Bill Reinert was born in coal-miner's daughter country, worked in the engine rooms of Navy subs, survived a $6 pot bust and earned degrees in biopsychology and energy engineering from the University of Colorado. Reinert also serviced telephone towers in the Rockies, harnessing solar panels and windmills to charge batteries to conserve expensive, airlifted diesel fuel. After years of pitching his ideas to his [new] bosses at Toyota, Reinert helped design the Prius hybrid, and continues to work on hybrids for Toyota's US operation. As part of a lengthy "End of the Oil Age" feature on Bloomberg, Reinert reveals himself as a bit of a doomer, with well-worn predictions that we may descend into Mad Max territory. Framing Reinert's work, the Sierra Club complains that Toyota has moved backwards on being green. And the money men say trucks and SUVs are still ToMoCo's core business. "The company earns about $6,000 before taxes in the U.S. on an SUV," David Healy of Burnham Securities insists. "That compares with a $1,000 profit on a Corolla and a small loss on a Prius." Selling 181,221 hybrids may be impressive to outsiders, but if Toyota is losing money on each Prius… Is Reinert's baby still the way forward? That remains to be seen.
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“The company earns about $6,000 before taxes in the U.S. on an SUV. That compares with a $1,000 profit on a Corolla and a small loss on a Prius.”
If that’s so, the Sierra Club should be thanking the folks who buy the SUVs because they’re subsidizing the Prius. If not for them, the Prius would cost a lot more and sell a lot less.
I am so going to use that argument on priuschat.com.
Toyota has said they’ve been making a profit on the Prius for a long time. More of the same old FUD here, I’m afraid.
Believe that depends upon how you count the beans. I’ve previously told the story of when I was in Japan trying the prototypes for the Lexus 400h and the second gen Prius back in 2003.
At the time I asked whether the cost of developing and testing the drivetrains would be counted against the vehicles, or whether this was a write-off. I was told that it was considered a necessary investment by Toyota management and that they were taking the long view on profitability.
While I was never able to get an exact figure as to development cost, I did understand that a very long view is needed, indeed. The development cost was, relatively speaking, in the moonshot category if compared to just taking a proven gasoline engine off the rack and ramming that under the hood after some tweaking.
Which means that I’m quite appreciative of Mr Reinert’s refreshing honesty, as compared to the kind of Lutzian nonsense we’re usually served by the rep’s of carmakers.
The post doesn’t attribute the quote about hybrid’s profitability to Reinert.
“The company earns about $6,000 before taxes in the U.S. on an SUV,” David Healy of Burnham Securities insists. “That compares with a $1,000 profit on a Corolla and a small loss on a Prius.”
Healy is the one making the claim.
As for the assignment of costs, although most hybrids they sold were Prii, some were Highlanders and Camries, using the same exact technology (HSD). Shouldn’t the development cost be spread accordingly?
The horror, the horror. Bloomberg is a good example of advocacy journalism. It’s all about the message, baby! As for Reinert, calling him a “bit of a downer” is like saying the Incredible Hulk has a bit of an anger management problem.
Bit of a doomer, not downer. A true doomer would assert that nothing we do will avert disaster.
If Toyota was really losing $1000 on every Prius, couldn’t it simply charge more money? I mean, you look at the demographics of those owners, and I think they’d pony up the extra cash without blinking, right?
Those buyers aren’t cross shopping Kias, typically…
I have no doubt that Toyota subsidized Prius sales, especially in the early years, but I suspect that Toyota has either finally reached a very small profitability level on hybrids or will very shortly.
The payoff will be enormous. Unlike some on this forum, as a professional cheapskate, I can assure you that when they offer hybrids across the board their sales will increase enormously as its not the eco freaks but the cheapskates of the world that are flocking to this car.
We could probably guage profitability on the Prius by a couple of measures:
1. Are they pushing nothing but heavily loaded Touring models to dealers or are strippers readily available?
– If they aren’t forcing heavily loaded models onto the dealers, I’d think it unlikely that they are selling them at a loss with respect to unit manufacturing cost.
2. What’s the history of the MSRP and invoice on this car?
– It seems to me that they haven’t tested an MSRP increase. They initially flew off dealer lots, often with dealer markup and an MSRP increase would have improved Toyota’s share without actually hurting the dealers.
3. What’s the quantity situation? Plenty of ’em or a waiting list?
– Notes posted here recently pertaining to Ford made me wonder if Ford’s building the Escape hybrid at a unit cost loss. They’re reasonably priced, all things considered, but hard to get. That could be a supply issue, of course. Toyota does not appear to be rationing Priora.
All in all, Toyota might have excluded some beans but I don’t think those beans amount to (forgive me) a hill of beans.
It really irks me that the Sierra Club sticks its nose into anybody’s business they choose. The same could be said about TTAC, and I love TTAC, but at least RF doesn’t sue the pants off of Max Bob because he doesn’t like what he says and does.
I suspect the loss on the Prius has some amount of accounting in it. Count it one way it’s a loss, another, it’s not. I would bet at this point that each Prius is incremental profit, or Toyota would raise the price. For one thing, counting the cost of Prius advertisements against the profit per Prius is correct, but misleading. They could just as easily assign it to PR, and charge it against every car and SUV.
Accounting is more of an art than science.
Besides, those cars will last a REALLY long time. Parts for them will be profitable.
In the long run they are going to make a mountain of money from hybrids and the real icing on the cake will be that it will be the lack of hybrids or the playing catch up on hybrids which will ultimately doom some of the former big three.
The original Prius, released in 1997, allegedly cost about $1 billion to develop. In 2007 dollars, that would equate to about $1.3 billion. This is not considerably different from what it typically costs to develop other vehicles.
For their billion bucks, TMC got an R&D advancement in the form of hybrid technology that has helped to increase their brand equity and boost their market share, while preserving their margins. It has given them tremendous cred with the American consumer (read: their biggest market) and will help them to bury their largest competitors in the US.
Whether they recouped the cost from selling that original vehicle is almost irrelevant. With the benefit derived, it could have cost twice that much and still been well worthwhile. Money well spent, a hell of lot wiser than GM blowing $4 billion to partner with and then avoid buying FIAT.
Perhaps the Canadian Prius at $30k plus is doing some of the subsidizing, or is that where the price should be?
The overwhelming benefit to Toyota (even if the Prius isn’t fully profitable): they’ve increased the costs of every other manufacturer (think GM)that is spending billions on their own hybrids. And the prospects of these other manufacturer’s making a profit from their hybrids is really dim.
Net result: once again, Toyota has increased their relative cost/economic advantage against the whole rest of the industry. This is a brilliant strategy, and the proof of the pudding is in their annual profits (about $15billion).
Maybe we should remind ourselves that GM spends 300-500 million on each of their ad campaigns?
I seem to remember reading, not that long ago, that they were devoting another 400 million to pushing SUVs and small pick-ups, as a near emergency measure.
Then consider the enormous goodwill benefit to Toyota of developing the Prius and the Hybrid Synergy Drive, and how that’s placed the company in the limelight as an environmental innovator. Priceless.
“300-500 million” on each ad campaign…
Maybe. I thought it was reported here that the campaign for the
Car We Can’t Produce
Car We Can’t Sell
Car You Can’t Ignore
was $150 million. Maybe it costs more to sell a truck nobody wants than a car nobody wants.