• |
  • |
  • Magic Margin Formula: Crossovers

Magic Margin Formula: Crossovers

Small Increase in R&D Costs Yield Significant Profit Margins

Mar 7, 2016
There is no disputing that the crossover niche is exploding around the world, as customers seem like they can’t get enough of the car-based trucklets of all shapes, sizes, and price brackets. However, automakers have found an additional happy coincidence of the segment’s popularity. Profit margins on traditional B- and C-segment (subcompact and compact) vehicles are typically razor-thin, often forcing automakers to seek out lower-cost locales for production, such as Mexico and Eastern Europe, to be able to eke out what little profit there is. According to Automotive News, the small incremental per-unit increase in research and development costs on a crossover compared to a similar-sized conventional car can yield vastly better profit margins.
The outlet quoted Ford of Europe chief Jim Farley saying an increase in development costs of a little more than $500 per unit can result in as much as a $10,000 increase in transaction price of the end product. Although the profit percentages are most pronounced and significant in the smaller-sized crossovers due to their higher unit volume, the demand for crossovers goes all the way up to the ultra-luxury segment. Bentley recently announced its plan to look at increasing output at its Crewe, England, plant to meet high demand for the $200,000-plus Bentayga SUV.
Source: Automotive News

POPULAR TRUCKS

MOST POPULAR

Subscribe Today and Save up to 83%!

Subscribe Truck Trend Magazine

Subscribe to:

Truck Trend
Magazine

PRINT DIGITAL
Subscribe Diesel Power Magazine

Subscribe to:

Diesel Power
Magazine

PRINT DIGITAL
Subscribe Truckin Magazine

Subscribe to:

Truckin
Magazine

PRINT DIGITAL
SUBSCRIBE TO A MAGAZINE
CLOSE X
BUYER'S GUIDE
SEE THE ALL NEW
NEWS, REVIEWS & SPECS