5 Series 5 Series costs same to build as 3 Series

[JLBM]

Hi guys, I read the below article and feel a bit short-changed since I think I will probably go for a new 5. Can anyone explain howcome the 5 series costs about the same to produce as a 3 series? The profits in the 5 are much greater for BMW. Is it because it shares development costs with the 7? Surely not, since the 7 is sold in such low numbers..

Any information would be appreciated, thanks!

"Profit Driver - But the 5-series is more than simply a driver of sales across the BMW marque. It is also much more profitable than its siblings.

It costs roughly the same to make the more expensive 5-series as it costs to make the cheaper 3-series; in essence, it is much harder to make decent profit margins from small cars.

Mr Robertson is eager to dismiss the myth that the 5-series accounts for more than 50% of the BMW Group's profits, even though it accounts for just 25% of sales.

But he acknowledges that it contributes "a significant proportion" - though one that is gradually being reduced as the group's UK Mini and Rolls-Royce subsidiaries continue to grow, and as the BMW marque's own model line-up is extended."


http://news.bbc.co.uk/2/hi/business/8550895.stm

 

[Centurion]

The article is very poorly written. The 5-Series is not cheaper to build than the 3-series. One would be a fool to think that a 550i barely cost more to manufacture than a entry level 316.

First of all, the engine is a 550i is much more advanced and delicate meaning that it required a group of very skilled engineers to develop, not to mention the increased materials costs as a result of the engine being larger than the 4 cylinder one in the 316i. Most importantly a larger engine requires other components to be of the same calibre. So larger brakes, more durable suspension, bigger gearbox and a better exhaust system is needed to make the most out of the engine in a top of the line 5-Series.

What the article does point out is that BMW earns more from the 5-Series, which isn't much of a surprise itself. The car share components with the X5, X6 and 6-Series. But the profits come from the perfect balance between production volume and average spend on options by customers.

The options is where the money from from. The premium segment is all about option, while Toyota earns their money from sheer volume. Quite a lot of 3-Series are bare, not even been optioned with metallic paint. Porsche cars are on average bought with over €20,000 worth of option, which subsequently contrbutes to Porsche's status as the most profitable car manufacturer in the world.

 

[JLBM]

The article is very poorly written. The 5-Series is not cheaper to build than the 3-series. One would be a fool to think that a 550i barely cost more to manufacture than a entry level 316.

First of all, the engine is a 550i is much more advanced and delicate meaning that it required a group of very skilled engineers to develop, not to mention the increased materials costs as a result of the engine being larger than the 4 cylinder one in the 316i. Most importantly a larger engine requires other components to be of the same calibre. So larger brakes, more durable suspension, bigger gearbox and a better exhaust system is needed to make the most out of the engine in a top of the line 5-Series.

What the article does point out is that BMW earns more from the 5-Series, which isn't much of a surprise itself. The car share components with the X5, X6 and 6-Series. But the profits come from the perfect balance between production volume and average spend on options by customers.

The options is where the money from from. The premium segment is all about option, while Toyota earns their money from sheer volume. Quite a lot of 3-Series are bare, not even been optioned with metallic paint. Porsche cars are on average bought with over €20,000 worth of option, which subsequently contrbutes to Porsche's status as the most profitable car manufacturer in the world.

I hear you. But I would be curious to compare the manufacturing costs for a 5 and a 3 that share the same specs. Say, a 335i and a 535i.. The 5 carries a significant premium over a 3.

 

[Monster]

I would like to know about the manufacturing cost of the 3 series coupe, it should be about the same, if not slightly cheaper than the sedan.

 

[Zafiro]

I would like to know about the manufacturing cost of the 3 series coupe, it should be about the same, if not slightly cheaper than the sedan.

Why? becuase its only a 2-door

 

[FC123]

The thing is. Should we blame BMW for charging too much for a 5-series, or applaud them for selling a 316i so cheaply?

There's a tendency, to look at a sales item, comparing it to a cheaper one, and concluding said item is too expensive, since the other item is cheaper. However, isn't it entirely possible that the cheaper item is too cheap? Instead of the expensive item being too expensive?

I'm in manufacturing myself, and save for human kind being able to travel into space, nothing impresses me more, than the "low" prices car manufacturers are able to produce and sell cars for. If a normal manufacturing business was to make a 550i, it would be incredibly expensive.

 

[zegerman]

^^ The aforementioned comparison between 316i to 550i is kind of moot since pretty much the same differences apply between 520i and 550i.

I don't find it hard to believe that the 5-series(or E, or A6) costs about the same to build as its smaller siblings, quite the opposite. I expected more expensive cars to have bigger margins. Heck, I thought it was common knowledge that cheap products aren't as profitable to the manufacturer as the more expensive ones. Especially when they're carved from the same tree.

 

[Centurion]

I hear you. But I would be curious to compare the manufacturing costs for a 5 and a 3 that share the same specs. Say, a 335i and a 535i.. The 5 carries a significant premium over a 3.

The premium is logical. A eight of 150kg separates the two. Not only should it cost more to manufacture because it's a larger car, but the 5-Series feature high tech options that are unavailable for the 3-Series and getting those beautiful ideas patented isn't cheap -- especially if it involves aquiring a small firm who might try to object to the patent in court. It's the technological differences which create the gap between the two.

Simply put, whoever was writing that BBC article was enjoying a Friday afternoon pint while writing that article.

 

[MikeJ]

The article is absolutely right. The difference in manufacturing costs (i.e. materials, assembly etc.) between different cars is considerably smaller than the difference in retail prices, this has been stated in the motoring press many times. The main reason for car companies charging more for bigger (or more premium) cars is simple: People are prepared to pay more for them - and that is why just about every manufacturer wants to push its brand image upwards.

 

[Centurion]

The article is absolutely right. The difference in manufacturing costs (i.e. materials, assembly etc.) between different cars is considerably smaller than the difference in retail prices, this has been stated in the motoring press many times. The main reason for car companies charging more for bigger (or more premium) cars is simple: People are prepared to pay more for them - and that is why just about every manufacturer wants to push its brand image upwards.

Material costs are only half the story, that is why the R-Class cost pretty much the same as a E-Class despite being a larger car. Compare the E-Class and S-Class and the picture will be clearer. ABC, Precan, Pre-Safe and other inventions are very expensive. Developing systems like these takes years to develop using very expensive engineers and designers. So one should be careful about holding the view that, the more premium a car is, the more money the CEO is printing out of his fax machine.

Take a look at a financial report and you'll see that BMW, Mercedes and Audi have profit marings of just under 10%. The overhead costs associated with more expensive cars do eat heavily into the layman's gross profit fixation which disregards a huge portions of the financials it takes to develop a product and bring it to market.

 

[NarutoRamen]

Even if the cost to "Build" a car might be close, you guys are forgetting the R&D costs that are added in.

 

[Deleted member 25]

R&D costs are proportional to the car size ?

 

[Centurion]

R&D costs are proportional to the car size ?

No they don't have to be. High R&D cost stem from products sharing little or no components with other cars in the family. The biggest R&D demons are super cars, they cost heaps of money to develop but bring back little money into the piggy bank. However, they make a very invaluable contribution to marketing, and attract customers to the brand.

 

[chonkoa]

The article is very poorly written. The 5-Series is not cheaper to build than the 3-series. One would be a fool to think that a 550i barely cost more to manufacture than a entry level 316.

First of all, the engine is a 550i is much more advanced and delicate meaning that it required a group of very skilled engineers to develop, not to mention the increased materials costs as a result of the engine being larger than the 4 cylinder one in the 316i. Most importantly a larger engine requires other components to be of the same calibre. So larger brakes, more durable suspension, bigger gearbox and a better exhaust system is needed to make the most out of the engine in a top of the line 5-Series.

What the article does point out is that BMW earns more from the 5-Series, which isn't much of a surprise itself. The car share components with the X5, X6 and 6-Series. But the profits come from the perfect balance between production volume and average spend on options by customers.

The options is where the money from from. The premium segment is all about option, while Toyota earns their money from sheer volume. Quite a lot of 3-Series are bare, not even been optioned with metallic paint. Porsche cars are on average bought with over €20,000 worth of option, which subsequently contrbutes to Porsche's status as the most profitable car manufacturer in the world.

Few things we need to understand:
I believe the article does not include the cost of the engine and transmission which is shared across platforms and rightly so, thus it focuses mainly on the chassis and the shell.
With this said, if you consider the incremental material volume and function that to the price premium it does make a case for the articles' author.
In terms of R&D, you have to look at the 3 series as a platform for further development thus a lower R&D cost wrt to the 3 series.

 

[NarutoRamen]

It's not just about platform sharing. You have to remember all the money it costs to fit new tech into these chassis (plural?). Not to mention the money involved in crash testing these cars. All of that adds into the bottom line. Sure, the manufacturing cost might be close, but the other factors play a huge part as well.

 

[coolraoul]

This is impressive, a very good thing.

I know the W212 costs 25% less to produce than the W211 (despite the considerably better build quality). And that the Golf VI is also considerably cheaper to produce than the V.

I think it might be down to the cost of the materials, which is down compered to some years ago. But also the new, "green" plastics are I think cheaper to produce now, and the parts sharing makes the cost of many pieces quite the same throughout the line-up.

Might also be a consequence of the recent agreement between MB and BMW to buy some parts together in order to increase the quantity, thus the price of those invisibale but important parts.

 

[Guibo]

I can't imagine that this writer came to this conclusion on his own. Surely the BMW board group member he was interviewing was the source of this information, and all else in the article.
As for R&D, the size of the car probably isn't as big a factor as the volume: because the 3 Series is such a huge staple of the BMW lineup, it's possible they've gone to greater lengths in R&D to ensure durability, quality, safety, etc..
The article implies they are comparing the new 5 to the current (old) 3, and that they've reduced development costs compared to the old 5. So there is a bit more apples and oranges, althought it's believable that concurrent generations would still be similar in cost to build.
Usually in lower classes, people tend to be more pragmatic so place greater emphasis on interior space. A physically smaller vehicle may require more enguinity so that it doesn't sacrifice too much occupant space. At a certain level of size, it's less of a concern. Some midsized cars offer only marginally better occupant space than their more compact (externally) stablemates.

 

[coolraoul]

You're making a confusion. The article states it costs the same to PRODUCE the 5er and the 3er.

The R&D costs are something entirely different than the manufacturing and producing.

So it's the materials costs (metal, components, plastics) and manufacturing process (how the things are made, how fast, by how many people and robots).

Thus, it's impressive to see a 5er, with more metal and aluminium (due to the sheer size of it), better quality materials especially inside, a more complex architecture due to the more advanced electronics available... while not costing more to manufacture than a 3er.

The R&D costs of the 3er and 5er are a different thing, that is not reflected in the manufacturing cost.

I think that improved manufacturing process compared to the 3er, increased parts sharing with it, and the lower materials costs, are an explanation of this nice result.

 

[NarutoRamen]

You're making a confusion. The article states it costs the same to PRODUCE the 5er and the 3er.

The R&D costs are something entirely different than the manufacturing and producing.

So it's the materials costs (metal, components, plastics) and manufacturing process (how the things are made, how fast, by how many people and robots).

Thus, it's impressive to see a 5er, with more metal and aluminium (due to the sheer size of it), better quality materials especially inside, a more complex architecture due to the more advanced electronics available... while not costing more to manufacture than a 3er.

The R&D costs of the 3er and 5er are a different thing, that is not reflected in the manufacturing cost.

I think that improved manufacturing process compared to the 3er, increased parts sharing with it, and the lower materials costs, are an explanation of this nice result.

Thats what I was trying to say. All people are looking at is the manufacturing cost and are like "OMG, why do they charge me so much then?" Thats not the whole picture.