By on September 30, 2013

Back in the 1950s, when Europe was still rebuilding after World War Two, Ford Motor Company and General Motors decided to show the world what a cost-no-object car was like in the American idiom. First Ford introduced the 1956 Continental Mark II, hand assembled down to the component level, that was said to lose $1,000 on each and every $10,000 Mark II sold. Adjusting for inflation, that loss is the equivalent about $8,600 in 2013 money. A year later, GM started selling the Motorama influenced Eldorado Brougham, at an even steeper $13,074. Motor City lore has it that not only was the Eldo Brougham thousands more expensive than the Mark II, its loses exceeded those of the Mark II by thousands of dollars as well. Now the Sanford C. Bernstein brokerage has looked at how much money various European automakers have lost on particular cars since 1997.

 

VW takes the top spot with the Bugatti Veyron, which Bernstein says loses a breathtaking 4.6175 million euros per vehicle. Even discarding the Veyron as a special case, VW still would hold the top (or bottom) spot with our EIC pro tem’s beloved Volkswagen Phaeton, said to lose over 28,000 euros per car. The Veyron and Phaeton weren’t the only cars that were bigger financial flops, adjusted for inflation, than the Mark II and Eldorado Brougham were. Renault lost 18,710 euros for every one of the 64,000 Vel Satis pseudo-coupes they sold from 2001 to 2009 (no mention of its twin, the Avantime), and the Peugeot 1007 lost PSA 15,380 euros for each of the 123,000 units sold. Audi’s ahead-of-its-time aluminum A2 subcompact was an unsurprising addition to the list, while some of the other entrants, like the Jaguar X-Type and the Smart Fortwo, were just plain bad.

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76 Comments on “The Europeans Show Ford & GM How Losing Money Is Really Done...”


  • avatar
    marjanmm

    I wonder how much money was lost on Apollo program? This obsession with money prevents us (as civilisation) to do great things just because they are great.

    • 0 avatar
      danio3834

      Yeah, paying people for their labor is totally holding us back. We should really go back to building pyramids the old way.

      • 0 avatar
        Kenmore

        “We should really go back to building pyramids the old way.”

        If you built them from Legos you could crowdsource the labor.
        Every geek blog a recruiting network.

      • 0 avatar
        Pch101

        “We should really go back to building pyramids the old way.”

        I thought that the Egyptians outsourced the work to space aliens. Which seems like a pretty good idea, assuming that the aliens don’t want to build a soylent green factory in the Cairo suburbs.

        • 0 avatar

          http://www.leftlanenews.com/gm-reopens-plant-in-egypt.html

        • 0 avatar

          The latest thinking is the Egyptians actually hired specialist construction crews to build them.
          Experiments have shown they needed a lot less manpower and time than was previously thought.

          • 0 avatar
            Lorenzo

            The historians didn’t really need experiments. They needed to talk to engineers about what could be accomplished with rollers, levers, counterweights and ramps. The early Romans built with large stones before they invented concrete, and some of the anchor stones of medieval cathedrals are massive.

            A lot of engineering ingenuity has been replaced by brute force. I watched a moving crew try to move an upright piano down a narrow hall and make a right angle turn through a doorway. They got it up on end, but couldn’t tip it enough to get it under the top of the door frame. They tried for nearly an hour until the foreman came by and said to put a carpet under it and pull it through the doorway from the bottom, limbo-style. Good thing he got there before they removed the door frame.

    • 0 avatar
      Flybrian

      The Apollo Program confirmed American dominance in the space race, confirmed mankind’s dominance over Earth and the near beyond, catapulted forward an age of scientific and technological achievement, and gave millions of children of all ages the world over a new dream to make a reality.

      What does the Smart car contribute even to the world of motordom? Nothing.

    • 0 avatar
      SCE to AUX

      Apollo was not a commercial enterprise.

      • 0 avatar
        golden2husky

        Part of what is wrong today is that there is no Apollo type program of any sort, space or otherwise. There is no dream for kids to follow. I was really young during the Apollo Era, but still remember some of the excitement. What do we have to get excited about now? That glass penis they call the New World Trade Center? Yawn.

      • 0 avatar
        danio3834

        Woah, hold your horses. The Apollo program led us to staking a claim to the Moon! In case you haven’t noticed, that’s a heck of a lot of real estate. The Apollo program just hasn’t seen it’s full ROI yet.

  • avatar
    jz78817

    I find the number for the Veyron hard to swallow. Either there’s some “creative accounting” going on, or they’re including the sunk costs of developing the thing.

    • 0 avatar
      b787

      I’m pretty sure development costs are included, there is no way production costs of a Peugeot 1007 are 27k euro..

    • 0 avatar
      Silvy_nonsense

      With some of these examples, the problem is that the accounting is too simplistic, rather than too creative. If the technologies perfected for the Veyron and Phaeton, for example, weren’t ever reused in any other VW products, these numbers would make sense. In reality, many things developed for the Phaeton were also used in the Touareg and Continental and these numbers don’t reflect that sharing. If the costs were distributed out to better reflect use among all products, the Phaeton numbers would look better.

  • avatar
    jmo

    “The Veyron …. cars that were bigger financial flops”

    I don’t think the point of the Veyron was ever to make money.

    • 0 avatar
      KixStart

      Then what was the point? This is not a snarky question. Is there a Bugatti or Veyron brand that gets some luster from it, in order to justify the expense? Not that I’ve noticed. I’m certainly not going to buy a VW on account of the halo effect of the Veyron.

      • 0 avatar
        Lampredi

        It was a Ferdinand Piëch vanity project, that was its main raison d’être (same goes for the Phaeton).

      • 0 avatar
        krhodes1

        Because Ferd. Piech wanted to, just like the Phaeton. He wanted to build the FASTEST production car ever, and so VW did. His company (literally AND figuratively), his rules.

        But ultimately, I would take any of this outside analysis with a grain of salt. It is a guess, at best, because companies do not release anything like enough detail of their accounting practices to even begin to make this determination at an individual model level. Certainly not to the single Euro.

        What I don’t get about those old Continentals and Eldorados was why Ford and GM didn’t just price them higher? They would not have sold any fewer – if you could afford a $10K car in ’56, you probably could have afforded a $12K or $14K car. That was F’-YOU money in those days.

        • 0 avatar
          stingray65

          Marginal tax rates in the 1950s was 90+% for the wealthy, so there just weren’t that many wealthy people in the 1950s. $13K in 1957 was more than a Ferrari or Rolls Royce of that time, so we are talking about seriously high end cars of that era.

          • 0 avatar
            krhodes1

            There were enough wealthy people to buy the handful that were sold at $10K. Seems unlikely they would have sold any fewer at $12K. It’s rounding error when you get to that level.

            There are many more “kinda rich” folks these days, but I doubt there are all that many more “really, really, really” rich. Marginal tax rates are largely irrelevant when you are talking about that kind of money anyway, as they generally only apply to earned income. The super rich are not paid a salary, and have and have always had the means to avoid paying much in the way of taxes. Taxes are for working folks, don’t you know.

      • 0 avatar
        jmo

        “Then what was the point?”

        A halo brand atop the VAG.

        Also, a reward for the engineering staff. If you do a really good job shaving 0.02EUR off the cost of the door hinge on a Polo, we’ll promote you to the Veyron group and let you do the kind of cost no object engineering that makes your panties wet.

    • 0 avatar
      GiddyHitch

      What was the point then? This was no halo car since there’s nothing else featuring a Bugatti badge, as far as I know. Is there some trickle down technology in there that will somehow be relevant in 10 years time? Was the automotive industry supposed to gasp at the size of VAG’s wang? (Don’t read that last phrase out loud.) Were they trying to show Pagani and Ariel what true ridiculousness looks like?

    • 0 avatar
      imag

      I thought I had read that they would be close to breaking even with the Veyron project once all 300 had sold.

      And they are likely reusing a lot of the existing development in the next version, so there’s that.

  • avatar
    CJinSD

    Vain, stupid, and great are not synonyms.

  • avatar
    Kyree S. Williams

    That makes GM’s loss-leader (the Volt) look amateurish by comparison.

    • 0 avatar
      cognoscenti

      More accurately, “frugal by comparison”. ;)

    • 0 avatar
      sparc

      agreed. I’d say there’s also a short term goal with developing the volt.

      I don’t know what you get out of losing 2 billion on a bugatti veyron. Even from a marketing standpoint, i doubt the average person knows who owns bugatti.

    • 0 avatar
      bd2

      The 1st gen Prius also lost $$ (as did the LS400 initially) for Toyota.

      The cost of developing the Volt powertrain will be spread out over the next generations, as well as the ELR and other body-styles.

      Anyhow, the accounting seems to be overly simplistic.

      • 0 avatar
        Kyree S. Williams

        Yes, at least these cars have some kind of return for money initially spent. Technically, a car like the Veyron is a fool’s errand and shouldn’t exist, but if anyone should take up the challenge, Volkswagen is definitely the company to do it (since the conglomerate apparently has money out the wazoo).

  • avatar
    Flybrian

    This just confirms how much smart is/should be an affront to Daimler’s sensibilities and how much of a joke it is. It did nothing, proves nothing, and furthermore loses money hand over fist doing so. At least the Veyron is a pet project, at least the Vel Satis was a flagship, at least the A2 was an experiment, at the least the X-Type was an attempt. The smart fortwo is the ENTIRE BRAND. WTF, Mercedes?

    • 0 avatar
      Kyree S. Williams

      Yeah. They got rid of Maybach (which is a company that actually could have been saved if they’d bothered to update its products anytime after their initial releases). Why can’t they eighty-six Smart? It’s not like the ForTwo is *that* popular, and it certainly doesn’t add to the brand image of Mercedes-Benz.

      • 0 avatar
        28-Cars-Later

        I suspect gov’t meddling is involved with the reasons for keeping “Smart” going.

      • 0 avatar
        Flybrian

        If I were a Mercedes store, I would demand to divest myself of anything ‘smart’ related. It can’t do anything CAFE-related that a Bluetec car can’t do, so what’s the purpose.

        On the other hand, If I were an MB franchise dealer, I lost any sense of ‘standard and image’ long ago when I shilled rubber-clad MLs, G-Wagens, R-Classes, and now $299/mo CLA lease specials to well-qualified mirror-foggers, so I guess keeping my service department busy on recalcitrant transmission problems and sloppy build quality is just another profit center…

      • 0 avatar
        Brian P

        They’ve made about a million of them over two generations, probably not up to sales predictions but not all *that* bad … and the figures only give the model year range for the first generation, so I suspect that it includes the cost of building the plant that is dedicated to that car. That vehicle also doesn’t share major components with anything else, and that’s expensive.

        The next smart shares platform and components with the next Renault Twingo, so maybe there’s hope for it.

        I betcha Toyota’s failed iQ copycat of a smart lost more per vehicle due to failed expectations …

  • avatar
    28-Cars-Later

    VAG and its aspirations of Phaeton world domination at any cost aside, how could these other companies afford to sell these vehicles at such high losses and why do it? Looking at you Peugeot, Renault, Fiat, and Jaguar.

    Additional: Amazing so much money could be spent (and lost) on the Phaeton per unit and (at least the US spec) be a colossal POS.

    • 0 avatar
      SCE to AUX

      What you said. I understand flushing money on halo cars, but when you’re doing it on bread-and-butter, you’re in trouble.

      Another amazing fact is the duration of the losses – nobody pulled the plug after a few years. I suppose once the tooling is paid for, you keep hoping to turn the corner. Or maybe the mfrs feared leaving a product gap if they killed off a loser.

      • 0 avatar
        28-Cars-Later

        GM in the past has been guilty of this as evidenced by the many years of “B&B” mistake cars such as Olds Diesels, and more recently Aztek, XLR, GTO, Gen 1 SRX, none of which were sales success stories (although in GM’s defense, those weren’t B&B models). Conversely Ford, of the last twelve years at least, will kill things rather quickly (esp halo stuff), short MYs of “new” Thunderbird, Aviator, and Marauder immediately spring to mind (although two of those were basic re-badges).

        • 0 avatar
          Flybrian

          Aviator morphed into the MKX, which made a lot more sense for the division. Marauder was a fruitless aberration that couldn’t keep up with a seven year-old Chevrolet of the same variety, a rather half-cocked automotive version of grandpa trying to pick up a young girl at the Copacabana right before he dies.

          • 0 avatar
            28-Cars-Later

            I think what did in Aviator was the fact you couldn’t get it in true 4×4, it was 2WD and AWD only (I suppose to differentiate it from Explorer and Mountaineer). Every other faux luxo truck I can think of offered 4×4, seems not well thought out (although this is the same company who initially brought out its Lincoln F150 clone in 2WD only).

            Marauder was essentially an up trim Panther with enhanced braking, I believe a better exhaust, and the 4.6 DOHC as opposed to ye old 4.6 Mod SOHC. Personally I’m not sure why Ford killed this so quickly and excuse to sell a similar to P71 spec’d Panther to civilians for more money than you get from fleets seems like a winner (its not as if Panther was winding down when it was introduced). I know sales were lackluster, but it seems like a cheap way to sell the same product twice and reap enhanced profits off of the “up trim” version.

            Which seven year old Chevrolet were you referring too, the ’96 Impala SS?

      • 0 avatar
        Pch101

        ” I suppose once the tooling is paid for, you keep hoping to turn the corner.”

        In the case of the Phaeton, it’s all about Piech’s ego.

        I don’t get it. VAG already has Bentley and Audi. It makes no sense at all for the A8 to compete against a VW-branded vehicle. The 7-series and S-class already provide enough competition as is.

        • 0 avatar
          28-Cars-Later

          I would have done it as a limited production vehicle to showcase VW’s success or commemorate some kind of anniversary, and then just smile and write down the gigantic loss per unit. This way you can showcase your ego, blow millions -if not billions- as a display of wealth, and as you point out not provide genuine competition to the other VAG luxury brands.

          • 0 avatar
            Pch101

            VW spent $200+ million on a new plant specifically to build the Phaeton.

            http://www.caranddriver.com/features/vws-transparent-factory

            Since that article was written, some Bentleys were also assembled there because the demand for Bentleys exceeded the capacity to build them in the UK, while the Phaeton plant was underutilized.

            The early ambitions for the Phaeton greatly exceeded the results. VW saw it as a brand halo, but it turned out to be a commercial failure.

          • 0 avatar
            wsn

            @Pch101

            The VW boss is just arrogant. He sees VW as being the best non-luxury brand. While I see VW as the cheapo taxis on Chinese streets. It seems that more people agree with me. At in the US, the VW brand can’t even beat Subaru in sales.

    • 0 avatar
      Kyree S. Williams

      I’m sure that the number of exorbitantly-priced Bentley Continental GTs and Flying Spurs (which use that same Volkswagen D1 platform) should have somewhat offset the production-costs of the Phaeton. And I’m sure VW made money on all three of the previous-gen Touaregs that had the 6.0L W12 engine in them.

      Meanwhile, the 2011 and newer Bentley Mulsanne is the first Bentley that Volkswagen has *really* had to develop. It is chock-full of Audi electronics, but the Mulsanne neither shares its platform with other Volkswagen Group products, nor does it use the ancient Bentley/Rolls-Royce platform that underpinned its predecessors (Arnage, Azure and Brooklands). Aside from the carried-over 6.75L twin-turbo V8 (which is also ancient and which will probably get axed in favor of the Audi 4.0L twin-turbo V8), the Mulsanne is an all-new car. I wonder how much *it* cost to develop.

    • 0 avatar
      asummers

      I’m not sure it was a POS. It got nearly universal good reviews (incredulous, maybe, that VAG would make such a car… but everyone liked it) Most people that own one are enamored with it. I bought mine with 85K miles on the odo and it just turned 140K, and has been nothing but a joy.

      • 0 avatar
        28-Cars-Later

        I may have been misinformed, as this is the first positive thing I’ve heard about the car. Which model year is it and which engine is it using?

        • 0 avatar
          Kyree S. Williams

          I wonder which is *actually* least-reliable: a 2004 S-Class, a 2004 BMW 7-Series, or a 2004 Volkswagen Phaeton…

          • 0 avatar
            28-Cars-Later

            Inquiring minds want to know. I would go with the V12 iterations of all of those being less reliable than the V8s, but I’ve heard the post Daimler-Chrysler merger Mercedes had numerous electrical problems.

  • avatar
    rushn

    If the statement is “which Bernstein says loses a breathtaking 4.6175 million euros per vehicle” that assumes sunk costs are not part of it, since it’s a running production loss on every car. If the sunk costs are included, these numbers will be different for every successive car for ones that are still in production.

    • 0 avatar
      CJinSD

      Production ended after a bit less than 400 cars were made. They spent more than a couple billion Euros and only netted about half a billion. Whoops. You can’t amortize cost on a car that is out of production.

      • 0 avatar
        rushn

        Math does not work here. 400 cars at half a billion? That makes each one at about a million and a quarter. Did I miss the low cost Veyron going for half a mil somewhere?

        • 0 avatar
          CJinSD

          Euros are worth more than Bernanke bucks. That means my estimated average transaction price was $1,689,189. So their revenue was closer to 650 million Euros, but their costs still exceeded that figure by about 1.5 billion Euros. What I’d really like to hear about is the trickle down technology. Can we look forward to race car tire durability and throw away several thousand dollar rims on future VWs? The ability to burn through a tank of fuel in minutes? An engineering process described as building a ship in a bottle?

    • 0 avatar
      Hillman

      The classic formulas are price variable costs = keep producing. That said there is a ton of money in crossovers so they may have been better off to change their resources to those for a better ROI. This type of report is too simple to look at from a straight accounting standpoint and it is even worse when you don’t take into account the strategic goals of the company.

  • avatar
    cgjeep

    How did they lose money on the X type? I thought it was a rebadged Ford Mondeo or at least shared the same platform. Also they sold a fair number of them, at lest in the DC area. Perhaps they figured in warranty costs, but I thought they weren’t bad reliability wise, especially for a Jag.

    • 0 avatar
      segxr7

      That was the intention, but in reality the X-Type only shared something like 15% of its platform with the Mondeo. Most of that was the floor pan. The suspension, transaxle, AWD system, and lots of other expensive things were 100% unique to the X. It ended up with the stigma of being a rebadged Mondeo, but none of the cost savings of actually being one.

  • avatar
    marjanmm

    @Flybrian

    Nothing.

    Veyron on the other hand is the example of the principle – lets build a great thing because we can. The fact we will lose 5M for each one is irrelevant.

    • 0 avatar
      Kenmore

      “The fact we will lose 5M for each one is irrelevant.”

      If you’re gonna keep living down there, spring the 15 bucks for a radon kit.

    • 0 avatar
      Hummer

      WTF dude, I thought you were joking in your first post.

      How do you think these companies are suppose to keep their doors open.

    • 0 avatar
      rnc

      The Veyron is no different than the 959 or LFA, cars to show the world what was possible do to with an automobile, to take them to the extreme end of performance/construction/engineering, etc (not just fast ala Diablo or F40). Doubt any of the three made a penny and am quite sure that the 959 and LFA both lost thier shirts as well, but the trickle down effect from each probably lasted (or will last) twenty years or so, think Honda’s investments in F1, doubt they made money on that one, but the trickle down lasted a few decades in terms of thier production engines.

  • avatar
    deanst

    the report also claims that all the u.s. pickups are the most profitable vehicles, followed by the s-class, rx, grand cherokee, accord and 3 series.

  • avatar
    SCE to AUX

    I really like the presentation format of that chart. Thanks for sharing, Ronnie.

  • avatar
    whynotaztec

    This reminds me of the first gen Lumina; the saying was, “GM loses $1500 on each one, but makes it up on volume.”

  • avatar
    Glenn Mercer

    Not that it really matters, but last time I checked Bernstein was not a brokerage. Minor quibble.

  • avatar
    deanst

    Not sure what you are thinking about, but Bernstein is a broker dealer registered with the SEC.

    • 0 avatar
      Glenn Mercer

      I stand (or technically at present, sit) corrected. I made the error of thinking that Alliance Bernstein did the trade execution and that Sanford Bernstein was purely the sell-side research arm (they do tend to describe themselves that way), but a quick look at their website confirms you are absolutely right. Mea culpa!

  • avatar
    tjh8402

    so much for the oft repeated idea on here that car markers are not charity organizations for enthusiasts and aren’t interested in money losing cars that are red meat for petrol heads.. I always laughed at Car & Driver’s profile of Piech – this is what happens when a racecar engineer is in charge. “sir sir put down the car company and no one will get hurt”.

    • 0 avatar
      imag

      To be fair, VAG has done pretty darned well under his watch. The profits from Audi China more than pay off Veyron and the Phaeton.

      Ultimately, an automotive portfolio is all about hedging. They build small cars knowing that gas prices (or the economy) could go down and big cars knowing the reverse might happen. There are blockbusters and failures, but in the end, it’s all about the average.

  • avatar
    SCE to AUX

    Just as with women/romance, not all that glitters is gold.

    Just as with women/romance, sometimes you marry for love rather than reason. It’s a great thing when you have both.

  • avatar
    ajla

    No one has brought this up, but how can the X-type have lost money? I know it didn’t sell like crazy, but there wasn’t much bespoke on it in the first place. It’s like losing money on the 4th gen Buick Regal.

    Did everyone involved with the X-type get fired?

  • avatar
    Kristjan Ambroz

    A minor point but the Vel Satis had nothing in common with a coupe, nor could the Avantime (which was a coupe) be considered a twin – apart from sharing a badge and a couple of engines they were based off completely different platforms.

    One point being repeately made is correct, though – several sources of the time claimed that VW swallowed all the development costs in the Phaeton project to make the Bentley Continental GT and Flying Spur (without those) look good financially. Add the development costs there and they would need to have sold those completely unchanged close to peak volumes for near a century to recuperate the initial investment.

  • avatar
    Beerboy12

    While the math must have been entertaining and the comparison somewhat interesting, it is, for the most part, irrelevant. Two cars from the 50′s vs more modern offerings? The question that is not asked and the comparison not made is, did the big three not loose money on cars since then? I find that hard to believe considering the bankruptcies etc.
    Would it not have made more sense to pick a few products (both sides of the pond) from the 90′s? At least the math would be less eye watering.
    The only true competitor “money is no object” in the European list was the Vyron. The rest were misunderstood or poorly thought out vehicles int the wrong market at the wrong time, something the big 3 were pretty good at too, mind you.


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