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With gas around $4.00 a gallon, hybrids are hotter than ever. Well, the Toyota Prius is. Saturn's Aura Green Line? A mere 30 were sold in June. No, that's not a typo. Clearly, GM has some tweaking to do. And they have done a few things for the 2009 model year. The standard alloys are now seventeens rather than sixteens. Leather is now an option. And the name has changed. "Green Line" is gone, replaced by the more self-evident "Hybrid." Oh, one more thing: GM bumped the price from last year's very reasonable $22,790 to $25,580 for the new model year. Can a "Hybrid" nameplate be worth nearly three grand? We're thinking… no. 54 Comments on “Saturn Aura Hybrid $3k Price Bump. Huh?...”
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With people lined up none deep to buy a Saturn Aura Green Line Hybrid, what genius thinks a $3,000 price increase is a good idea?
Their site says “Very Limited Availability in select markets beginning Spring 2008”. I guess they really meant it.
And the price increase is probably to bring it in line with the Camry Hybrid, which starts at (get this) $28k.
Both of these cars make the Prius look like a steal.
If you were selling cars with negative margins, you’d want to sell as few as possible. That is, unless you’re Toyota which is still trying to make their Prius program break even in spite of 200K units a year. Of course, when you’re strapped for cash, then plowing ahead trying to make a business case out of hybrids isn’t really high on your list of priorities.
Did they ever get the battery issue worked out? Wasn’t there a problem with the battery supplier that caused a recall?
And you have to wonder about the decision for larger wheels. I bet the more-expensive-to-replace larger tires go over well with efficiency minded hybrid buyers. And the extra weight of the larger rims really helps also.
Just like with cutting the warranty on Saabs, GM seems to be trying to kill Saturn also.
“And the price increase is probably to bring it in line with the Camry Hybrid, which starts at (get this) $28k.”
But isn’t the Camry hybrid the real deal while the Aura hybrid is just a fancy starter/alternator belt-widget? Maybe Saturn is putting a real hybrid power-train in for 2009, which would account for the price bump? In either case, they are going to sell almost none of the silly things.
GM is still trying to prove to people that hybrids are a real loser.
Well, It is possible that they did this so they could offer a $3k rebate on the car and have people pay last year’s sticker. Given the fact that it is about the worst economical proposition in the field already, why not make it a little worse.
http://autos.yahoo.com/articles/autos_content_landing_pages/614/is-going-green-worth-it;_ylc=X3oDMTFhcW1jMmU1BF9TAzI3MTYxNDkEc2VjA2ZwLXRvZGF5BHNsawNncmVlbi13b3J0aC1pdA–
Let’s start a pool on what GM is going to do next with this turkey. My prediction: rebadged as Buick LeSuk, price increase of $2k, immediately offered with $6k cash rebate.
M1EK says:
GM is still trying to prove to people that hybrids are a real loser.
The only thing they are proving to people is that GM’s hybrids are a real loser.
I am with jolo and M1EK. GM is still trying to prove that hybrids are a flash in the pan and are trying to run them into the ground like with the EV1, but they are just being made out to look like idiots due to Toyota banking huge (both in terms of sales and reputation) on hybrids. If GM (or any of the big three) were smart, they would develop a hybrid model from the ground up, like the Toyota Prius.
Until they do that, I will wait for the Tom Keane Motor Matters review where he croons about how it is the perfect car for the times due to high gas prices (and the Prius isn’t?), and of course, for GM to go down.
It. Could. Work.
Okay, fine, but this is GM, and we’re talking about a model that only moved 30 units the previous month at the current price. If it drops to zero units per month GM basically saves money – or at least doesn’t lose significant money. I don’t really see the downside here. I’m pretty sure the Aura Hybrid will still outsell the Tesla in ’09 no matter what (not to mention the Chevy Vapor Volt).
In the eighties, when GM first began their now regular, cyclical practice of tanking badly, losing millions when none of their ‘me-too’, badge-engineered styled cars were selling, that financial wizard at the helm, Roger Smith, decided it would be a good idea to raise prices of all those vehicles that weren’t selling. Needless to say, it wasn’t a move greeted with great enthusiasm (except maybe by the Japanese manufacturers). And yet, Smith kept his job.
And now, some 25 years later, they’re doing exactly the same thing. Just more proof-positive that GM is absolutely never going to change. I would fully anticipate them jacking up the price of the ungodly expensive, slow-selling Tahoe hybrid by a couple grand, too.
Hello! More than anything, GM’s hybrid program reminds me of their diesel escapade of the late’70s-early ’80s.
Dear Michael Karesch, You need to get your facts straight, the price increase is $1030 from 2008 to the 2009 model and the standard equipment on the 2009 vehicle has changed. If you click on your link you can see the price of the 2008. The 2009 Aura XE 4cly will be EPA rated at 33 mpg highway, best in class and if you would take the time to compare it to Accord/Camry/Altima you would find that it compares quite well. The hybrid is supposed to get an additional 2 mpg but with the tax break the hybrid is almost free for most people. The web is a powerful tool for people to gather information and it is very useful but only if the information is accurate, yours is not.
roar
I am tired of people advertising their highway MPGs. Nobody does nothing but highway driving, so that is highly misleading. I doubt that ANY Aura XE owner has returned 33 MPG.
I would not pay $3,000 total for this junker. How is Saturn still in business?
unless you’re Toyota which is still trying to make their Prius program break even in spite of 200K units a year.
A few keep claiming the Prius loses money for Toyota. Please support this with some link. Maybe it lost money in the first and second years when it was being refined in Japan (I doubt this) but I seriously doubt it has been a money loser for the past several years.
Are they raising prices on the Malibu hybrid as well?
I just checked the fueleconomy.gov website, and it says that the 2008 Aura hybrid gets 24/32 city/highway ratings in the EPA test cycles while the 2009 achieved 26/34 ratings. Either someone is cooking the books, or the 2009 is engineered differently. No matter what, a 2 mpg boost for the ’09 hardly justifies a $3k price increase.
But in the end, it doesn’t matter. Hardly anyone cares about Saturn, few of those who do buy one, fewer still choose an Aura … and almost nobody buys the Aura hybrid.
Shut Saturn down now. It is like the old line:
Q: What’s worse than being in a miserable marriage for 20 years? A: Being in a miserable marriage for 20 years plus a day.
folkdancer –
If you’ve worked in auto you’d know how much the hybrid kit costs to put together versus a regular/conventional vehicle powertrain. Things only get worse when you add the lightweight materials to the mix along with the imputed warranty expense difference.
Obviously anyone foolish enough to spill a carmaker’s financial/cost info onto the Internet is asking to get fired on the spot. And really there is no motivation to be so foolish. Anyway, even if someone did put that info out for the world to see the Prius crew wouldn’t want to believe it.
If any TTAC writer/editor were remotely in contact with the hybrid development of any major OEM they would vouch the same. (Well, except for Nissan since all they did was buy their hybrid kit and then sell their Altima for negative margins)
Toyota is in an interesting position of having 500K+ worldwide hybrid shipments, which means it’s likely they actually make money when a hybrid moves off the lot. But there’s no way they’ve recovered all their investment and the costs of developing the hybrid technology.
It doesn’t really matter though – they’ve decided to market themselves as a green company with competent engineering and eco-responsible motivations. Those factors help their company way more once you roll everything together. The Detroit 3 haven’t done much to show they know what they’re doing and actually inspire customers to spend money on their product.
It’s simple: now that it says “hybrid” on the badge, it’s worth more. That is actually how the marketing department thinks. And it’s not how good a car the Aura Hybrid actually is, it is how its pricing compares to other hybrids. So Saturn gets to raise the price and still say “cheapest midsize hybrid sedan.”
This sort of thinking can work. Look at how many people pay $5k more for the crossover vs the sedan on the same chassis – all makes to do this.
holydonut:
Lets assume that Toyota is losing money on every single hybrid (although I seriously doubt this, please provide some sort of proof). Why would you knock them for this?
They are selling cars for cheaper than they are to produce (good for consumer).
They are getting a green reputation (good for Toyota)
It looks like a win-win to me.
# Runfromcheney :
July 29th, 2008 at 12:21 am
“I am tired of people advertising their highway MPGs. Nobody does nothing but highway driving, so that is highly misleading. I doubt that ANY Aura XE owner has returned 33 MPG.”
I’m an anomaly, but almost all i do is highway driving. I drive 3% stop-and-go, 15% miles of back roads and 82% highway. My GTI is rated at 24/31. I see 34mpg.
Mr Horner, The 2009 Saturn Aura XE 4cly is EPA rated at 33 MPG highway, The 2009 Aura now has a 6 sp auto which will increase it’s performance.
The 2008 Aura XE 4cly, in highway driving, achieves 33 to 35 MPG and 28 to 30 MPG in combination driving.
Saturn still has a place in the market, year over year numbers for models sold last year and this year have seen increases in all models, they are missing the compact sedan from this years lineup, the ION. While not a great car it sold quite well.
roar
@ Roar: Let’s compare Apples to Apples – Toyota Camry Hybrid to the 2009 Saturn Aura Hybrid using a Costs versus Economy approach. I went to True Delta and Edmunds Specifications to look these up.
Saturn Aura Hybrid
Hybrid System: Alternator & Batteries
Transmission: 6 speed (2009 model – older used 4 speed)
2.4L I4 Hybrid
DOHC-4v
HP: 164@6400
TQ: 159@5000
EPA MPG: 26 cty /34 hwy (4 speed 24/32)
Real world MPG: 28.0 mpg (2 mpg better than 4 cyl)
MSRP: $25,580 (says $24,695 on Edmunds)
Toyota Camry Hybrid
Hybrid System: Parallel System Hybrid
Transmission: CVT
2.4L I4 Hybrid
DOHC-4v
HP: 187@6000
TQ: 137@4000
EPA MPG: 33 cty / 34 hwy
Real World MPG: 37.9 mpg (10 mpg better than 4 cyl)
MSRP: $25,350
For the same MSRP you can get 10mpg better efficiency from the Camry Hybrid – it’s really a no brainer as all the Saturn can do is simply shut off a lights and supply extra power and not run the car at lower speeds. Is this worth the same price?
It’s a non-event. GM is raising the price of a car that nobody is going to buy.
The 2009 Aura XE 4cly will be EPA rated at 33 mpg highway
The whole point of a hybrid is to improve in-town fuel economy. The highway fuel economy of a “real” hybrid is often the same as or lower than the city figure.
Focusing on highway fuel economy at the expense of the in-town MPG is playing a bit of automotive 3-card Monte, trying to draw attention to the wrong thing in order to mislead the viewer.
The Aura “hybrid” is what is often described as a “mild hybrid,” so it isn’t going to get the same results as a Camry or a Prius. That’s probably one reason why that it isn’t selling well.
roar1:
I was comparing the intro price for the 2009 to the intro price for the 2008. GM raised prices a few times during the course of the 2008 model year. (GM and Chrysler are the king and queen of serial mid-year price increases.)
The purpose of having a number of small price increases during the model year instead of one big one is that hopefully no one will notice. Kind of like cooking a frog by raising the temperature of the water one degree at a time.
Comparing an intro price to the previous year’s intro price circumvents this tactic.
The GM Order Guide and Saturn’s press releases make no mention of a six-speed automatic for the Hybrid. They show a four-speed.
The Order Guide lists the new wheels as the only substantive change in standard equipment. It does omit another one: apparently the 2009s will have HYBRID decals at the top of the windshield and backlight.
The EPA ratings are up by two, but this must be due to the tires and perhaps some tweaking of the hybrid system.
Holy,
Sorry, I am not buying it.
Assuming you ever knew Toyota’s cost of the hybrid bits, unless you know what they are today, that still means nothing.
Volume for a car that sells over 200k a year makes a whole new math for parts. The price for parts that had a hopeful global market of 30K copies would not be the price for parts that Toyota can buy 200k of per year (with more buyers piling in all the time).
The assumption that Toyota would raise the price to beyond break even based on their business history is more viable than the assumption that the cost is too high to make a profit based on dated price cost info.
You need more evidence.
I’m with Landcrusher on this one.
In a challenging environment Toyota reported record earnings.
We all know the Tundra isn’t driving profit growth this year (nor the large SUV’s). So what else is? That’s right, EVERTHING-else. Everything else is wildly profitable.
I’m also with Landcrusher on this one. (Take heed — when he and I manage to agree on anything, we must be right. Well, I am, anyway.)
Toyota has sold over one million Priii, Priuseses, Priora or whatever you want to call them so far. It is impossible to imagine that they haven’t recouped their R&D after selling a million units — they would have to be grossly incompetent for that to happen.
If the Prius was an inherent money loser, you can rest assured that Toyota wouldn’t produce it in such massive quantities, year after year, and distribute them to so many markets. They would have either already killed it off, or else created some limited production showcase program ala the EV1 or RAV4 EV so that they could get the PR benefit without too much cost.
Toyota has consistently strong earnings and is an efficient producer. GM should be so unlucky.
Only 30 sold in a month? I have seen two of them so far in my life, one multiple times in my office garage.
If it qualifies for a California HOV sticker and gets a tax break and gets 2mpg better than average, that would be worth the extra 3,000.
The 30 is straight from a GM press release celebrating higher hybrid sales in June. Apparently the Aura missed the party.
The $3,000 (actually $2,790) is the price increase from the beginning of the 2008 model year, not the extra over the non-hybrid.
“I’m also with Landcrusher on this one. (Take heed — when he and I manage to agree on anything, we must be right. Well, I am, anyway.)”
LOL, yes, we agree, but only you are correct. That’s classic! I am going to use that one every chance I get.
I would suspect Toyota is making some money off of the Prius.
I mean, does anyone else have a distinctive looking hybrid that gets 45 mpg? No? Even the best of other hybrids do worse on that measure. And you don’t get the green cred for having a civic hybrid.
Then why would they take a loss when they have a waiting list for the damn things, and are the major players in the market. They could charge almost anything they wanted too for them. The wait lists alone prove they could easily add 3 to 5k and still have them flying out of the factory.
I can’t imagine that they are actually losing money here, unless they have some significant ulterior motive to do so.
Sure Toyota has an ulterior motive: building a huge lead in hybrids. By building up sales volume, they get the most presence on the road, the brand recognition, and the fastest progress down the learning and cost curves.
That said, like others I doubt they’re still losing money on the things.
The Aura hybrid actually saves money over the regular Aura when you factor in tax credits, as Motortrend showed us last fall.
So why take away its only selling point by increasing the price tag?
holydonut :
July 28th, 2008 at 8:47 pm
If you were selling cars with negative margins, you’d want to sell as few as possible. That is, unless you’re Toyota which is still trying to make their Prius program break even in spite of 200K units a year.
Toyota claims they make a profit on the Prius. Nobody believes them, but that’s what they say.
holydonut,
The Prius has a long waiting list and dealers are selling heavily optioned vehicles for more than sticker. If Toyota wasn’t making money on the Prius, they’re raise the MSRP and take some of that cashola away from the dealers.
Okay – let’s review what we know in the context of this posting about the Saturn Aura Hybrid.
I think we all agree that raising price in light of a vehicle not selling well is counter intuitive. I would wager that if this decision followed normal intuition that it would never had been posted on TTAC at all. The only reason it received any attention was because the action goes against common sense.
I post to you the exact reason why an automaker would feel fit to raise price in spite of low volume sales. The short answer is that hybrids (especially in the realm of Detroit’s automakers) are not sources of profit per unit. The long answer is one that any common-sense individual would strike down as illogical and therefore shun such an answer with ridicule and disbelief.
So there you have it. In light of a situation where something seems to make no sense, people demand proof that they would never believe (even if such proof were to be available). Does someone out there really expect Toyota to publish that hybrids do not pay back their investment on their hybrid program?
By and large, those that cite the hybrid’s lack of profitability are individuals that have spent time working in the auto industry. And I don’t mean individuals posting blog entries and playing e-pundit. Rather the profit-criticism comes from people who have actually gone and executed powertrain programs. Feel free to maintain the notion that a hybrid add-on to a regular powertrain is only a few thousand bucks. But then don’t start thinking “huh what gives???” when Saturn prices upward on a car that isn’t selling planned volume.
Holydonut,
Here is the hole(s) in your argument (pun intended).
First, you assume rationality on the part of Saturn.
Second, What it costs to hybridize a low volume 2.8 car, which may or may not be using parts patented by Toyota, does not necessarily reflect the cost for Toyota to build a pure hybrid of very high volume. If I play the part of the parts supplier, I can make a much different arrangement and investment on Toyota and Prius than I do Saturn. Would GM put up a bond to protect me from their going bankrupt before I fill their order? How many are they going to guarantee to buy? For how many years? In short, I want the Prius business, and would go to short margins to get it, not so for GM.
Lastly, I am sure that many people here would be happy to weigh the opinions of the experts you mention. Who are they?
holydonut wrote, “I post to you the exact reason why an automaker would feel fit to raise price in spite of low volume sales.”
In other words, with negative margins, high volume is not the best plan. True enough.
However, you went on to say that Toyota was still selling the Prius at a loss. This is almost certainly not the case.
http://yahoo.businessweek.com/globalbiz/content/jan2007/gb20070119_906171.htm
I’ve seen other articles that report unit revenue > unit cost as of late 2002 for the Prius (can’t find the link at the moment).
If Toyota was losing money on the Prius, a) why would they leave fat dealer markups on the table b) why would they work aggressively to expand their market share in a losing proposition and c) where are their massive profits coming from? On a key measurement of effectiveness, (return on capital employed or return on equity – I forget which), Toyota is ahead of Honda. You don’t get there by losing money on a product which is shipping in mass quantities. Why would Honda be rushing their own Anti-Prius in – rumored at even lower cost than the Prius?
This is not for me – I’ll stick to what I’ve got
Kixstart – thanks for finding an article – it saves me the trouble of digging around.
Toyota with the insanely high volume of hybrids makes almost no margin on their bread and butter Prius. Every other automaker with much lower volume (or a contract-purchased hybrid tech) has costs greater than revenue on a per unit basis for their hybrids. So for Saturn, they are selling them trying to cash in on the hybrid name and to promote their competitiveness. But those hybrids aren’t being sold to turn profit on their own.
It’s always easier to make fun of a situation and assume idiocy than to actually jump into a situation to learn about it.
So back to Toyota. You’re probably thinking something along the lines of positive margin resulting in positive net profit. But then there are the issues of investment, research/dev, and corporate advertising dollars, etc. Go poke around in auto and you’ll find out how much investment dollars it takes to develop the hybrid technology and then how much investment it takes to set up to build the resulting car. As your article points out, 5% margins are expected from their volume-selling Prius. 5% doesn’t cut the mustard, and if you dig up analyst reports you’ll find the vast majority project total program break even sometime in the next decade.
But since analyst reports cost lots of money – you’ll have to go sign up on some high-dollar business sites and extract that information.
I guess there are some nuggets of mostly anecdotal stuff online. But the gist has always maintained that Toyota may make money per unit but the entire summation of all investment has not been recovered. For everybody else without the high volumes, their margins are often negative.
— ————
http://news.bostonherald.com/business/automotive/view.bg?articleid=1089629
… Toyota’s profit plans are mapped out for a decade or more in advance, and when Toyota executives insist the Prius is profitable, they mean it’s on track to eventually make a lot of money.
But then there are the issues of investment, research/dev, and corporate advertising dollars, etc.
The R&D for the first model allegedly cost about $1 billion. They probably didn’t directly profit from sales of that first generation model, given how few units that they sold.
However, that R&D trickled into every other hybrid unit since. They have sold over 1 million hybrids worldwide since. Divide a billion by a million, and you get $1,000/car. Not a whole lot, really.
It is my understanding that I could go to the local Toyota dealer and get a battery pack for about $5,000 or less. (Not sure what I’d do with it since I don’t own a Prius, but it might look nice in the living room.)
If that’s my cost, you can rest assured that Toyota’s wholesale cost is something less than this. My guess is that it doesn’t exceed the $2,000-3,000 “hybrid premium” that you keep hearing so much about.
Otherwise, the car is much like other cars, with a hatchback body, gasoline engine and CVT tranny, with a battery stuck in it. I can’t see how they couldn’t help but make money on selling a car that is in most ways like other cars of its sort.
Other automakers are a bit miffed to have been left behind. But here’s a thought — if hybrids were a born money loser, they wouldn’t be trying to build mass production hybrids of their own. Clearly, they want to build them in enough volumes for the revenue, and not for just PR purposes.
There would be no point in building a million cars in order to lose money, and no one would want to imitate them if the cars were destined to lose money. That logic does not compute.
Pch101… $1,000 a car would be near 5% margin or less. So using your math, how are you paying off the other investment dollars? (And $1B is definitely leaving a lot of other investment unaccounted for.)
The logic of hybrids never computed. Why do you think the Germans shun it (the BMW joint stuff with GM is half hearted and ill conceived).
Nissan’s Goshn spurned hybrids so badly he just bought the tech from Toyota; slapped it in a poorly executed Altima variant; offered no advertising support; and then sold the resulting car for well below the Camry just to get rid of the things.
Toyota hit a marketing/strategic stroke of brilliance by doing something that made no rational sense. And then they sold it to an unsuspecting public just itching to latch on. These guys used the hybrid-ploy for the long haul… they built a company around the notion they were green and had great engineering prowess.
Honda was the first in the game, but also the first to miss an opportunity. Now they’re second fiddle.
Everybody else forced to play the hybrid game does so unwillingly and fail quite spectacularly.
So in summary… Prius program has yet to break even, but Toyota is close. Everybody else has negative margins. It is what it is.
holydonut,
Sorry but that rant doesn’t explain why Toyota is happy to leave money in dealer’s hands.
Toyota can build a very nice small car and sell it, happily, for $10,500. They are very good at making vehicles inexpensively. Selling a Prius for $22,100 and making money is within the capability of a company that can sell a car for $10,500.
Now, you may know lots of powertrain people but if they work for Detroit, bear in mind that Detroit can’t sell a car for $10,500 unless it’s a) not very good and b) built in a slave-wage country.
First a few of you complained that the hybrid technology was paid for by the Japanese Government. You ignored all the technology that we U.S. taxpayers pay for in agricultural research, military research, NASA research, and medical research.
Then a few still insist that Toyota looses money on every Prius claiming that the technology is much too complicated to sell for $22,000 to $26,000. Perhaps the Germans and D 2.8 don’t want to pay the licensing fees, be seen as copying the Japanese, or are hoping they have some other technology that will be all theirs and save fuel.
In the meantime I want to thank the Japanese people for paying for the technology and thank Toyota for selling me a fun car at below cost:-)
Kixstart,
First, let me make it clear… I’m not “ranting.” I’m explaining to you using my firsthand knowledge (not hearsay – not speculation – and not guesses).
The market will only bear a certain premium for hybrids. Toyota isn’t stupid – they have to position their car. When the FCX Clarity was announced as a premium car aimed at celebrities and wealthy people, then the curious and sarcastic people on TTAC decided to berate Honda for failing to offer the Clarity as a car for everyone. The Prius has had some of the most aggressive price increases of any car over time, but the rise in pricing is gradual and in line with their management of their vehicle. Toyota knows they need volume to sell promote the technology effectively. You cannot get high volume with high MSRP. They’ve planned and are executing an extremely long-term strategy.
If you read that link that you provided, you will see that the car provides margins (to Toyota… not to Toyota’s Dealers) of about 5%. This is an accurate representation based on serious analyst legwork. This isn’t 5% of the $25,000 MSRP. This is 5% on top of the variable cost that Toyota pays to build each Prius.
As PCH101 paints in broad strokes, $1,000 per car puts you at payback on a billion dollars of r&d. GM spends over $6B per year on r&d. Their recent scale-back of capital spending puts them at $7B per year. Toyota says in their their 2007 annual report that r&d is ¥890B per year and their capital plan is ¥1.5 trillion per year.
It so happens that $1,000 per car is approximately 5% margins for a car that MSRP’s in the low to mid $20K. Start doing the math and it becomes clear that for the number of major new programs and powertrains launching in any given year, that program needs to cover many billions. $1,000 a car isn’t adequate.
I began with a post at the top of this page that Toyota is struggling to break even on the Prius program. They truly believed that Hybrid was the way to go – and they’re in a position of actually working to arrive at a place in time where they will be the only automaker to have found a way to develop a business case for hybrids. It may take many years to arrive there – but they’ve got a plan. And while they’re reaping the rewards of their efforts, almost everybody else is losing big time (as seen in negative margins for GM’s hybrids).
Karesh can take the “WTF” tag off this article because now he should know why Saturn would add MSRP on a car that isn’t selling. Resistance to believe this would put him as a prime candidate to work for management at a Detroit automaker.
$1,000 a car would be near 5% margin or less. So using your math, how are you paying off the other investment dollars?
If you work in the car industry, then you should know that it often costs several hundred million dollars to develop a new vehicle. Spending a billion dollars to develop a new vehicle with a newly-invented hybrid drivetrain isn’t all that costly to amortize in comparison.
If any of the major car companies could spend a billion dollars and get a technology that allowed them to develop a product that sells this many cars, they’d be thrilled to pieces, because you can’t help but be profitable with those numbers.
Not only must it profitable, but at this point, it must be immensely profitable because the billion dollars they spent on one car contributed to the creation of several other cars and an advancement of the brand. Any car company would do that deal all day long.
If Toyota sold the Prius as a conventional car, it would have to charge less for it. The “hybrid premium” of a few thousand dollars that everyone has noted should be enough to pay for the battery pack. The R&D of the original Prius got paid for moons ago, given the huge sales volume of hybrids achieved since then.
Donut,
“When the FCX Clarity was announced as a premium car aimed at celebrities and wealthy people, then the curious and sarcastic people on TTAC decided to berate Honda for failing to offer the Clarity as a car for everyone.”
Having been one of the many people who were on the other side of that argument, I know you are incorrect. Throwing out a line like this is a great way to have the rest of your argument ignored, which in my case is exactly what happened. I stopped reading it.
Pch101 – $1B is not enough to get a new car to launch. You need many billions; not the hundred millions you bat around. A few hundred million lets you do a brand clone or upscale variant. Which explains why GM loves brand engineering. If you worked in auto then you’d know this.
Many billions are spent to get a new design of a volume production program off the ground. Many more billions are spent to support the subsequent sales and marketing functions to put those cars into driveways and parking spaces.
And these Billions (that’s a plural) are for traditional vehicle programs (think GM Lambda or Ford C1). If you consider that hybrid is actually a new approach to car-building and design, the traditional investment levels no longer apply.
Landcrusher – did you see the TTAC post with Jamie Lee Curtis and the subsequent comments? It looks more like you’re seeking a way to ignore my argument than to actually acknowledge the valid points. I never said everybody criticized the vehicle. My intention was to point out that mass-market appeal cannot be attained unless the vehicle were priced competitively. And if the vehicle were not available to the average citizen it faces criticism and will likely struggle in the market place.
If the Prius were priced at a point where the variable profitability were great, then the car would not sell in enough volume to make the program viable in the short term. New technologies are rarely affordable by the masses but yet Honda drew stiff criticism for promoting their new technology at those deemed wealthy enough to afford gasoline.
Do you deny that the Prius makes 5% margin? If you accept a 5% margin then the program could not have a pay back on its investment as of today. If you believe the margin is higher than 5% then you are defying the analysis of the majority of real automotive business analysts.
Do you deny that Toyota needs more then $1B of investment to launch a new product? Then you are denying their own financial statements showing their annual r&d and capital spending figures.
The Prius will likely make money as the technology proliferates, which has been my point all along. Toyota is working to arrive at their strategic goal of a profitable hybrid system. But the other carmakers who have invested with hybrids are struggling.
$1B is not enough to get a new car to launch. You need many billions; not the hundred millions you bat around.
So your analysis consists of looking at the Prius’ marketing costs but ignoring everyone elses?
Every single car being sold today has launch costs. Unless you can demonstrated that Toyota had substantially higher launch costs than everyone else, your argument goes nowhere.
In exchange for a few hundred million more bucks worth of R&D than what companies normally spend to develop a conventional car, Toyota got a largely conventional car with a unique drivetrain. They have since gone on to sell over a million vehicles with this unique drivetrain, and passed on the cost of the battery to the customer while attaching an additional cool factor/uniqueness premium to the price of what would otherwise be a somewhat bizarre looking hatchback.
That isn’t just profitable, that’s a steal. Everyone would do it if they could. Your dog isn’t hunting.
Donut,
In what way would you parse that sentence so that it does not give the impression that the folks here panned the car? I am certainly “curious”, and often “sarcastic”. Yet, IIRC, I defended their idea to do a pilot. I thought the location chosen was less than optimum, but there were folks who made a good case that it was chosen for good reasons.
Regardless of your actual intention, it appeared to this reader that you intended to make, once again, an argument on terribly weak premises.
As for the stuff that follows, it doesn’t matter. You need to start with some correct premises before you run off trying to make your conclusions. RF doesn’t call his readers the best and brightest for nothing. We aren’t buying that gobbledy gook.
So you probably still feel like it’s easier to ignore me than to read on. But please, for your own knowledge and understanding – you’ll learn a lot if you do some due diligence and run the financial numbers against the R&D and investment figures contained within the annual reports of the automakers that make money (or go back in time and look at Ford’s reports when they were profitable). Do some math on how many units that carmaker sold in total versus how much cash it spent on R&D and capital investment. This will point you in the general direction of how much money per unit is necessary on an average vehicle to break even on their average program investment dollars.
FYI, I posted above that Toyota spent approx ¥2.2 trillion Yen on R&D and Capital Investments. At ¥108 per US dollar that is $22 Billion. They sold 9.34M units last year. That’s about $2,400 per car. I’ve heard the argument that Toyota is fluffing their numbers by putting non-car related items in their numbers (such as shiny office space and F1 R&D). If you believe such fluff is over 25% of their reported spending, then we don’t have much to discuss.
I know you guys don’t care about my other points – because if you did – did then the hybrid program wouldn’t make money. And thus you find a convenient way to tune out what you wish to ignore. Guess which management culture in Detroit is guilty of doing the exact same thing.
I didn’t think it were possible – but it seems like the TTAC “best and brightest” will quickly tune out others who poke at their comments. Go figure… the site that touts its open candor is quick to dismiss others at the drop of a hat.
…………
So let’s play a game and pretend you ran an automaker. One day you’re sitting in a meeting where you’re discussing this new “hybrid” technology that is being investigated. Your groups come in and tell you they want to spend $3B over the next 3 years to execute a revolutionary new hybrid program with it’s own powertrain and chassis. And when this car comes out, it will make about 5% margin.
You run the numbers in your head… (and for the sake of making this fair – let’s assume the vehicle gets a margin of $2,000 per unit). That doesn’t compute to the program making very much money. It would require that program sell 250K units a year for 6 years just to break even. Unfortunately, the news gets even worse when you realize that very few vehicles achieve 250K units a year.
Would you believe your workers and green light the project?
Would you tell them that they could do a hybrid for $1B because you know better?
Would you task them to innovate a new hybrid that is more profitable?
Would you tell them profitability is no problem so long as they make the car well?
Would you tell them it’s probably better to just take some existing car so you need less investment dollars?
Would you tell them to build a Volt?
If you have another alternative, please share because Detroit really needs someone to come up with a good plan. The people making decisions now haven’t been making enough good ones.