: Too much obligations for car makers, will they survive?



ben.gators
07-07-11, 05:40 AM
Long-term warranties like 10 Years / 100000 Miles warranty
Competitive prices
Buy back assurance
Trade-in value guarantee

I was thinking that after considering such financial obligations little or no profit remains for car makers, specifically the companies that have been taking really aggressive marketing policies to attract the customers. As an example, lets do a simple math.

Hyundai Sonata.

MSRP: $20k

Total costs for building the car itself, consisting of materials, labor, energy and water bills: $7k
This number can be even higher because the manufacture buys tires, electronic systems, glasses, etc. from other companies. Also if the plant is in the US. the labor costs can be really high.

Warranty and recalls in 4 years: 4*$700=$2800
I am assuming the owner keeps the car for 4 years, and each year there is just one single problem in the car and the costs of repair, including parts, labor, and loaner car is just $800. So over the course of 4 years the company spends $2,800 for warranty. Also don't forget the recalls. Sometimes they can be really costly.

Shipping costs: $500
The costs of shipping the car or parts overseas, or inside the US.

Dealership and the sales agent: $1,300$

Advertisement: $100

So let's add up the numbers:

$7k+ $2.8k+$500+ $1.3k+$100=$11.7k

AND

Hyundai assures you that after 4 years you can trade in you Sonata for 41% of the MSRP.

Well well, 41% times $20k is $8200!
I really doubt the real value of the 4-year old Sonata is more than this. When Hyundai gets back its 4-year old car, the company needs to recondition the car a bit to be able to to put it in the lot. So in a good day, they may sell the car for $9k and after reducing the dealership and the agent part, the company will not be able to get back its $8200 that spent in the first place. This is just an starting point for another story. The car has a remaining 6-year warranty and it is old by now, as a result considerable amount of the money that company earned should go for the warranty work during next 6 years.

$11.7k+$8.2=$19.9k.

So at the end just $100 remains for the company from selling the brand new car, plus some profit from selling the returned car. Is this profit enough for the company to spend billions of dollars for building plants and manufactures and support their R&D departments?

brandondeleo
07-07-11, 05:44 AM
Government regulations and entitlement are the reasons that car makers are not what they used to be. They have no freedom to produce a good car, and everybody feels that they 'deserve' these buyback programs, warranties, assurances, incentives, etc... At the end of the day, they don't make enough money to care about making a true quality product anymore.

ben.gators
07-07-11, 06:05 AM
The new competitors from Asia have changed the game too. 20 years ago there was no long term warranty, and to sell a car famous car makers never ever used to put themselves in long-term commitments. But these days, because of new companies and their aggressive and greedy marketing policies and really low MSRPs the old classic car makers are forced to provide customers with similar warranties and simultaneously reduce the price tags....

johnny kannapo
07-07-11, 06:11 PM
Vote accordingly or we'll be riding public transportation. That is the current goal.

Night Wolf
07-07-11, 07:55 PM
What about non-warranty maintenace? Big profit for dealers, part of that money makes its way back up the chain.

Also, the 41% thing is for trading in on another *new* car. There is money to be made there.

The 10yr/100k warranty is not bumper to bumper, it's powertrain. It's fancy words for folks that don't know any better, but the actual amount of "powertrain" repairs done on cars under 10yr/100k is minimal. Once the bumper to bumper warranty is over, then stuff like ignition and fuel compoents are gone too, it's hard mechancial parts and if not maintained as it should be, the warranty is gone.

orconn
07-07-11, 08:06 PM
Actually this threat to the domestic producers is nothing new; forty-five years ago, when the first Toyotas and Datsuns were imported fully equipped with heaters, radios, outside rear view mirror and decent fit and finish all at a price of several hundred dollars less than a stripped American econo car (equivalent accessories were optional, extra cost items) it was felt that American manufacturers couldn't compete. And for awhile they didn't, ever look a abase level Corvair or Falcon or even Valiant/Dart, but then cars like the Mustang and Camaro came along and gave the buying public something they were willing to pay more for. There were also really special personal luxury coupes for the upper middle class ( and those middle class that were really willing to sacrifice) and for those who appreciated quality materials, superior workmanship and advanced engineering and could afford to pay for these luxuries there were the "haute" Europeans! All found a place in the American market, today Hyundai is in ascendance and the Japanese car makers are in decline, in the not too distant future the Chinese will be coming to our shores and the cycle will begin again.

The only real hope for the American car industry is to produce high quality cars well suited to unique American driving conditions that can be sold for a decent price while still being profitable. Given that both Japanese and Korean labor costs are approaching U.S. costs and European labor costs are exceeding American labor costs, this objective should be attainable in the near future as Ford and GM invest in new plants and benefit from lower costs of production obtained from higher efficiency and lower union labor costs.

johnny kannapo
07-07-11, 09:30 PM
When the first Datsuns & Toyotas showed up in the late 60's they were the worst cars made on earth, unacceptable quality & Detroit iron was king.

They pulled together some quality control & the 73' oil arab crisis pulled them out of the trash heap. Look at them now.

DouglasJRizzo
07-07-11, 09:46 PM
I think that all this gingerbread is to get car sales moving in bad times. When the boom times come back, I doubt that a lot of this will be around.

cadillac kevin
07-07-11, 09:57 PM
Government regulations and entitlement are the reasons that car makers are not what they used to be. They have no freedom to produce a good car, and everybody feels that they 'deserve' these buyback programs, warranties, assurances, incentives, etc... At the end of the day, they don't make enough money to care about making a true quality product anymore.
thats a load of B.S. theres no govt regulation that requires companies to buy back cars (unless they're defective) or give super long high mileage warranties. or even incentives to buy. and our poor companies have no freedom to produce a good car? cts? camaro? mustang? charger? challenger? I could go on. last time I checked these are all pretty good cars. if it wasnt for govt regulations we'd be driving shitboxes like this:

http://youtu.be/TFzfPagVhY8

http://youtu.be/e34HuCt_qDU

brandondeleo
07-07-11, 10:18 PM
I never said government regulations require the buyback of vehicles, extended warranties or incentives. I am not sure where you came to that conclusion, because I'm pretty sure you have a brain. Government regulations are one of the many things holding back the automotive industry. Exactly as you said, "pretty good." Everything that is released today is watered down and overpriced due to the government fuel economy and environmental standards that hold back our cars. If the modern muscle cars you mentioned above did not have to adhere to these bull shit environmental regulations, they would have more power, be less expensive to repair, and they would cost less to purchase.
As for your claim of us all driving shit boxes like the broken video link you posted, the United States public is not stupid. It is called a FREE MARKET. We can purchase a quality product if we want, and that forces car makers to compete to produce better vehicles and in the end, we end up with a better product. That is why shitty cars die out. Now to make my point, how often are cars lasting 300,000 miles or more like they used to? How often can we work on our own cars if anything comes up? There were no government regulations of vehicles in the early years of automotive history, and the industry excelled exponentially in the course of a couple of decades. How many real leaps in automotive engineering have their been in the past thirty years? Exactly.

Jesda
07-07-11, 10:19 PM
Regulation doesn't make a Chinese car dangerous. A lack of engineering prowess makes a Chinese car dangerous.

brandondeleo
07-07-11, 10:21 PM
Regulation doesn't make a Chinese car dangerous. A lack of engineering prowess makes a Chinese car dangerous. Exactly.

EChas3
07-07-11, 10:22 PM
I think that all this gingerbread is to get car sales moving in bad times. When the boom times come back, I doubt that a lot of this will be around.

What makes you think that will happen? Almost everyone is spending money they don't have.

New car prices will increase dramatically from the new CAFE standards at the same time as the cars become underpowered and bland. I fear the golden goose is cooked!

We are not mired in a jobless recovery, it's a growthless recovery (i.e. none at all).

cadillac kevin
07-07-11, 10:43 PM
I never said government regulations require the buyback of vehicles, extended warranties or incentives. I am not sure where you came to that conclusion, because I'm pretty sure you have a brain. Government regulations are one of the many things holding back the automotive industry. Exactly as you said, "pretty good." Everything that is released today is watered down and overpriced due to the government fuel economy and environmental standards that hold back our cars. If the modern muscle cars you mentioned above did not have to adhere to these bull shit environmental regulations, they would have more power, be less expensive to repair, and they would cost less to purchase.
As for your claim of us all driving shit boxes like the broken video link you posted, the United States public is not stupid. It is called a FREE MARKET. We can purchase a quality product if we want, and that forces car makers to compete to produce better vehicles and in the end, we end up with a better product. That is why shitty cars die out. Now to make my point, how often are cars lasting 300,000 miles or more like they used to? How often can we work on our own cars if anything comes up? There were no government regulations of vehicles in the early years of automotive history, and the industry excelled exponentially in the course of a couple of decades. How many real leaps in automotive engineering have their been in the past thirty years? Exactly.
considering the average family sedan is almost as fast as most of the early 70's muscle cars in stock trim and the mileage has almost tripled for similar straightline performance (and greatly improved handling characteristics plus improved safety) I'd say thats a pretty good leap. after all, how much performance does the average consumer need? 0-60 in under 8 seconds was pretty quick back in 1970. top speed of 130+? sounds pretty fast to me? how much faster do you need to go?
as for automotive leaps- GPS, adaptive suspension, tire technology, aerodynamics, and functionality have all come a great way, as have reliability and safety.
I do agree that enviromental regulations can be retarded and a bit overkill, but if we didnt have them (at all) what would the landscape of america look like? probably not that pretty.
I', not sure what old cars you're talking about that could go 300k+? alot of the old vehicles I see have under 200k on them and have a blown motor, trans failure, etc.. ,back in the 70's, you'd be lucky to have a car that lasted 150k (especially if you got anything but a V8 under the hood)
as for working on your own car- I still work on mine. granted I dont drive anything too fancy but parts are parts. something breaks- I figure out whats broken and replace the part.
and I disagree that the american buying public is not stupid (as a whole) most people buy into whatever crap you shove down their throats. (lets all buy priuses and hybrid escalades and CFL's and save the environment by being green. lol)

brandondeleo
07-07-11, 10:48 PM
New car prices will increase dramatically from the new CAFE standards at the same time as the cars become underpowered and bland. I fear the golden goose is cooked!

My point, for the most part.

johnny kannapo
07-07-11, 11:00 PM
We have empowered a cultural section of our population that is dead against the industrial machine.
We are experiencing only a few of those effects to our economy now.
Vote accordingly

http://i826.photobucket.com/albums/zz183/billytheshoe/web%20pictures/5f59a202.jpg

orconn
07-07-11, 11:18 PM
When the first Datsuns & Toyotas showed up in the late 60's they were the worst cars made on earth, unacceptable quality & Detroit iron was king.

They pulled together some quality control & the 73' oil arab crisis pulled them out of the trash heap. Look at them now.

I beg to differ, the Toyota Carolla of the late sixties were pretty decent cars and served their owners well on the streets and freeways of Southern California. The Volkswagen Beetle had opened a market that was soon greatly impacted by by the Japanese imports. I had extensive experience with these late sixties Toyotas and Datsuns both while living in Japan and from my relatives kids ownership of these cars. And while not a economy car the Datsun 240Z which arrived in 1970 and originally sold for $2600.00 also made significant inroads, delivering almost Jaguar XKE perform ace at half the price.
The cars that the Japanese brought to our shores in the late sixties were far cries from the miserable pieces of crap that the British and French and in many cases the Germans had foisted on an unsuspecting American public. Not only did the Japanese cars exhibit a higher level of assembly quality, but their engines and later the cars themselves proved themselves highly reliable giving excellent performance on SCCA tracks around the country. Datsun engines won the Class B Sports Racing championships in 1967-68. John Morton driving a Datsun was the man to beat in small displacement SCCA sedan racing in the early '70s winning several consecutive class Championships. Hardly the performance of piles of junk!

johnny kannapo
07-07-11, 11:35 PM
Perhaps it was the mid sixties. They were absolute junk.

brandondeleo
07-07-11, 11:38 PM
On a side note, I came across an early '70s Datsun 240 coupe this week... Home-made body kit, huge spoiler, coffee can exhaust... Spat crap every time it accelerated. It made me want to cry.

orconn
07-07-11, 11:39 PM
Perhaps it was the mid sixties. They were absolute junk.

The first Japanese car imported in the late fifties was the Toyota Toyopet which was not at all well suited to American driving conditions. They met with a quick and early death on these shores!

brandondeleo
07-07-11, 11:41 PM
Kind of like the little Brit-mobiles with four cylinders designed for the English countryside and winding, 50mph conditions. When it hit the American superhighways, disaster.

cadillac kevin
07-07-11, 11:47 PM
I know a guy who had a 60's jag roadster (dont recall the model) when it was new. in the rain electricity arced across the wipers. he took the car back and got another one. It ended up burning to the ground on the side of the road (faulty fuel injection system)

brandondeleo
07-07-11, 11:49 PM
Those English electrical systems were horrid.

orconn
07-07-11, 11:50 PM
Perhaps it was the mid sixties. They were absolute junk.

The Toyota Toyopet was first imported to the U.S. in the late 1950"s and was very ill suited to American driving conditions and met with an early and quick death.

The Datsun Fairlady, a MGB knock off (although far more reliable than any British sportscar of that time), began being sold on both coasts in 1964. Although it was raced with very good results in SCCA events it had only minor market success. The Datsun 240Z (known as the Fairlady Z in the Japanese home market) was the direct sportscar successor to the Fairlady 1600 roadster that first crossed our shores.The Datsun 210 was the economy car version which came as both a well turned out 4 door sedan and a two door pillarless coupe, both pretty impressive value for well under $2000. in 1968.

orconn
07-07-11, 11:54 PM
I know a guy who had a 60's jag roadster (dont recall the model) when it was new. in the rain electricity arced across the wipers. he took the car back and got another one. It ended up burning to the ground on the side of the road (faulty fuel injection system)

While Lucas's reputation was well earned, if the car burned it wasn't the result of faulty fuel injection. !960's Jaguars were not equipped with fuel injection, except on some of the factory racing team cars (which were not for sale to the public).

ben.gators
07-08-11, 12:09 AM
What about non-warranty maintenace? Big profit for dealers, part of that money makes its way back up the chain.


What? Non-waranty maintenance? As an example, how many people in this website take their Cadillacs to Cadillac dealership after expiration of warranty? These days because of long term warranties the car goes out of warranty when the car is almost old and dated. At this point the car is owned by second or third owners who are not usually as rich as the first owner, as a result they don't afford to take their "cheap" cars to the dealership, OR the car has depreciated its value so much that it doesn't deserve to be invested a lot of money by taking it to the dealerships. People like you or me repair their own cars, the other people that are not able to do the job take their cars to family-owned mechanic shops or stupid places like Pep-boys and have their car repaired by cheap aftermarket parts.

However, I should say that there are people that own old cars and are simultaneously willing and rich enough to take their cars to the dealership, but they are minority.






Also, the 41% thing is for trading in on another *new* car. There is money to be made there.



Your statement would be true IF there was a big chunk of profit in selling the brand new car. I did the mathematics for you.... There is practically no profit for the company because of really low price tags, long term warranties..... This loop of selling brand new car and taking the car back and giving the customers a new one is a "null loop"! There is almost very little gain in doing this loop...




The 10yr/100k warranty is not bumper to bumper, it's powertrain. It's fancy words for folks that don't know any better, but the actual amount of "powertrain" repairs done on cars under 10yr/100k is minimal. Once the bumper to bumper warranty is over, then stuff like ignition and fuel compoents are gone too, it's hard mechancial parts and if not maintained as it should be, the warranty is gone.

5-YEAR/60,000-MILE NEW VEHICLE LIMITED WARRANTY is bumper to bumper, and then there is 10year/ 100k miles powertrain warranty. So I stand correct for first 4 year warranty work and costs. During first 4 years, an small issue in the car can simply result in bills over $700....

For this part, I was mostly thinking about Cadillac warranty. As you know Cadillacs are really NEEDY cars even when they are new! I have seen people that have had more than $10k warranty work done to their Cadillacs! A Cadillac certified car comes with 6 year/100k mile warranty which is bumper to bumper. I really can't imagine how Cadillac by selling a certified CTS for $28k with 10 year bumper to bumper warranty can earn any profit... That car will have more than $10k repair bills in ten years!

ben.gators
07-08-11, 12:25 AM
vincentm posted a thread titled "GM to offer years worth of free car insurance". Another example for my claim! Why is a car maker offering free two-year insurance?! Does GM really afford to do this?

johnny kannapo
07-08-11, 01:02 AM
It is an attempt at socialized car insurance. This is the most rediculous thing they have come up with yet.

A back door government social intervention into the corporate takeover climate fools voted for.

A the bold face lie that it can somehow be free. This is taxpayer subsidized car insurance.

billc83
07-08-11, 07:08 PM
This whole thread is ridiculous.

While some regulation is necessary, the sheer amount of regulation placed on auto manufacturers is crazy. I don't understand much of it. And the fact that there are loopholes everywhere (like the ones that exempted vehicles in excess of a certain weight of the same safety and emission standards as regular cars - hence more SUVs; or 3-wheelers being regulated as motorcycles) just makes it a quagmire.

The gov't doesn't require 10 yr/100,000 miles warranties though, nor do they require much of what's been listed. American automakers biggest obligation is the UAW.

ben.gators
07-08-11, 07:24 PM
This whole thread is ridiculous.


Not as ridiculous as calling something ridiculous without reading it.... Read OP's posts again. I never ever told companies are obligated by government. They themselves are taking very aggressive marketing policies and obligating themselves to more than they could handle!

billc83
07-08-11, 07:54 PM
Long-term warranties like 10 Years / 100000 Miles warranty
Competitive prices
Buy back assurance
Trade-in value guarantee

I was thinking that after considering such financial obligations little or no profit remains for car makers, specifically the companies that have been taking really aggressive marketing policies to attract the customers. As an example, lets do a simple math.

Hyundai Sonata.

MSRP: $20k

Total costs for building the car itself, consisting of materials, labor, energy and water bills: $7k
This number can be even higher because the manufacture buys tires, electronic systems, glasses, etc. from other companies. Also if the plant is in the US. the labor costs can be really high.

Warranty and recalls in 4 years: 4*$700=$2800
I am assuming the owner keeps the car for 4 years, and each year there is just one single problem in the car and the costs of repair, including parts, labor, and loaner car is just $800. So over the course of 4 years the company spends $2,800 for warranty. Also don't forget the recalls. Sometimes they can be really costly.

Shipping costs: $500
The costs of shipping the car or parts overseas, or inside the US.

Dealership and the sales agent: $1,300$

Advertisement: $100

So let's add up the numbers:

$7k+ $2.8k+$500+ $1.3k+$100=$11.7k

AND

Hyundai assures you that after 4 years you can trade in you Sonata for 41% of the MSRP.

Well well, 41% times $20k is $8200!
I really doubt the real value of the 4-year old Sonata is more than this. When Hyundai gets back its 4-year old car, the company needs to recondition the car a bit to be able to to put it in the lot. So in a good day, they may sell the car for $9k and after reducing the dealership and the agent part, the company will not be able to get back its $8200 that spent in the first place. This is just an starting point for another story. The car has a remaining 6-year warranty and it is old by now, as a result considerable amount of the money that company earned should go for the warranty work during next 6 years.

$11.7k+$8.2=$19.9k.

So at the end just $100 remains for the company from selling the brand new car, plus some profit from selling the returned car. Is this profit enough for the company to spend billions of dollars for building plants and manufactures and support their R&D departments?

Sources for the numbers, please.

ben.gators
07-08-11, 10:25 PM
^

For MSRP:
http://www.hyundaiusa.com/sonata/
The exact number is $19,695 for base.


For trade-in:
http://www.hyundaiusa.com/assurance/trade-value.aspx
From the table you can see after 48 months the guaranteed resale value for Sonata is 41%.


The cost of building a car is a crude estimation based on different reports. Car makers never ever release these information. I started to add up the number and whatever I did I couldn't make it less than $7k. Here is how I estimated:

Labor: $2k
http://wiki.answers.com/Q/How_much_does_labor_cost_to_build_a_new_car
The link says $2.1k for a car built in the US. Sonata is assembled in Montgomery, Alabama:
http://blog.hyundaiaz.com/2011/01/19/sonata-vs-optima-2011-sibling-slugfest/
However I am reducing the labor cots to $2k

Total costs of electronic systems that Hyundai buys and puts in the car: $1.2k. It covers everything from radio, to actuators, controllers and sensors. I really doubt they cost less than $1.2k.

Glasses and mirrors: $300

Tires and rims: $250

Metal price (Aluminum and steel) used in the car: $700
In average, about 130kg (286 lbs) aluminum is used in a car.
http://www.just-auto.com/comment/aluminium-to-catch-steel-in-car-making-are-you-joking_id96264.aspx
So based on the price of aluminum (1.15 $/lbs), it will be about 328. Lets say just 300$ for aluminum. There will be about 1800 lbs of steel in a car:
http://www.drivingtoday.com/news_this_week/1999-09-15-306-driving/index.html#.TheyQM1F35I
So it will cost about $400. 400+300=700. Good?

Electricity and water: $250 (?)
Just imagine how much electricity or coil is required to melt the steel or aluminum to build the cabin, engine,.....

Fluids, gas, oil: $100

Paint: $500

Seats, interior trims: $600

Gaskets, rubbers, belts: $400

Radiotor and AC components: $300 (They are not necessary built by the company itself)

Other remaining things: $400


Sum=$7k!


Shipping cost is an estimation. But it shouldn't be less than this.

Dealership and agent part is again another crude estimation. They never reveal these numbers. Some say it is usually about 20% of MSRP! But I am saying just $1.2k

Advertisement: It all depends on the company and how much it advertises. Again, this is a rough estimation. We can see Hyundai commercials everywhere. They should have been spending tens of millions and even hundreds of millions for these ads.