A Breakdown of How Much Does It Cost to Make a Car
How much does it cost to make a car? In a September 2012 article in Reuters, the writers claimed that GM was spending $89,000 to build a Volt and the company as losing $49,000 on each vehicle. Bob Lutz, the man behind the engineering of the Volt, dismissed the article shortly after by calling the estimated amount of loss per car ‘preposterous’.
However, the original article created a buzz in the media and industry, leading to numerous speculations about the actual cost of making a car.
How Much Does It Cost to Make a Car?
No automaker reveals the actual figures. So, the final estimation depends on plenty of ‘ifs’ and ‘buts’. The general rule is the larger the car and the bigger the production volume, the more cost-effective they are to manufacture. Building a concept car or a limited number of exclusive versions is much more expensive than producing a big lot. When tens of thousands of similar models of a vehicle are produced in a factory, the pricing meter tends to go down.
But, how much does it cost to build a car? Well, it depends on two sets of expenses – fixed costs and variable costs.
Manufacturing a new model means a few years of mandatory research and development. It includes the cost of maintaining the facilities, testing prototypes, paying the salaries of the staff, finding suppliers, and some other related things. It can cost hundreds of millions and it will increase if you decide to send the prototype into production. Retooling the factories and retraining the workers (in case, it’s a completely new product) will add to the figures.
The fixed costs will be the same whether you manufacture one unit or a million. But, the expenses will go down at the time of producing the second generation of these models. For example, the fixed costs for the 2nd Gen Toyota Prius were much less than the 1st Gen models because they incorporated many technologies developed for the 1st Gen batches.
These are the expenses when you will go into the production of the vehicle. These include the costs of raw materials, labors, maintenance and utilities in the factories, and other related things. The costs will be proportional to the number of units manufactured.
The Breakdown of the Manufacturing Cost of a Car
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How much does it cost to make a car? It’s not possible to get an exact figure. According to the 2012 study Automobile Industry Retail Price Equivalent and Indirect Cost Multipliers, the breakdown of the production cost of a car is:
- Raw materials and the prices of auto parts – 57% of the total price
- Research, development, engineering, and running the facilities – 16%
- Average advertising charges for each sold unit – $1,091
- Average dealership markups per unit – $1,497
- Estimated sales tax for each car – $4,984