Rick Lee

Let 'em charge whatever they can get away with. There's no shortage of buyers out there. I'd also be curious as to how they compute their cost per unit. Germany is run by labor unions, they have the shortest work week, the most paid (gov't mandated) vacation days and some of the most confiscatory taxes in the world. So I'm sure it costs them plenty to make these cars and keep the gov't and unions off their backs.

I remember barbacking at a very trendy place here in DC years ago when I asked how much it cost them to fill that 5 gal. jug with margaritas, which they sold at the river bar (back in 1995) for over $5 per glass. My boss said they could fill that jug for under $1.00. So figure $5 per glass and how many can you get out of a 5 gal. jug? Sound outrageous? Then see how much a liqour license runs in DC, how about insurance, workers comp., bus. license, health code compliance, greasing pols for zoning issues - after all this the profit margin doesn't seem so outrageous after all. Besides, it's not like you have to hang out there and buy margaritas. As I've heard at every sales job I've had, "If they're willing to pay it, we're willing to charge it."

TheOtherEric

Sorry, Rezal, you're a bit off. SIC 3711 is neither industry average nor Big-3 average. It consists of GM, Ford, and a couple small guys (GM & Ford make up 97% of the sales in that industry group). Non-U.S. companies are not included, so it's not an "industry average".

Since GM and Ford were roughly 49% of the 2002 U.S. sales (Market Share Reporter), then it can be said that about half the U.S. auto market earns 15% operating profits.

I would agree with you that the reporter probably meant "gross" profit, which would make sense.

Rohan Nath

Pricing based on cost is in my view a major mistake.

Companies should price their product at whatever the market will bear. Its the free enterprise system that we all know and love (well at least I do...).

This rewards innovators - to take an extreme example, anyone that can build a million dollar product for one dollar deserves to make $ 999,999 in profit (at least until the competition figures it out).

And it punishes laggards - anyone that makes a million dollar product for two million dollars deserves to go out of business not sell their product for $ 2.2 million (their cost plus a reasonable profit).

Ron_H

Try to imagine GM owning Porsche. I cringe at the thought. Try to find another comparable to Porsche. Either you want it and appreciate it or you don't. And at the price....it is reasonable. Take it further and try to find a car to compare to a RUF at any price. I have yet to drive a Ferrari but wonder if it is comparable...at much more money. The point is: Is the car what you want? Is it worth what is asked? That they make a lot of profit on the car is irrelevant. If it meets your needs and wants who cares at any price because it is the ONLY GAME IN TOWN. Pay or don't play.

SLVR

There is a big difference in costs if you look at production costs only or if you figure in R&D of the vehicle, production engineering, marketing costs, overheads, etc. (at least they got rid of the costs of racing development ;-), oke, just kidding put the knives away...) Most reporters at the NYT probably don't have the vaguest idea of accrual accounting anyway!

TheOtherEric

Yes, agreed SLVR. Porsche is probably not making $50,000 "profit" per vehicle since that amount probably doesn't include those overhead costs you mentioned. Would somebody please source that quotation!?!?

993_in_D-town

I work for Ford and heard that it really depends on the vehicle. Ford is actually losing money on every Focus they sell, while making much more on their trucks. I try to stay away from information like profit/vehicle, because unless I'm a stockholder, it's depressing. My 993 is 10 times more fun to drive than my Explorer, but it only cost me 3 times as much.

Rezal

Eric86Red911,

I hate to debate on a public forum but the SIC is used to measure domestic production, regardless of ownership. Consequently, any manufacturer in the US would report its production under that code. Here's a partial list of companies under the 3711 SIC based on the Securities Exchange Commission:
http://edgar.sec.gov/cgi-bin/browse-...ion=getcompany
The list includes Honda and Toyota who have plants in the US. Other mfrs with US plants (Nissan, BMW) are not listed because they don't have any filings with the SEC. Porsche sales would not be recorded under 3711 since no Porsches are mfd in the US.

Since SIC 3711 is such a broad category that may include Tier 1 suppliers who are "makers of chassis and passenger car bodies" and bus, truck, and motorhome mfrs, it cannot be used reliably as a gauge of passenger car profitability. The 15% margin is probaby meant to reflect US companies classified under 3711, so in a way, you are correct but given GM diverse holdings (Hughes, Fiat) and the non-auto companies under 3711, 15% doesn't tell me anything about specific auto mfr margins.

Lastly, the SIC was used in 1987. The latest data is tracked under the NAICS codes, specifically 336111, "Automobile manufacturing"
http://www.census.gov/epcd/naics02/d...11.HTM#N336111

Sorry for this OT diversion but I felt compelled to clarify what SIC classifications mean.

Greg D.

financial times
www.ft.com
8/11/2003

> > FEATURES: Porsche Reaches a Difficult Turn
> > By Uta Harnischfeger and Wendelin Wiedeking
> > Financial Times; Aug 11, 2003
> >
> > As he slides intoa red Porsche 9114S cabriolet, Wendelin Wiedeking's
> > eyes sparkle like those of a first-time showroom visitor. Faced with
> > the prospect of a spin on Austria's curvy Silvretta road in the high
> > Alps, the head of Porsche is eager to get going. "It is an art -
> > selling one of the world's most superfluous things," he smiles.
> > On the road, the car growls at the pristine landscape and leaves the
> > lazy cowbells ringing in its wake. A fitting image for Mr Wiedeking:
> > one moment he puffs thick Cohiba cigars and discusses golf, riding
> > and sports cars; the next he debates Russet potatoes and the merits
> > of organic farming.
> >
> > The contrast between Mr Wiedeking's boyish spirit and the snob
> > appeal of his sports cars has made the 51-year-old, after 10 years
> > at the top of Porsche, one of Germany's most acclaimed managers. But
> > it is at times like these that Mr Wiedeking has to earn those
> > accolades.
> >
> > He will need all his skill and bonhomie to pull Porsche through its
> > latest woes, including sagging sales, plunging shares, the rising
> > euro and worries that its late entry into the sports utility market
> > could go awry.
> >
> > Mr Wiedeking's name pops up whenever a top post at a German
> > blue-chip company opens up and he can barely keep track of his
> > "manager of the year" awards.
> > He is also admired for putting up a noisy fight against Deutsche
> > Börse, the Frankfurt stock exchange operator, which expelled Porsche
> > from the mid-cap segment after Mr Wiedeking refused to publish
> > quarterly reports.
> >
> > An oddity among German managers, most of whom shy away from
> > political issues, Mr Wiedeking openly bemoans German companies
> > moving abroad or, alternatively, accepting subsidies to stay. Last
> > year he declined the 50m (£35m) subsidy offered to build a new
> > Cayenne plant in Leipzig and told the cash-strapped state to spend
> > it on day-care centres, schools and roads instead.
> >
> > Mr Wiedeking's earnestness has won him sympathisers. His favourite
> > stories centre on his home-grown potatoes, which he harvests with a
> > bright red 1960s vintage Porsche tractor, a wedding present from his
> > wife.
> >
> > Recently, local farmers confessed during a harvest celebration that
> > they had secretly fertilised and sprayed pesticides on his potato
> > patch whenever they treated the neighbouring land, to do him a
> > favour.
> >
> > "I always assumed that my loving care and organic treatment alone
> > made the plants stand so full and healthy," Mr Wiedeking says.
> >
> > Credited with saving Porsche from bankruptcy in the early 1990s, Mr
> > Wiedeking turned the legendary sports cars into a coveted brand and
> > made Porsche the world's most profitable carmaker. Last year alone,
> > the company paid the Porsche and Piëch families, who control
> > Porsche's common stock and hold about 10 per cent of the voting
> > shares, a 300m dividend - equal to the value of Porsche's entire
> > common stock 10 years ago.
> >
> > But all is not well. Earlier this year, Mr Wiedeking hit an unlucky
> > streak when sharply lower sales of Porsche's two main sports car
> > models, particularly in the US, coincided with the euro's rapid
> > appreciation. The situation was not helped by the general economic
> > malaise and a growing number of competing roadsters.
> >
> > Hitherto spoilt for good news, investors took the reverse to heart.
> > Reports that US sales of its flagship 911 model had plunged 40 per
> > cent in February knocked Porsche's share price to 251, about half
> > its level 12 months earlier. Worst of all, the news brought back
> > memories of the early 1990s when Porsche stood on the brink of
> > collapse after a sharp rise in the D-Mark coincided with a failed
> > model policy.
> >
> > The gloom spread: reports of declining 911 and Boxster sales spurred
> > talk that the Cayenne, a chunky eight-cylinder 100,000 sports
> > utility vehicle and Porsche's first non-sports car in its 54-year
> > old history, was selling worse than expected.
> >
> > Lately, analysts have been fretting at signs that Porsche might
> > launch a cheaper and less powerful six-cylinder version of the
> > Cayenne, a move they believe would be an admission of defeat.
> >
> > But Mr Wiedeking dismisses talk of a repeat of the early 1990s
> > crisis. "The Porsche system is stronger than ever," he says, adding
> > that he learnt a lot from Porsche's mistakes in the 1990s.
> >
> > For one thing, Porsche is fully hedged in the currency markets until
> > 2006. In spite of its strong dependency on the US - Porsche sells
> > half its cars there - Mr Wiedeking says the company's small scale
> > means it would not be worthwhile to set up production facilities or
> > outsource there.
> >
> > Mr Wiedeking is also adamant that Porsche has healthy cash reserves
> > - it generates about 1bn a year in free cash flow - and is open in
> > his contempt for banks. He chuckles with delight when he recalls
> > Porsche's 1994 capital increase, which sold out in a few hours after
> > Deutsche Bank had refused to underwrite the deal.
> > Likewise, Mr Wiedeking cited "cost reasons" when he recently reneged
> > on a pledge to return to motor racing after leaving the Le Mans
> > competition in 1998.
> >
> > He says Porsche's "breathable" production system and low fixed costs
> > are saving the day. Already, the company's flexible set-up has
> > allowed it to slam on the brakes: besides extending summer and
> > winter holidays at its Zuffenhausen 911 production site (made
> > possible by employee overtime accounts), Porsche has lowered daily
> > work hours at its new Cayenne plant in Leipzig. It has also asked
> > Finland's Valmet, where it outsources Boxster production, to cut
> > daily output from 90 to 70, a figure that could soon fall to 50.
> >
> > Regardless of lower output, Mr Wiedeking is sticking to his goal for
> > the financial year just ended of improving on the 4.9bn sales and
> > 462m pre-tax profit that Porsche recorded in the year to July 31
> > 2002.
> >
> > The Cayenne highlights Mr Wiedeking's fear of high fixed costs: the
> > car is built in a factory jointly owned and operated by Porsche and
> > VW. VW builds the Cayenne's chassis and other large components,
> > leaving Porsche to manufacture only about 10 per cent of the car,
> > including the engine.
> >
> > Mr Wiedeking admits that the Cayenne, criticised as an
> > over-engineered monster and a latecomer to an already saturated
> > market, is the most daring step in his career. "The Cayenne is what
> > I am most nervous about," he says, although he feels recent events
> > have vindicated his decision to go ahead with it.
> >
> > "In retrospect, the Cayenne was perfectly timed to fill the gap just
> > now arising from slowing sales of our two core models."
> >
> > Mr Wiedeking firmly believes there will always be room for a niche
> > product such as the Cayenne. "Safety is big in the US - even if a
> > housewife just uses it to get groceries at the nearby supermarket,
> > she wants to be safe."
> >
> > But Mr Wiedeking's optimism about the buying power of some wealthy
> > suburban mothers cannot obscure Porsche's growing problems. SUV
> > sales are beginning to flatten overall as the petrol-guzzling
> > machines come in for criticism from all quarters. There is also a
> > growing threat of lawsuits against SUV makers in the US.
> >
> > After selling about 15,000 units since December, Porsche plans to
> > sell 25,000 Cayennes in the 2004 fiscal year and expects production
> > to peak at 40,000 a year.
> > Looking ahead, Mr Wiedeking talks excitedly about the group's
> > forthcoming fourth model, widely expected to be a four-seater coupé.
> >
> > Undoubtedly, Mr Wiedeking's success has earned him the controlling
> > families' trust and allowed him to become more daring.
> >
> > "In the past the families would have definitely said No to a project
> > like the Cayenne," he says.
> >
> > But before he approaches the owners with a fourth model, Porsche
> > will relaunch the Boxster and 911 models, starting next year, and
> > add new high-margin 911 versions. For example, the specially
> > produced 911 GT3, of which Porsche will build up to 300 units at a
> > retail price of 125,000, earns Porsche an operating profit of
> > 50,000 per car.
> > "I have the entire model outline until 2010 in my head," Mr
> > Wiedeking says.
> >
> > Whatever he decides for the fourth model, Mr Wiedeking is set on
> > safeguarding Porsche's image. "Strong brands are the future," he
> > says, and proceeds to lament the mass-market success of Warsteiner,
> > his favourite beer from his Westphalian home. "Warsteiner failed to
> > maintain its exclusive image," he says - and takes a healthy gulp.

Jack Ennuste

Porshe won "best car in low depreciation" title. If I remember correct, 3 years old car depreciated significantly less than all major brands.

But I totally agree with You. Major depreciation happens driving off the showroom. I also prefer to buy low-milage second-hand cars.

Greg D.

>Porshe won "best car in low depreciation" title. If I remember correct, 3 years old car depreciated significantly less than all major brands.


not sure how they pulled that off... Paid $51K for a 2001 boxster and less than 2 years later it was worth $29K ! ;-( Not doing that ever again ! But that's a separate topic... I am very happy with the 993 however !

TheOtherEric

Yes, thanks for the clarification. My points above related to Ibbotson's compilations; Ibbotson Associates doesn't include all those companies in its listings. Its "SIC Composite" for SIC 3711 only includes GM, Ford, Paccard, Oshkosh, (and maybe one other I forget). So granted it's not all-encompassing but it's good nuff for govment work. Dunno, maybe someone has a more comprehensive compilation. Maybe Bloomberg.

Franklin229

I say let manufacturers charge what they need to charge. I personally don't believe that there are any high end sports cars out there worth paying retail for...
If you are interested in purchasing a fairly reliable car like a Porsche and you have patience, then you could almost buy used all the time, provided you do your homework. If you work it right, you can actually buy a car at a price that is much closer to it's "price value" as compared to new. The affects of mileage on these cars is insignificant if taken care of.

TheOtherEric

The url:
Porsche article

First off, note that all amounts are in Euros, not US Dollars.

Second, it sure seems odd that the overall company is making pre-tax profit of 9.4% but might expect 40% operating profit on the GT3. Pre-tax profit should be close to operating profit for them (the diff is interest costs) so that reaffirms my belief that it's an error.

Kevin Reilly

The 40% profit on the GT3 struck me as a "contribution" figure...before corporate overhead, interest and other costs. Would be gross profit less selling costs.