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Alternative Fuels, Hybrid Cars, Fuel Efficiency (MPG), Truck, Sedan, SUV
#149 of 178 Of course there is creative accounting
Mar 04, 2005 (2:39 pm)
I'd rather not sit here and accuse Toyota of "creative accounting" when that is pure slander/guesswork/speculation.
I'd like to think that they are smart enough to cut their manufacturing costs enough to show a profit on any car they build - as would behoove the most profitable car company in the world.
#150 of 178 Re: Of course there is creative accounting [larsb]
Mar 04, 2005 (7:37 pm)
I would guess that the most profitable car company in the world would thus be paying the least tax, as taxes and profits have an inverse effect. So to become the most profitable, and minimize their taxes Toyota doesn't do any creative accounting? They report their true profits and pay 40+% tax?
I'm sure you're going to tell me Toyota gives the consumer the best deals, yet somehow makes the most profits, but pays a great deal of tax, and gives the rest to charity?
But tax authorities only care about overall finances. They don't care about internal accounting practices such as whether you want to charge all your utilities and property tax to 1 model. The SEC and their equal in Japan are not going to care what internal Managerial Accounting techniques a company uses - how creative it is. The executives at a company can say a vehicle costs $15K or $25K and the SEC will not give a darn as long as those costs end up somewhere. If A+B+C = 100, all the SEC cares about is that 100 gets reported, and not whether you want to call A 25, 60, or 95.
Mar 08, 2005 (8:39 am)
Toyota says it costs $1900 to hybridize the New Prius. So the question is: Is Toyota selling the New Prius at a high enough price to cover that extra $1900 expense?
I'm leaning towards "yes". The New Priuses' true value as a TINY compact car, is only $17-18,000, but Toyota is selling it for $20,000.
I don't think Toyota is losing money. They are covering their $1900 expense with a $2-3000 markup.
#152 of 178 Prius a "tiny compact car" huh? Odd....
Mar 08, 2005 (8:50 am)
quote E-Troy:"I'm leaning towards "yes". The New Priuses' true value as a TINY compact car"-end quote
Prius II is a "tiny compact car" huh?
Strange that it is classifed as a midsize sedan. Hmm....
#153 of 178 The New Prius = Mid-size (barely)
Mar 09, 2005 (10:03 am)
Yeah I forgot it was upgraded. Still, you're so busy nitpicking the details that you missed the main point:
- The New Priuses' true value is only $17-18,000, but Toyota is selling it for $20,000. They are covering their $1900 hybridization expense with a $2-3000 markup.
#154 of 178 Re: The New Prius = Mid-size (barely) [electrictroy]
Mar 10, 2005 (5:19 am)
you: The New Priuses' true value is only $17-18,000.
me: You can't really add cost and value, they're not the same thing. Value is what the customer is willing to pay for. That will hopefully be more than than cost, and the difference is profit.
If a person is willing to pay $25K for a vehicle that is its value. Whether $23K or $27K of labor, materials and overhead were expended to produce the vehicle is the cost.
The question with the Prius and other low volume vehicles, or vehicles that don't share a common architecture - say 250K vehicles is, can you cover the costs.
There was specific R&D and design of the Prius, specific tooling for the body pieces, a factory, the labor, the government testing, advertising , transportation ... And remember that money spent 3-4 years has to have a return of 10% or so, which is usually a guideline as to whether to invest money or not. Revenues generated early are more valuable then generating them a few years later. If Toyota put $100M into designing the PriusII in 2001, basically the cost is $100M + 10% interst compounded yearly. So the profit on the Prius would have to be $10M+ each year just to cover "the interest" of the investment. That is why if you want to make a profit on a product, you need to sell 100K+ vehicles each and every year. Otherwise you're not going to make a profit. Toyota may sell Prius's for more than the parts and labor, and pay some of those initial startup costs, but you really can't do that without volume.
Or you end up having to charge a lot per vehicle, which is partly why cars like Ferrari, and the Viper are so expensive. The Corvette is more reasonable selling about 40K units, and its sister car - the Cadillac XLR(?) helps keep the cost down by sharing the expenses. But still they are relatively expensive.
The Prius may be getting near the volumes where it can cover and repay those costs.
#156 of 178 Re: Yet again, Toyota states the truth... [larsb]
Mar 10, 2005 (8:59 am)
Another Toyota exec saying hybrids are profitable:
A classic case of double speak!
Hermance: You're believing my competitors again. We don't lose money on each and every vehicle.
By having been there first and having gone through significant cost-reduction activities, these vehicles are profitable for us. Now, the argument the other folks make is that they can't see a business case; but it depends on the level of maturity of the technology, how much cost you've engineered out of the technology, whether or not they make business sense.
In other words how much of the 2 billion in R&D did they write-off as advertising costs? You will not get a straight answer out of Toyota.
#157 of 178 Who cares about R&D and advertising ??!??
Mar 10, 2005 (9:08 am)
EVERY new car has R&D and advertising costs....
We are talking about "making money on the car right now" based on what it costs to build it right now.
And Toyota is doing that because they have engineered the process to be profitable.
#158 of 178 Re: Who cares about R&D and advertising ??!?? [larsb]
Mar 10, 2005 (9:45 am)
you: We are talking about "making money on the car right now" based on what it costs to build it right now.
me: so with this reasoning, I can open a donut shop and I consider that I'm making a profit if I just concern myself with the cost of the donut ingredients, the oven and any labor. The donuts I sell don't have to pay for the building, the counter, the cash register, any seating, lighting, heating?
I can just ignore all the design costs that go into the building? and ignore that I have to tie up $200,000 for the building, while I could invest it elsewhere.
No, you can't ignore those costs! Give it a try in any sort of business. You need to have a combination of profit per unit, and number of units sold to pay back the investment and the everyday operating costs.
For a product to be profitable:
(profit-per-unit x # of units) > (return-on-investment rate x investment) + operating costs.
If designing, testing, certifying, tooling a factory, cost several hundred million $'s in investment that money + the money it could have been earned all need to be finanacially recovered.
Toyota invested the money in the Prius II several years ago, so each year since then, that that money isn't paid back, is more money that needs to be paid. It works just like credit card interest.
Borrow $100 today at 20% interest and payback $5 the first year, and now you're paying 20% on $115.
With autos it is worse, as you could spend that $100M a few years before selling the first vehicle. So 100M becomes 110M and then 121M, by the time you sell the first one. That needs to be paid off by profit, for the product to be profitable.
Now having just taken some Accounting classes, I'll tell you that some companies put on their Balance Sheets, assets such as Intellectual Rights, or Goodwill (PR) which can be nothing more then peoples' perception of your company.