW Up and there was NO movement on the price AT ALL. All the online advice, reviews and haggling guides told the same story.

The VW rep was right, there is only 1.5% margin to play with on registration on an UP, which on that basis is only enough for the dealer to cover their expenses selling it (pdi,plates etc). A VW dealer going for volume however may be inclined to discount an UP if he/she is going for a manufacture bonus, but this normally only happens and the end of the quarter when chasing numbers. I have known VW dealers to discount the UP by up to £1000 but the car will loose alot of money until/if they hit the target, when the loss would be returned via the bonus.

Rover was complex- shit cars, bad press (cars performance/image way before the takeover), bad press on one engine (HG) and woeful cars in their sector.

^ tends to lose money. Forget unions etc. The week before Rover went bust ex colleague bought new MG two seater for c18k. We all thought she was bonkers. They lost money as no one wanted to pay their prices

What really interests me about manufacturing is the way the raw materials gain value as they progress from manufacturer to consumer. Take my own industry, fragrances. A key raw material in perfumes is patchouli oil, 95% of which comes from Indonesia. Here's a rough idea of the process:

Indonesian farmer gathers a ton of patchouli leaves and takes them to the field still.
Distiller extracts a few kilos of oil and give the farmer his cut.
Distiller takes all the oil to village and sells to a merchant.
Merchant takes a drum of oil to town and sells to bigger merchant.
4 big merchants collect all the oil in their Jakarta warehouses and drum it up.
Many tons of oil are shipped, shipping agent, shipping line, clearing agent, importer all take a profit.
Oil is trucked to UK importer/merchant in City of London who rectifies and blends it then sells as a commodity.
Essential oils merchant (EG: FD Copeland) sells a ton to perfume manufacturer.
Perfume manufacturer puts a few kilos in a batch of industrial perfume and sells the perfume to an eau de toilette manufacturer.
Manufacturer mixes the perfume concentrate at 7% with water and alcohol, chills, filters and macerates and bottles.
Manufacturer sells the finished perfume to distributor. (If overseas, shippers and various agents also take their cut)
Distributor sells to retailer.
Retailer sells to customer.

That original ton of patchouli leaves is now diluted down to a tiny fraction of its original volume yet at every stage of the route to market, people have been adding value to it and making profits. I'd imagine a similar process happens with a complex product like a motor car.

Profit per car is easy.

Manufacturer profit divided by number of cars sold, anything else is just playing at numbers.

That's a great writeup, well put.

That original ton of patchouli leaves is now diluted down to a tiny fraction of its original volume yet at every stage of the route to market, people have been adding value to it and making profits. I'd imagine a similar process happens with a complex product like a motor car

With my pedantic hat on I'd say there are several steps in your oil journey that don't add value at all. Namely transport.
:D.

<slinks back to my lean manufacturing course>

I believe GM has been losing $1000 on every car it makes for a while.

Profit per car is easy.

Manufacturer profit divided by number of cars sold, anything else is just playing at numbers.

Yes, but you don't know how many cars you're going to make when you start. The up front costs for car production are huge (100's of millions). If you get your projection wrong you're out of pocket. Also, if you under estimate and can't meet demand, you're also loosing money.

With perfume, there is less inherent value to the product, as it's mostly marketing b******s! You can add 10's of pounds just putting it in a particular box.

Of course transport adds value! It moves the commodity from one side of the world to another and makes it available, ex-warehouse. If there's no stock in the importer's warehouse the commodity has no value!

...and yes, the final chunk of value is added by TV advertising, which makes the consumer want that perfume on their shelf enough that they are prepared to pay a ridiculous price for something worth only a couple of quid. It's a fantastically elegant and effective system.

There's a clear parallel between perfume advertising and car advertising.

IIRC VAG lose about £4m on every Veyron sold!

but is the veyron a car or an advert?

Think of all the magazine articles, the TV time, how much does a billboard cost, how much is that worth?

The thing is to work out how much they make out of every car is not as easy as it sounds. Earlier JAG said they make about £17k on an £80k car sale (though i'm not sure if that is the dealer to customer or manufacturer to dealer). That is not necessarily profit. The car company has invested millions of pounds up front to bring that car to market. This is a cost the manufacturer has to bear up front with no revenue coming in. So a good chunk of that £17k is effectively going to plug that initial hole - which is getting bigger over time due to the time value of money. I'd be surprised if in that case in terms of actual profit the manufacture is yielding half that.

It's all about returns on investment. We invest in a small way when we buy a ton of patchouli and the anticipated return makes it a very sure investment. In the car industry the business is mega-investment by all kinds of parties involved in the process and each car sold is simply a return on their investment.

In the African markets where I sell, civil instability has a big dampening effect on business confidence and investment drops to nothing; the last two years of Boko Haram nonsense in northern Nigeria has killed cross-border trade and manufacturers all over the south are complaining that traders aren't coming. (The plain fact is that anybody Muslim carrying cash risks having it confiscated or being shot on sight by the Nigerian Police as a "terrorist".) In South Africa, every time an ambulance is seen outside Mandela's house the rumour spreads like a bush fire and the value of the Rand slumps as investors fear civil instability.

And if the car manufacturer invests in a bad design decision, it's all over

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Don't even compare the two. The cars in the USA are way behind those in Europe as far as tech goes

The 2nd hand car prices also seem much higher in the USA than ithe UK

Actually, even Japanese cars sold in the US have somewhat lower spec, but often more toys. For example they tend to stick old tech auto gearboxes in because that's what people are used to, or drum brakes, whereas in Europe we are all into the driving experience so we get the fancy autos.

My experience is also that used cars are a lot more expensive in US too. Having ran past car dealers near my in laws house many times over 9 or so years, the junk that they are charging 2 or 3 thousand dollars for is amazing. Especially as they don't have MOTs in Wisconsin. Stuff that would go straight to the scrap heap here. You can forget good runners for £300, the very cheapest cars there are maybe $1500 and they have holes in the sills you can look into and see down the chassis...

Of course transport adds value! It moves the commodity from one side of the world to another and makes it available, ex-warehouse. If there's no stock in the importer's warehouse the commodity has no value!

Fundementally, it doesn't, hence my 'pedantic' comment.
Of course in a global society we need to pay for goods to be transportd around the world, but in terms of customer defined value, being transported around the works is a by product of the production process, not a customer defined part of the product or a 'must have'

Transport adds cost, not value, for the end user

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heard somewhere that Land Rover's margins are 3-400%

Hmmm, sorry but I believe there's a reasonable markup on new cars.
Dealers are prepared to drop their prices significantly all the time. You don't get large knock downs on low sale goods with tights margins.

Dealers make their money in three ways:
1. Margin on the car (normally 2% for a basic model)
2. kick backs from the manufacturer for hitting targets
3. Aftersales, service, parts, etc

The kick backs can be quite large, so if a dealer only needs to sell two models to benefit from a 5% bonus, he might well discount the next two cars and sell at a loss to hit the target and make the months / quarter's numbers.

Quite often the manufacturer will offer discounts to dealers to shift stock, so if you haggle and get 10% off, most likely there is a promotion on and the dealer is also getting 10% off the price pay for their model.

NB My wife manages franchised dealers for car manufacturers for a job. She says no one would chose being a dealer; you'd make a better return putting the money is a savings account. It's a very tough business now as over supply and competition have killed all the profit in the retail side.

[i]NB My wife manages franchised dealers for car manufacturers for a job. She says no one would chose being a dealer; you'd make a better return putting the money is a savings account. It's a very tough business now as over supply and competition have killed all the profit in the retail side. [/i]

But like most things, it depends on how (well) the manufacturer controls supply.

We've just bought a (nearly) new LR, we'd have bought a new one but the earliest we could get what my wife wanted (auto and black) was December so no real discounts on offer - but some incentives on new (£1000 for your deposit).

Fiat only make 1 car with a list price margin over 10%.

But in reality I suppose its where you hide the development costs. The RangeRover Sport is a massively over priced parts bin special where the development could be hidden but I am sure its nowhere near 300%.

Tbh, knowing how my costs have gone up I imagine most manufactures are finding their margins getting far smaller

[quoteNB My wife manages franchised dealers for car manufacturers for a job. She says no one would chose being a dealer; you'd make a better return putting the money is a savings account. It's a very tough business now as over supply and competition have killed all the profit in the retail side.

Depends on what you are selling and how well you do it, inchcape retails share price has tripled in the past 18 months. They are making money and lots of it, it would seem.

Re kickbacks. My lease car is 100a month/15k mileage a year. The dealer admitted they make £13 @ month but the car helped hit a target.

But like most things, it depends on how (well) the manufacturer controls supply.

They can only control the supply of their models, there have been a lot of new entrants into the UK market, which means the traditional bunch have lost market share eg Peugeot has gone from something like 10% of the UK car market to 5% over the last few years. On the flip side, the likes of Kia / Skoda etc have been gaining market share for several years.

If you see the price you could pay on drive the deal dot com, you have to wonder what incentive the maker is offering the dealer to shift a few more by the quarter's end or whenever. So presumably the dealer slips one or two out at cost.

I bought a new Polo at the end of March. I don't know about the margins etc, but there was absolutely no doubt that the dealer was only interested in hitting, monthly, quarterly, annual targets, and comission on finance, not profit on that individual sale.

I gave them a 10 month old Up! they gave me a new Polo and a cheque for £7k. I made a gentleman's agreement not to pay off the VW finance in the first 6 months, I can only assume so VW did not clawback the salesman's commission.