How car companies really make money | Podcast #212

Dan Prosser and Andrew Frankel discuss the ways in which car manufacturers really make money. Very often the profit margin on the car itself will be very small, but the profit on optional extras can be significant.

At the top end of the market, the likes of Ferrari, Bentley and Aston Martin are generating huge revenues by offering ever greater levels of personalisation, from bespoke colours and finishes to entire one-off builds. Indeed, those high-end manufacturers now have whole departments dedicated to optional extras and personalisation. Here's how it works.

#bentley #ferrari #carpodcast

This is episode 212 of The Intercooler podcast, available wherever you get your podcasts.

[ForeverManual]

13:45— That’s exactly why, while being an automotive journalist, I had to create a YouTube channel dedicated to the Base manual 718 after accidentally buying one. I never drove it prior to that! Regular people struggle to find the info on base models and there is nothing the press can help them with 😢

[sutats]

The economics of wheel options that most don't realise is that one does not retain the original factory configured wheels when a cost option wheel is "added" instead. Generally options are an addition to instead of a replacement of a configuration.

On a side note, I remember seeing a Nick Murray YouTube video in recent years where he test drove a viewer's Ferrari (F12 TDF?) where its blue paint colour option cost $300K.

[Mucus]

I recently bought a new car in the UK from BMW, and I was actually pleasantly surprised at how few options there were. There were 2 packs, which had been well curated, and your colour choices. After joining a FB group relating to this model of car, it stuck me as fascinating that BMW do completely different things with options on the same car in different markets. You'd have thought BMW would do the same thing globally from an economic perspective. But they appear to be tapping into significant nuance between, say, UK, US, and Canadian customers.

[Spenny]

That data on margins are available. From memory, so I may be quite wrong, but I am sharing since I heard the figures, I heard a company like Jaguar make £4k per car, hence needs volume, vs Ferrari makes min £120k per car. I recently placed an order in for a car, and the options went over £80k, as much as I would get for my current car that is the same model. Also, the increased costs of servicing a high-end car I am sure add to their profit. Charging £500 for an hour of work to fix something created by their inadequate tech but we must accept it as part of owning a performance car. Overall, it is the Rolex-type model. Build desire and limit supply.

[mytinplaterailway]

One of the reasons - I would suggest - that we see so many boring grey/black/silver cars these days, isn't that people don't like nice colours, it's the cost of those colours as options.

[thehegdehog]

@6:12 ref Apple CarPlay… do we not think it’s very safe to assume that CarPlay is standard because Eddy Cue - SVP Services at Apple - happens to be on the board at Marranello??

[philiprodney]

I bought a 992T off the showroom floor. GT Silver, and a sunroof. Nothing else. I don’t miss all the other stuff that I would have added if I’d specced it. In fact I think I prefer it in its purer form. It also took away the stress of spending hours on the configurator.

[dane]

Awesome podcast! Love from South Africa 🇿🇦

[justincoleman]

Ferrari = Tailor Made. Porsche = Sonderwunsch

[djremotion]

I would think mine is best individualized if it had the exact spec that Andrew is speaking. Simplify then add lightness. I can design and manufacture carbon fiber parts on my own, I don’t need 900% markup. And I do them to where the make difference like trunk floor panels etc where weight is removed in ratio of 1:9 or 1:10. For me carbon is building material not a look at me finishing option.

[avnews]

Interesting stuff indeed chaps. Not sure when you were last on a production line but locally Ford build Rangers just about to spec on the line already. Doesn't change the cost of options though but they are already on the build order that tags along with each vehicle - which makes the assembly process even more fascinating than it already is.. 🙂

[niwouackermann]

Usually the dealer's markup is around 10%, but the importer / manufacturer in a lot of cases have a 1000% profit margin.

[davidpickard]

I have ordered 2 cheaper new cars but refused the option paint. Neither order progressed from the factory.

[ericokompatzki]

Some comments regarding the podcast:
1. Yes, it's Ferrari's Atelier
2. Porsche does have its own service: Porsche Exklusive Manufaktur
3. I agree, regular csr companies will shift towards personalisation. Citroen already has, and let's not forget about the pioneer in the regular car market, Mini. Granted, it's not bespoke manufacturing, but it is personalization to a greater degree without loosing economies of scale

[RobertMoore-xb]

I plan to buy a car in November. One of the first things I'm telling the salesperson is I only want to pay for the car. Absolutely no accessories, except $595, for the optional paint. Options are overpriced and I'm not trying to finance anymore than necessary. It probably won't go well.

[JohnNick]

As they say near the end… The worst part about pricey options is they generally don’t add any value when you go to sell/trade your car. 2nd hand value is based on the base model prices current trading value.
I don’t know the Ferrari/McLaren markets well enough to address those specifically, but the volume is so low it doesn’t really matter.
With BMW, Audi, Porsche (non special or GT cars) I can confirm it’s terrible. Options add basically no value when selling. So, be very careful if you aren’t going to keep the car for a long time and fully capture the value.
If you have F¥€k Off money and just don’t care, do whatever. Helps the 2nd hand buyer when you get bored in 10 minutes. 😉

[RumblestripDotNet]

Porsche's bespoke division is Porsche Exclusive Manufaktur.

[bispal]

Cruise control total must for average speed cameras and long journeys. 8 hour's at the wheel through France in a 911 will give you a massive dead leg on constant throttle. I know through lots of experience. The only spec I want on a car sunroof (glass), cloth / alcantara seats (no leather), Radio, AC, Cruise, manual box, LSD, heated seats (if convertible). Not bothered about screens, safety equip, sat nav (we all have phones) . What I abhor is paying for standard equipment i don't want or need, especially pleather seats.

[BarikSingh]

Most of the options on that Ferrari I have deemed as completely superfluous and unnecessary; they don’t enhance the driving experience. The Fiorano pack is a total no-go as it removes the nose lift feature, an absolute essential as you don’t want to be scraping the front chin on speed bumps or the drive. You could do away with the vast majority of the carbon fibre options, especially the ones that you can’t really see like the hidden pieces in the engine bay and the underbody ones. You never want carbon on the door sills or the front splitter, they will crack and break. Could easily knock £80k in options that won’t affect the driving experience and still have all the options you could really want plus some carbon fibre you can see. Although maybe then Ferrari won’t let you build the car if it doesn’t meet a specific dollar amount on the build. These absurd options lists are really just a cynical cash grab. Btw Dan and Andrew, I’m sure you’re aware of the name, but it was fleeting the tip of your tongues, Ferrari’s programme is called Ferrari Tailor Made.

[fraserwright]

Odd look at the car market, McLaren and Ferrari press cars which will always have lots of options because how else do customers know what they are? You look at the special order section of Bentley, Ferrari and Porsche. Dan ties it in with Singer and you think every production car is built regardless of someone specing it as though manufacturers are building random plain jane cars or ones with options and just sending them to a dealer? That hasn't happened since the 70's. Even Dacia don't do that? Also why would I buy a palette cleanser 911T if I am waiting 2 years for it? Who in the real world and not a journalist is buying this 911?