Join the Car Talk Community!

Discussion Rules

Welcome to the Car Talk Community!

Want to ask a question or join the discussion? Great! Join now.

Sign In Register

How much does it cost to build a car?

edited May 2011 in General Discussion
I was discussing with my father the raw cost of making car, minus labor, and argued it shouldn't cost more than a couple thousand dollars and that the overinflated prices reflect markups all down the manufacturing, transportation, healthcare/pension cost, and dealership line. To put it another way, what's the cheapest one can make a car from scratch if you had access to all the machinery necessary to manufacture one? 
Tagged:
«1345

Comments

  • What you call markups aren't markups, they are costs.  Healthcare and pensions are part of labor costs (conservatively, multiply annual wages by 1.5).  Transportation?  You're going to Detroit or Kentucky or wherever to pick up the car?

    "access to all the machinery necessary to manufacture one?"

    If I had access to everything needed to manufacture a car, the only cost would be parts and the salaries of the people in India running the robotic manufacturing processes remotely.  Ooops, I'd have to pay for that infrastructure too.  Oh, and the electric bill.  And a bunch of stuff neither you nor I have thought of.

    At best you're asking what is the manufacturer's cost for parts for the average automobile.  Keep in mind those costs include labor, which includes benefits, as well as transportation.

    Are you going anywhere with this?
  • It is a common misconception that it doesn't cost a lot of money to manufacture an item and that folks are being shafted by the middle - men.  Ergo, eliminate the middle-man and the price would go down.

    Here's the problem:  It is common for accountants to use "Car Door Cost" - which is the cost to manufacture an item and get it to the railroad car door at the entrance to the warehouse.  This is a good way of comparing manufacturing costs, but a poor way of isolating what it truly costs to deliver a product to a customer.  FYI:  Typically this cost is about half what the average consumer pays at the retail level.

     - BUT -

    Car Door Cost only includes 3 items:  Material, labor, and burden (burden being the cost to keep the factory running - electricity, gas, water, buiding maintenance, etc.) - typically, the costs are divided 1/3, 1/3, 1/3 for pretty much every product - not just cars!

    Car Door Cost does NOT include the infrastructure to run the company - engineering, management, accounting, warehousing, transportation - in other words, everything else that is not included in directly manufacturing the product.

    So when folks ask the accounting department for manufacturing costs, they get "Car Door Cost" - which is not a true reflection of what it costs to design, manufacture, and deliver the product.

     

  • "So when folks ask the accounting department for manufacturing costs, they get "Car Door Cost" - which is not a true reflection of what it costs to design, manufacture, and deliver the product."

    But it is very useful for deciding whether to make or buy a part, and if a manufacturing change is worthwhile from a cost perspective.  Controlling marginal costs is very important for any business.  Once a product is designed, it is the major way to generate profit.
  • Perhaps a more direct answer to the OP's question can be found in the often stated belief that Ford Motor Company made a $5,000 profit--on average--on every Ford Explorer that they sold back in the days before safety concerns about those vehicles were raised. The same sources that claimed a $5k profit on each Explorer also stated that Ford made a $10k profit on each of the pricey Lincoln versions of the Explorer.

    So--if you can find the list prices for Explorers, circa late '90s, and subtract $5k, that should (in theory) tell you how approximately much it cost to build and market one of those vehicles back in those days.

    Does this data bear much resemblance to today's market conditions for the auto industry?
    Quien sabe?

  • Due to lack of editing capability at this point, please note that the third sentence above should read as follows:
    So--if you can find the list prices for Explorers, circa late '90s, and subtract $5k, that should (in theory) tell you approximately how much it cost to build and market one of those vehicles back in those days.
  • Just materials, rubber, plastic, leather, fabric, wire, metal, etc. about $3,000 for a $20,000 vehicle.  There are so many other costs; labor, engineering, design, marketing, administration, which all add to the final costs.  That's why the more cars you make of the same model the less these "other" costs are per car. 
  • edited May 2011
    According to a Chrysler Dealer whom years ago I knew quite well, the cost of manufacturing a car for them could be as little as 40% of the retail price or as great as 95% depending upon where in the chain you fall and the overhead you claim. The dealer  bears the cost of making the car plus claim the over head for his dealership; the customer bears the cost of making the car, dealership now include licensing, maintenance and insurance etc.. So you really have to define where you are in the chain and in the reality, it's only important to the final owner.
  • The cost of manufacturing the car does NOT depend on "where in the chain you fall".  That's the problem with the OP's question.

    Cost of manufacture doesn't matter at all to the final owner.
  • I guess the OP thinks a loaf of bread should cost what the flour, salt, and yeast cost.

    Given that several makers have lost money over the last few years, the 'cost' of the car is about right. Bankruptcy (GM and Chrysler) does not seem to indicate wildly overpriced cars.

    As for the profits in the big SUVs, those were ofset to some degree by the losses in the small cars to meet CAFE standards.

    Reminds me of a friend who decided he'd be rich making lamps for living rooms. He compared the cost of the raw materials to what he was paying for the lamps in his house, thought he had found a gold mine! Once he looked into all the costs of actually making them, he gave up. Quick.
  • Good analogy texases. But it's worth noting that what are considered the raw materials of bread are also finished goods that have lots of costs built into them. We don't harvest flour for example. Even if we did, someone had to do that work and pay for all the equipment required to do so. Completely separating the labor content out of any finished good would be an exhausting and useless effort.

    The lamp guy probably never thought about the hidden costs of selling the finished goods either. Liability insurance is something everyone must have because if you manufacture and sell something, sooner or later you'll be sued and lose no matter if you deserve it or not.

This discussion has been closed.