GM CEO Drives a Chevy Volt to Washington...Sort Of

The Prius is making money despite your bogus claims to the contrary.

p.s. Do you work for CNW?

 

That would mean GM being held to the same criteria.

15,556 was the quantity sold here that first year... way back when gas was cheap and misconceptions were abundant.

GM should at least match that... an entire decade later, after hybrids have already become well established.
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No, just an unemployed engineer. You can believe what you want, after all, if it is in the Toyota press release it must be true, right?

 

I didn't know halo meant money loser.

 

How could the Prius possibly be losing money at this stage of it's life? Every high volume product experiences a constantly declining cost curve over it's life with few exceptions. The early Prius's were certainly not money makers, but please note it is a $25,000 car, not a $12,000 car, and has been in volume production coming up on a decade.

 

If you want the whole discussion and my reference material look at the thread titled: Toyota losing money on Prius? You can also ready all the comments by people that told me I was crazy and Toyota makes $3,000 for each Prius sold.

Here is the short version:

Toyota made an operation profit margin of 8.9% in 2006. (That was the highest profit margin in the industry) That would be $2175 on a $25,000 car.

It sounds good until you look at this:

Toyota's profit per vehicle:
2005 ---- $1175
2006 ---- $1977
2007 ---- $922

That is average across the entire model lineup including SUV's and trucks that they make in excess of $10,000 per vehicle.

Now recently Toyota as announced that they will make the same margin on the 2010 Prius as what they make on a small car such as a Corolla. This is due to a 50% cost reduction on the hybrid components. That shows us that Toyota currently makes less on the Prius then even a Corolla.

Then you have this little tidbit from a transcription of a Toyota conference call:

Takeshi Suzuki - Senior Managing Director

.... "And regarding the operating margin in North America it declined during two quarter so your right by pointing out that it was below 4%. One factor that relates... compares second quarter against the first quarter this year is that in the second quarter the operating margin decreased because of the fact that in the first quarter LS increased substantially, the volume of LS was predominant whereas in the second quarter it was the Prius that accounted for the large volume there"..........
Toyota Motor Corporation F2Q08 Semi Annual Financial Results Conference Call Transcript - Seeking Alpha

So the Toyota's margin fell to less than 4% in the second quarter of 2007 BECAUSE they sold lots of Prius. This is more evidence that if the Prius makes a profit it is very small.




Add to this that the Prius is not a normal car with a normal development cost. I've never seen dollar figures on what Toyota spent to develop the Prius and I doubt those will ever be made public. We do know some of what the US government and US automakers have spend on Hybrid development:

From what I could find in budget reports on the Partnership of Next Generation Vehicle the US government spend ~ 3 $Billion on the program. By the charter this was suppose to be a 50/50 project so the Detroit 3 should have put up another $3 Billion. That is $6 Billion for PNGV program.

Remember that Honda and Toyota kicked of the hybrid development in response to PNGV.

Yesterday, GM announced that they have spent $760 Million so far on the Volt program which is still early in the prototype phase. That is in addition to the money they spent on PNGV hybrids, EV1, BAS hybrids, and 2-Mode hybrids.

I add this all together and conclude that even though Toyota claims to make a profit on the Prius they probably don't and if they do, it is tiny and symbolic.

Edit: I don't see the Prius as a bad investment for Toyota. It has been a huge marketing success giving them an image as a technology leader and environmentally responsible company. It will also be a building block for future hybrid and EV technology.

I don't buy the argument that the Detroit 3 would be profitable today if only they had built a car equivalent to the Prius. I see the Prius as a marketing and technological success not a financial success. This idea seems to be very offensive to many here at Prius Chat.

 

Who claimed that?

The goal of Prius up to this point has been to build an infrastructure for tomorrow, so major production can be transferred over to the HSD platform later. Toyota is well on its way to achieving that, but isn't there yet.

What does GM have to compete directly with Prius and Camry-Hybrid? Nothing. Focus on extreme sized products accomplished what?

Fortunately, Ford actually does have something available. Though slow, they are taking the need seriously. The path to profitability in the future market is being pursued.
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It's a meaning full discussion when global claims (such as the "Prius loses money") are replaced by details, such as you provided. Here are the points I want to stress:
1) If Toyota is loosing money NOW on the Prius, then they will eventually go out of business with such senseless pricing. The manufacturing cost are probably getting as low as they are going to go and the volume is high enough that if the car is not in the black, it never will be without a big price increase.
2) Every car manufacturer has been making the vast majority of their profit on monster vehicles. The big difference is when this market drys up, some are left in the negative and some are left a lot less in the Black. Talking about comparing the profit of a Prius to a Corolla and then point out the margin dips is sneaky. The margin dips are do to the changes in the massive vehicle market, not the Prius market.
3) Toyota's development and pricing of the Prius (and all their Hybrids) is done as part of a strategic plan. I doubt that their plan was to go into the red forever. Their plan would require a substantial investment up front, but this is how beating the competition works. Are they beating the competition?

 

How many of toyota;s sales are Prius and Camry hybrid? Not even 10% in the US. IF GM or Ford had a current Prius fighter it would help with image only and not the bottom line. What is there to understand about that?

 

granted we are talking about 1990 dollars here but the info i got on the "PNGV" program was 1.5 Billion spent by the Government which was significantly more than the money inputed by the big 3.

either way, cost is not relevant here. i have spent weeks talking with people in the car industry and the real bottom line is that its simply not basic math when figuring out the amount of profit per vehicle.

the only real info i got was ANY manufacturer wants to sell you a car with options. it appears that the profit margin on extras; be it small car, big car, foreign or domestic, is obscene.

so the "real" profit margin for selling a Pri is all really speculation and we will never know true cost of putting one to market.

besides the "true" value of the Prius is not dollars and cents... its value as the best hybrid on the market today and what it does for Toyota's reputation, whether its deserved or not... as one credit card company would put it

PRICELESS...

any questions?

 

True, but Toyota has very little debt and last I saw, about $30 Billion in cash. In 2007 the Prius only accounted for 2% of global Toyota sales. They can afford to take a small loss on the vehicle in order to be the undisputed leader in hybrid sales.

It is true that but Toyota was expanding sales of the tundra at the time. The current generation Tundra was introduced in Feb 2007:

Jan -- 6,321
Feb -- 9,669
Mar - 13,196
1Q --- 29186

Apr -- 14,200
May - 17,727
Jun -- 21,727
2Q --- 53,654

Now in April 2007 Toyota was offering $3500 cash back on the Tundra. Later in his talk Suzuki-san mentions incentives on the tundra being another reason for low profits. He also says that Toyota expected to offer incentives to match the Detroit 3 and break into the market. What he doesn't mention is that Toyota was discounting the previous generation as well. They were offering $4500 cash back in April 2006. Yikes: Another $1,000 off on Toyota Tundra - Autoblog

I have no doubt that Toyota has a strategic plan. The Japanese company that I worked for was willing to introduce new products at a loss to gain market if they were confident that they could turn a profit within 3 years by cost reductions. This worked well until recently when no amount of cost cutting could overcome the massive increases in raw material and transportation cost. Notice the price of steel over the past 5 years:


I personally believe that Toyota's plan was sell the first generation at a loss, break even on the 2nd, and start to make normal margins on the 3rd. I think the 2nd phase hasn't gone as planned due to increased cost. The 3rd gen may well be a good profit center for Toyota especially as they leverage the platform by making a Lexus version.

Are they doing better than their competition? If you compare them to their Japanese rivals, no. In the rush to expand their product line and become the largest manufacturer in the world, they are losing their margin.

My model for success is Honda. In 2007 Honda made $1641 per vehicle. Honda only sells 9 models in the US and Acura has 5. Combined these 14 models hold 12% of the US market share and are built on only 5 platforms.

1) Fit (Sold as the Jazz around the world)
2) Civic, CRV, Element, TSX, RDX
3) Accord, TL, RL
4) Odyssey, Pilot, Ridgeline, MDX
5) S2000

Note: S2000 is the only stand-alone model. It is Honda's Halo car and will be discontinued after 2009 and replaced by the Insight as Honda's halo car.

 

The key thing to understand is that cars 10 years from now will be based on decisions being made in the present. The problems of GM today were created some time ago. (Your previous posts support this point.) If the US auto industry is to survive it MUST make better decisions or have the government outlaw non-US cars. What follows when the bailout(s) terminate? I agree that the hybrid market is small today but it is very significant to the future of auto manufacturers.

Note the lag between GM coming out with their flagship Escalade Hybrid after Toyota came out with it's flagship Hybrid. It's about one decade. I got my 2001 when the hybrid was considered a Toyota joke by GM. Now the point is that the hybrid percentage is under 10%. Looks like a gigantic number considering the future.

Toyota "can" take a small loss, but I try to keep making the point that the manufacture cost curve makes this a temporary statement, not a permanent condition. So the meaningful question is when did this get crossed, not if. Sure we can try and extract the date, but at this stage of the Prius evolution, it would have been crossed, otherwise increasing the Prius manufacturing volume over the last few years would have been senseless.

This is a valid point, but the discussion is no longer the relative contribution of the Prius, it is the total financial aspect of the worldwide auto industry.

Sensible statements that I like reading. Don't overlook the big picture that Honda seemed to misfire somewhat on the hybrid market (by Honda's own statement) and is now following the Toyota model....and I'm pretty sure Honda's hybrid plan is not to just break even on their hybrids.

The claim that Toyota is losing money on the Prius is not reflected in anything I can find, nor can I figure out why they would "need" to lose money on it for an entire decade. I would fully agree that it is not their high profit vehicle, nor a major contributor to the company bottom line today. I would also agree that as world vehicle markets take a beating, that the Prius is subject to the same effects as every other model, possibly more so. However, Toyota seems to consider the Prius one fantastic success so far....and in the auto industry success is measured ultimately by the bottom line (unfortunately).

As a final note, I remember when IBM pointed out that the PC market was insignificant to their mainframe market. It was a 100% valid and true statement.

 

I don't doubt that Toyota could afford that, for a time. But the Prius has been around for over a decade and they have increased production to the point of being a solid seller year in and year out.

I don't know the exact number, but given the number of US Camrys sold compared to the number of Pri sold, then Camrys may only be about 8% of global Toyota sales. Kinda brings that 2% into a little better perspective. While it is possible that 10 years later, Toyota is still not able to make any profit on the Prius, all you have is conjecture (albeit attempted educated conjecture) based on very limited published information.

In the end, it doesn't really matter if Toyota is or isn't making money on the Prius. But they are making money as a company and continue to innovate new hybrid technology and produce a large number of hybrids (compared to any other car maker).

 

It also says a lot about what the Big 3 CEOs think of the American public.

Take a private jet into town, then slip into a hybrid to drive 2 or 3 miles to the Capitol building. Nice.