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I had a discussuin with an official in in our regional goverment. His opinion was that the Prius is sold as a loss leader by Toyota to build interest in the Hybrid line. His opinion was that the MSRP was only 25% of the actual cost of production considering the R& D that has gone into the Prius?

Anyone have any insight into this??
 

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Yeah, right. So my fully loaded Prius should have sold for $100,000+? Instead of $26,000? No friggin way. You know the car you can buy for $100,000? It is widely accepted that there isn't maybe the normal profit margin, but I don't think they are losing dime one. Otherwise they wouldn't have increased production so many times.

Spike
 

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David Duchesne said:
Anyone have any insight into this??
I do believe Toyota makes money on the car... they'd have to. It's fairly obvious they saved costs in other departments so they could put it into the drivetrain area.
 

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What the guy is saying is probably true - think for a moment, he is talking about the amortization of all R&D costs. Sure, based on the cost of materials and assembly they are making money. But how many millions of dollars did they invest in developing the technology. If you try to amortize that over the few units (under 500,000) that have ever been produced then it will come out to a very large number per car. It might take them a decade or more to fully recoupe those costs. But that is the case for any R&D effort.

Someone (consumers) have to expect to ultimately pay these costs, otherwise no company will invest in developing better products. This is the same problem we face with drug companies. We all want great new drugs that will cure anything, but we complain that they pass along the R&D costs in each pill we buy. We cannot have it both ways.
 

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This guy is smoking something funny. Toyota has for several years claimed they are now making money on the Prius. No one has posted a shred of evidence to the contrary.

It's all in the accounting, as is suggested. How far into the future do you amortize the R&D costs? Do you really think VW amortized the cost of the Beetle for 50 years? The basic technology has been applied to two generations of Prius, and now to the Highlander, Lexus RH, and soon the Camry. Hybrid development costs are for the entire hybrid product line, except for those expenses that are unique to the Prius. They are therefore not properly charged against only the Prius.

This is typical sour grapes fueled by companies who missed the boat, and now have to knock their superior competition.
 

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250,000 units sold worldwide to date x $75,000 subsidy per unit = $18,750,000,000.00 . No, I don't think so. And your boss thinks this is only the *production* subsidy, as opposed to R&D amortization? Sheesh.

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Businesses exist for one reason...

Businesses exist to maximize their profit. Even when a new product comes out, I think it is rare that they would sell below their costs to garner public interest. Businesses try to capture the public's interest by advertising and, in this case, through the media. Besides, if they did sell below cost, they would eventually have to raise the MSRP quite a bit to start gaining a profit. This would surely upset consumers, who can easily look up what previous MSRP's are and why they would increase.

In the Prius' case, Toyota is (was) essentially a monopoly. Yes, there are other hybrids on the market, but the Insight is not really a direct competitor, and the Civic and Accord hybrids are not the same market-wise (much less MPG, higher price point for Accord, Civic not a direct competitor). As such, they were able to limit production and drive the price even higher than it would have sold for if there were more to sell. Now, with more competition coming and more marketing from Honda and others, they're more of a mix of an oligopoly and monopolistic competition. This means that they compete primarily though product differentiation (what makes one "more special" than the other) and not as much on price, but of course the price competition is still there (they are car manufacturers after all).

Moreover, Toyota has stated that they are indeed making a profit (see the previous posts here). My point is that if you think a business is selling something at a loss for an extended period of time, I've got a bridge to sell you.
 

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Once software is written, the reproduction costs are zero.
The Prius is mostly software.
The inverter and the electric motors are cheap and will get cheaper.

The first hybrid was built in 1905. If they had had the NiMH battery then, and solid state inverters, hybrids would have been standard now.

The advantages of the hybrid are that its torque is constant (from combining the torques of the motors and ICE) and regeneration is possible. The political advantage is that infrastructure is already in place.
 

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kirby said:
What the guy is saying is probably true - think for a moment, he is talking about the amortization of all R&D costs. Sure, based on the cost of materials and assembly they are making money. But how many millions of dollars did they invest in developing the technology. If you try to amortize that over the few units (under 500,000) that have ever been produced then it will come out to a very large number per car. It might take them a decade or more to fully recoupe those costs. But that is the case for any R&D effort.

Someone (consumers) have to expect to ultimately pay these costs, otherwise no company will invest in developing better products. This is the same problem we face with drug companies. We all want great new drugs that will cure anything, but we complain that they pass along the R&D costs in each pill we buy. We cannot have it both ways.
So very very true. There's a running joke in detroit about how they loose money on every car they sell. It's because they still have to pay off the R&D cost. Car manufacturers look at the cost to develop the car, the potential sales prices, the build price. They then figure out the number of units they have to sell to break even. If it's some absurd number, then the project is scrapped.

BTW: R&D is only a small portion of drug companies cost. In most cases it does not exceed 12% of their profits.
 
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