The BMW UUC Digest Volume 3 : Issue 426 : "text" Format Messages in this Issue: Re: Aston Martin profitability - or not (OT) Re: Aston Martin profitability - or not (OT) Re: Aston Martin profitability - or not (OT) Re: Run Flat tires Re: Run Flat tires Re: Run Flat tires Re: Run Flat tires <E36> engine quitting problem Re: Run Flat tires Re: Run Flat tires Re: Aston Martin profitability - or not (OT)
---------------------------------------------------------------------- Date: Thu, 15 Mar 2007 01:09:55 -0400 From: Dennis Liu <[EMAIL PROTECTED]> To: <[email protected]> Subject: Re: Aston Martin profitability - or not (OT) Message-ID: <[EMAIL PROTECTED]> Ben, you're still missing the point. Just repeating yourself doesn't make it more convincing. :-) Sure, Porsche sells expensive cars. Really expensive when you add on silly options. And Aston Martin as well. But just because they sell expensive cars does NOT mean that they make money on them. Sure, they "make money" on them in the sense that the cost to BUILD a 911 may be only 75%, or 50%, or 30% of the retail price. And no doubt that expensive leather trim only pads that margin. But so what? Think about Maybach. They're far more expensive than Porsches. Think Maybach, as a division, has turned a profit? Think Rolls Royce has made any money yet? Bugatti? The McLaren F1 sold for about a million bucks. Yet McLaren reportedly lost money over the life of the F1 production run. In other words, the cost to build an F1 was not a million dollars, but they STILL lost money on every one sold. All of these cars are more expensive than Porsches, and they all have silly-priced options. But they all lose or lost money. MAKING 10% or 20% or even 50% margins on your final product is all well and good, but that STILL DOES NOT MEAN THAT YOUR COMPANY IS PROFITABLE. I'm fairly amazed that someone who works in finance doesn't get it. Think about software, to use an extreme example. The marginal cost of a software application is, effectively, ZERO - the cost to produce a new copy of Microsoft Windows is, at worst, a couple of bucks for the CD and box. The gross margin is approaching 99% - and even better if the application is delivered over the web. Yet there are plenty of software companies that lose money. You CAN NOT declare that Aston Martin must be profitable simply because its cars are expensive. (well, ok, YOU can, but you'd run a pretty high chance of being wrong.) Oh, and as I noted, Porsche has made plenty of money in years past from currency hedging. It lost boatloads of money in the early nineties, adopted Japanese manufacturing methods from Toyota consultants to introduce the Boxster and 996, and has been making a lot of money since, but a hefty chunk of that is NOT from manufacturing operations. Vty, --Dennis -----Original Message----- From: Ben Keyes [mailto:[EMAIL PROTECTED] Sent: Thursday, March 15, 2007 12:24 AM To: [EMAIL PROTECTED] Cc: [email protected] Subject: Re: [UUC] Aston Martin profitability - of not (OT) first off, work in product development finance, so I'm well aware of gross vs net vs fully accounted vs whatever margins & profits. second, Porsche has crowed about their profits for quite a while beyond their stock gains from VW in the last year or so & good old Wendelin Wiedeking is apparently some sort of automotive demi-god (in his own mind) so it must be true :-) third, based on the price of options on Porsches - $750 to paint the rocker panels, $2k for leather switch panels, $270 to emboss crests on the headrests, $355 leather dome lamp cover (!), $2700 wood door pieces or switch panels, yada^3 - I can very easily imagine that they'd clear $20k on lots of cars. also, there's got to be an easy additional $20k in margin on a Cayenne TT vs the base V6 car given that there's not $40k worth of additional cost in the motor & bigger brakes & whatever else is different from the base models. fourth, I dunno what the actual transaction prices are for AM models but I don't think making 10% margins on something is crazy when it's that pricey (and I'm sure there are all sorts of fun pricey options you can get from AM as well). having said that, I recall Nissan boasting about having the highest operating margins in the industry a few years ago & it was something like 9%, so perhaps 10% is a bridge too far for little ole Aston. nonetheless, the people who were in the bidding were pretty serious about it, so it might not be that crazy. I agree that BMW is probably the most profitable, but I wouldn't discount hedging & all the rest as a component of running a smart business. I still think Porsche is probably the best based on margins per vehicle. Ben On 3/14/07, Dennis Liu <[EMAIL PROTECTED]> wrote: > > A few things. Forgive me if I come across pedantic. > > First, Porsche has never publicly released gross margins on its vehicles. > In fact, no one does, AFAIK. It's a fairly meaningless number anyway, > as there are so many different ways to fudge it, you can make the the > gross margin as big or as little as you want. Don't confuse gross > profits from manufacturing with overall profitability. Sure, it's > easy to say that every Tahoe sold can generate $10k or $15k in gross > profits for GM; that's common wisdom (though GM doesn't give out hard > figures) because an analyst can assume that the development costs for > the Silverado/Tahoe platform are X, the manufacturing costs are Y, > make some other assumptions, and come to that figure. > > And sometimes analysts or reporters will just do the math backward; > take the total earnings from the announcement, and divide it by the # > of cars sold to arrive at a thumbnail sketch of "profitability per > vehicle." That's a good number to banter to the public about. But > using a total of the "gross margin" on every car you make to ARRIVE at > overall profitability is ass-backwards. > > What I suspect Ben is referring to, with respect to Porsche, is their > recent announcement on overall profitability (which kept Porsche as > the most profitable automaker in the world) - Porsche earned $1.36 > billion in the second half of last year (6 month period). Porsche > sold 39,750 vehicles in that time period, so, simplistically, that's a > gross profit of $32,700 per vehicle. Wow - hugely impressive, no? > > No. That's because Porsche made a lot of money due to the fact that > it owns 27.4% of VW, which stock has been on a tear as of late. So it > revalued that holding, which added to its earnings report. AND > Porsche also made a bunch of money by stock-price hedging VW shares, > and which Porsche hit it out of the ballpark (it helps when there is > common family ownership, ahem, no insider trading of course). Added > together, according to analysts, those two one-time earnings could be > almost as much as the entire profits being reported, if not more than > that. Which is why Porsche stock dropped after this announcement (in > previous years, Porsche kept up its profitability due to profits from currency hedging). > > Back to Aston Martin - is it possible for Aston to have made $10k or > $20k per car sold, in overall profits? Sure. But that's pure and > utter speculation. That is every bit as valid (or invalid) as > reasoning, well, Jaguar should have made $10k or $20k in profits for > every car that it sold, because its cars aren't cheap and it shares > technology with other Ford products so it can't be expensive to make, > so that sounds about right, so I'll use that number to calculate > overall profitability at Jaguar. We know that is untrue, of course, because Jaguar is a massive black hole for Ford. > So one should be careful when making these back-of-the-envelope > calculations and assumptions. > > Just because the MSRP on the Aston Martin Vanquish was over $200k > (their average selling price is much lower than that, BTW, because the > Vantage V8, their volume model, is in M6 territory, not Ferrari > territory) does not mean that you should assume profitability of 10% or 20%. > > Oh, and if I could buy a business that earned $150mm annually for only > $925mm, I'd snap it up in a heartbeat. That's a 16% annual return - > not too shabby, and easily financed. > > Lastly, to add some BMW content, if I had to guess the most profitable > automaker in the world, solely from automotive operations (leaving out > currency hedges, financing arms, etc.), I'm reasonably sure that it'd > be BMW.... > > Vty, > > --Dennis > > Search the > ARCHIVES:http://www.mail-archive.com/[email protected] > > > ______________________________________________________________________ > ____ In memory of Michel Potheau - friend, enthusiast, founder of the > BMW CCA. > > UUC Motorwerks - BMW Performance Fine-tuning and home of the Ultimate > Short Shifter - accept no substitutes! > 908-874-9092 . http://www.uucmotorwerks.com > ------------------------------ Date: Thu, 15 Mar 2007 09:12:57 -0400 From: "Gary Derian" <[EMAIL PROTECTED]> To: <[EMAIL PROTECTED]>, <[email protected]> Subject: Re: Aston Martin profitability - or not (OT) Message-ID: <[EMAIL PROTECTED]> Its all about allocating overhead. A division of a larger company can appear to make or lose money as one sees fit. Gary Derian > Think about Maybach. They're far more expensive than Porsches. Think > Maybach, as a division, has turned a profit? > > Think Rolls Royce has made any money yet? Bugatti? > > The McLaren F1 sold for about a million bucks. Yet McLaren reportedly > lost > money over the life of the F1 production run. In other words, the cost to > build an F1 was not a million dollars, but they STILL lost money on every > one sold. > > All of these cars are more expensive than Porsches, and they all have > silly-priced options. But they all lose or lost money. ------------------------------ Date: Thu, 15 Mar 2007 13:59:57 +0000 From: nick brearley <[EMAIL PROTECTED]> To: [email protected] Subject: Re: Aston Martin profitability - or not (OT) Message-ID: <[EMAIL PROTECTED]> Nice story from the Telegraph last year: >In spite of its recent sales successes, Aston >Martin traditionally has never made money for >its owners. This was illustrated by the story of >a factory tour given to Clark Gable by Sir David Brown. > >"Well, I like the cars," the actor said at the >end of the tour, "and I'd like to buy one, but >the publicity value of me owning one will be so >valuable, I'd like to pay cost price." > >"Well thank you very much, Mr Gable," said Sir >David, "Most of our customers pay £2,000 less than that." May well be apocryphal but has the ring of truth. Nick Brearley ------------------------------ Date: Thu, 15 Mar 2007 00:36:56 -0600 From: Clarence <[EMAIL PROTECTED]> To: Bill Mitchell <[EMAIL PROTECTED]> Cc: [email protected] Subject: Re: Run Flat tires Message-ID: <[EMAIL PROTECTED]> #2 makes me wonder why environmentalism seems to be concerned almost exclusively with oil consumption and emissions. While I understand Europe has some thing about cars being recyclable, certainly foisting run-flats on the consumer is not environmentally sound. It's also something I've questioned with respect to battery powered vehicles. Clarence - unable to sleep tonight West Bend, WI Bill Mitchell wrote: > My take on run-flats: > > 1. Cost way more than ordinary performance tires > > 2. Cannot be repaired, so they are a throw-away tire. Thus, costing > even more. > > 3. Many tire shops are not equipped to deal with them, takes a special > machine to mount/dismount them. > > 4. Takes a special wheel, thus you cannot mount regular tires on > run-flat wheels. > > 5. see no. 1. > > Bill M. > 3 Bimmers, no run-flats ------------------------------ Date: Thu, 15 Mar 2007 08:34:55 -0500 From: "Jason Kay" <[EMAIL PROTECTED]> To: "Bill Mitchell" <[EMAIL PROTECTED]> Cc: [email protected] Subject: Re: Run Flat tires Message-ID: <[EMAIL PROTECTED]> *snip* > 4. Takes a special wheel, thus you cannot mount regular tires on run-flat > wheels. *snip* Not flaming, but I thought that any tire could be mounted on a run-flat rim, but you need special rims to capture the bead of a run-flat tire... The MCS has run flats and no provision for a spare (though it was an option in some countries). Personally, I find Runflats ride VERY hard compared to traditional tires.... Besides, runflats even with tire pressure sensors, cannot help if you have a catastrophic flat, like say putting a 2" rock into the tire (which happened with the 325 a few months after getting her)... Happy almost Friday. -Jason '86 951 "Sparky" '70 240Z "Dusty" '03 325xi "Daisy" '06 Mini CooperS ------------------------------ Date: Thu, 15 Mar 2007 09:43:26 -0400 From: "Ben Keyes" <[EMAIL PROTECTED]> To: "Jason Kay" <[EMAIL PROTECTED]> Cc: "Bill Mitchell" <[EMAIL PROTECTED]>, [email protected] Subject: Re: Run Flat tires Message-ID: <[EMAIL PROTECTED]> Jason wrote: > > > 4. Takes a special wheel, thus you cannot mount regular tires on run-flat > > wheels. > Not flaming, but I thought that any tire could be mounted on a run-flat rim, > but you need special rims to capture the bead of a run-flat tire... yes, most RFs do not require special wheels. some systems (the Michelin PAX IIRC) do want a unique wheel design (or more correctly a unique wheel cross-section, the way the wheel looks is of course completely independent) to work, but most of the RFs I've seen do not. > The MCS has run flats and no provision for a spare (though it was an option > in some countries). no location for a spare for the Cooper S due to the location & sizing of the exhaust system IIRC. much like the MZ3 and other M cars. > Personally, I find Runflats ride VERY hard compared to traditional tires.... the first generation of them were pretty harsh/heavy/etc but there has been lots of work to reduce that problem. it was noted that BMW didn't design the full suspension on the E60 around them & it suffered in it's initial incarnation due to it, but subsequent versions have improved to the degree that there's little difference between the RF equipped cars & normal ones. the MCS being small, tightly suspended & with relatively low profile tires would tend to execerbate the harshness of RFs. I actually enjoyed driving my wife's more with the 15" winter tires on it (OE phone dials w/175s or whatever they are) than with 16s or 17s. > Besides, runflats even with tire pressure sensors, cannot help if you have a > catastrophic flat, like say putting a 2" rock into the tire (which happened > with the 325 a few months after getting her)... yep, and for most people that's what roadside assistance & cell phones are for. if you live out of range of cell phones or frequently travel in places like that making accomodations is a good plan, otherwise I don't worry about it. Ben ------------------------------ Date: Thu, 15 Mar 2007 09:54:36 -0400 From: "Fuerst, Chris" <[EMAIL PROTECTED]> To: <[email protected]> Subject: Re: Run Flat tires Message-ID: <[EMAIL PROTECTED]> http://www.familycar.com/CarCare/RunFlatTires.htm http://www.familycar.com/CarCare/Images/Pax-3.jpg Looks like a normal hack could just stick a plug in it and toss some air back in. Prolly void the warranty. 1st -----Original Message----- From: [EMAIL PROTECTED] [mailto:[EMAIL PROTECTED] On Behalf Of Ben Keyes Jason wrote: > > > 4. Takes a special wheel, thus you cannot mount regular tires on run-flat wheels. > Not flaming, but I thought that any tire could be mounted on a run-flat rim, but you need special rims to capture the bead of a run-flat tire... yes, most RFs do not require special wheels. some systems (the Michelin PAX IIRC) do want a unique wheel design (or more correctly a unique wheel cross-section, the way the wheel looks is of course completely independent) to work, but most of the RFs I've seen do not. > The MCS has run flats and no provision for a spare (though it was an option in some countries). no location for a spare for the Cooper S due to the location & sizing of the exhaust system IIRC. much like the MZ3 and other M cars. ------------------------------ Date: Thu, 15 Mar 2007 09:11:50 -0500 From: "John Bunda" <[EMAIL PROTECTED]> To: <[email protected]> Subject: <E36> engine quitting problem Message-ID: <[EMAIL PROTECTED]> A friend with a '98 328ic is having a problem with her E36 328ic with 79k miles. The engine runs fine, it just dies and won't restart for a while. It will later restart, run fine for 10-20 minutes (or longer), then die again. Her shop diagnosed a bad ICV, which was replaced, but the problem remains. Me, I suspect a bad fuel pump relay, but that is from my experience with E30s. Is there a common failure like this on these cars? Thanks for any help. John 89 M3 03 M3 ------------------------------ Date: Thu, 15 Mar 2007 07:21:35 -0700 (PDT) From: Tammer Farid <[EMAIL PROTECTED]> To: [email protected] Subject: Re: Run Flat tires Message-ID: <[EMAIL PROTECTED]> True, but it's still a major PITA to wait 2 hours for a tow when most folks can change a wheel on the roadside in <10 minutes. -tammer E28 w/ full-size spare--original TRX even! --- Ben Keyes <[EMAIL PROTECTED]> wrote: > yep, and for most people that's what roadside assistance > & cell phones are > for. if you live out of range of cell phones or > frequently travel in > places like > that making accomodations is a good plan, otherwise I > don't worry about it. ____________________________________________________________________________________ Sucker-punch spam with award-winning protection. Try the free Yahoo! Mail Beta. http://advision.webevents.yahoo.com/mailbeta/features_spam.html ------------------------------ Date: Thu, 15 Mar 2007 09:15:40 -0400 From: "Gary Derian" <[EMAIL PROTECTED]> To: "Jason Kay" <[EMAIL PROTECTED]>, "Bill Mitchell" <[EMAIL PROTECTED]> Cc: <[email protected]> Subject: Re: Run Flat tires Message-ID: <[EMAIL PROTECTED]> Some can and some can't. The Michelin PAX system has a unique rim, but others fit on more or less standard rims. Gary Derian >> 4. Takes a special wheel, thus you cannot mount regular tires on >> run-flat wheels. > ------------------------------ Date: Thu, 15 Mar 2007 10:47:45 -0400 From: Dennis Liu <[EMAIL PROTECTED]> To: "'BMW List'" <[email protected]> Subject: Re: Aston Martin profitability - or not (OT) Message-ID: <[EMAIL PROTECTED]> [To everyone who hasn't already hit delete - my apologies, I've fallen into this. This will be my last post on this topic, so please forgive me.] Ben, you seem like a nice guy and often contribute interesting BMW info. I usually enjoy reading your posts. But, dude, I've gotta say, either you're being self-deluding about finance (which is doubtful, since you say you work in it), or else you just want to keep defending your initial, indefensible position (like the old saying, when you're in a hole, the first thing you do . . . ). Ben wrote: >I'd point to the fact that Aston has had all the platform development work they need to continue to sell relatively competitive vehicles for probably 5 more years w/o investing much at all & maybe longer if their platform architecture proves to continue to be competitive down the road. they'll have to move their game forward a bit, but I'd argue that they can refine (at relatively low cost) their existing product & have them remain desireable and relevant in the marketplace, minimizing the investment they require. ------- Ay, there's the rub. Developing a new platform takes a lot of money. That investment needs to be amortized over the course of a model run. Ideally, a manufacturer can amortize that platform over multiple models (X5 = 5 series = 6 series, Mondeo = X-type, Tahoe = Silverado = Denali = Suburban = Escalade). Thus it is an accounting issue. Let's say you spent $300mm on development costs. How much of that cost do you attribute to the first car that rolls out of your factory? $300mm? $30mm? $3mm? $300k? $30k? $3k? Do you spread it over your anticipated sales over the life of the model? How accurate do you think Aston's sales projections are/were when rolling out the DB9 - projections for the DB9, the Vantage, the DBS, over the next 5-7 years? It could be anything that the AM finance guys wanted. All of which goes to the point that using MANUFACTURING profitability to ascertain OVERALL profitability is a foolish game, Ben. Ben wrote: >I get it that gross margin vs fully accounted profits are different & know all the things that go into the development cost of something. -------- If that's so, and if you don't know what the overall investment and amortization is for AM's R&D (which you don't, because Ford has never disclosed it), then why did you state that AM was making $10k-$20k per vehicle? Ben wrote: >if the contribution to the cost of a mass-produced truck or car is $1k (making up a number, tho it's not much higher or lower for a really big program which is high volume, say something which costs $1-$2B in investment to bring to market but sells on the order of 300-500k units/year) then it's possible that something selling 2 orders of magnitude less but requiring at least 1 order less money could cover those costs in a selling price which was 2-3x as much, esp if they were more efficient in their product development programs than giant places like GM or Ford or VW or even Toyota. ------- Sure, on paper all of that makes sense. But what's true for a simple back of the envelope math is not necessarily true in the specific case of Aston Martin, Ben. Which is what I've (foolishly) been trying to point out all along. By your math, Jaguar would be profitable. By your math, Lamborghini would be profitable. By your math, Rolls Royce would be profitable. By your math, Maybach would be profitable. By your math, Bugatti would be profitable. By your math, hell, CHRYSLER and FORD would be profitable. Simply demonstrating that R&D costs, amortized over the expected lifetime production of a vehicle line, constitutes only a percentage of that vehicle's selling price is both simplistic and misleading. Is it true? Of course it's true. But that leaves out everything else. ***** Bottom line - is Aston Martin profitable, on a stand-alone basis? I don't know. It could be. It could be significantly profitable. But it's wrong to arrive at that conclusion because you've arbitrarily concluded that each car sold is making "profits" of $10k-$20k a year. Vty, --Dennis ------------------------------ End of [bmwuucdigest] digest(11 messages) **********
