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Tony @ Apr 22nd 2008 8:00PM
I am always a bit cynical when companies proclaim loudly that they are losing money.
Here's an example. If I build a car for $10,000.00 this includes all R&D advertising costs etc, etc. I then advertize this car for sale for $30,000.00. Nobody pays $30,000.00 for the car so I end up putting incentives of $5000.00 on the vehicle, and rebates to the dealer. Finally somebody comes in and buys the car for $20,000.00. Did I make a profit of $10,000.00 or a loss of $10,000.00, since I didn't sell it for $30,000.00?
The old adage of a cup half full or half empty. If you want to negotiate a better deal from your employees (union) you'd pick the half empty one, wouldn't you.
Judy Zik @ Apr 22nd 2008 9:53PM
The Car companies would be over the moon if they could sell for 20 grand a vehicle that only cost 10 grand in materials, R&D and overhead. No main line manufacturer see's margins anywhere near that.
What really happens is that they are spending a certain amount to build it and hoping to amortize the cost of R&D and advertising by figuring on another set amount per vehicle if they sell a certain amount per month. But then they only sell half of what they expected so you still have the same overhead but you have to amortize those costs over half as many cars which means your margins disappear. Then add in the fact that you had to discount the cars to sell the few you did and when you run the numbers they are actually losing money per unit quite often. This is how all of the big three ended up in the red. It is real money going down the tube.