Keystone

I've become interested in the genesis and marketing of the C5 Z06. My interest in this came up because I'm wondering if the Z06 is a loss leader for the Corvette line, i.e. produced only to generate press or marketing "buzz", much as the Boss 429 Mustang did for the rest of the Ford line back in the late 60's. I recall reading somewhere that Ford lost several thousand dollars on each Boss 429 they sold, but the "buzz" created by the car more than offset the loss.

One reason I think the Z06 may be a loss leader is because I can't understand how the C5 convertible costs more than the Z06. The Z06's FRC body seems no more complicated than the convertible's or the coupe's. So why is it that Chevrolet can add a whole pile of performance parts to the Z06, and still keep the cost less than the convertible? If you park a Z06 next to a convertible, and compare the parts in both cars, there is no way in heck the vert should cost more than a Z06, not by a long shot. If anything, the vert and coupe should be within a few thousand of each other and the Z06 should be in the 60k+ range.

I began thinking about all this after reading several posts questioning the lack of an LS6 or Z06 option for the coupe or vert. I think the reason why the LS6 driveline is not offered outside the Z06 is because the added cost would stagger the typical Corvette buyer. In other words, GM is making the Z06 at a loss/break even, and the profit comes on the coupes and especially on the verts. When car mags call the Z06 the best performance bargain around, they may be more right than they think.

In fact, I suspect that GM might be limiting the Z06/LS6 to the FRC to purposely keep sales down. I don't buy the stiffness/weight press release deal. All of the C5's are stiff and are all relatively light. IMHO, GM's reasoning is that if you've got to sell Z06's at little or no profit, you may as well constrict the demand by offering it in the least popular body style available.

Many of us here (myself included) thought the Z06 was created to boost FRC sales. Now I think it's the other way around, i.e. the Z06 is offered to generate publicity for an aging C5 body style, and it is offered in the FRC to intentionally limit Z06 sales. Enough Z06's are to be sold to make them visible on the streets and to generate press, but not too many, as the profit is probably close to zero on the car for GM.

The Z06 may well be one of the best performance values of all time, because they are being sold for no profit to GM. We all know that the dealers clean up on Z06's because they will not give much, if any, off sticker. But I think GM losing $$ on each Z06 they sell, or at least trimming their profit margin to practically nothing.

To further reinforce this concept, let's look back at the ZR-1. Like the C5/Z06 relationship, The C4 had been out for a while when the ZR-1 was unleashed. The price of the ZR-1 package practically doubled the cost of the car. Kind of like the L-88's/ZL-1's of yore. Now, the ZR-1 had an exotic engine, and based on the price of the option, the buyers paid for every cent of the development/cost of that engine, plus a hefty profit. In the case of the ZR-1, price was used to limit demand, as the "ugly" FRC body style was not around back then to do it for them. However, the drop in value of the ZR-1 may have created some long-term buyer regret.

Had GM come out with the "super C5" (the Z06) priced like the super C4 (the ZR-1), everybody would have said "Uh-oh, another great-but-overpriced Corvette". For the C5 Z06, I think the FRC body is the throttle on sales of the Z06, instead of a ZR-1 type of price.

Bottom line: there will be no Z06 offered in the coupes/verts, because the profit to GM on the car is probably zero. If GM really passed on the cost of the Z06 package to the consumer, it would be a virtually unaffordable car, much like the ZR-1 was. They will sell enough Z06's to attract attention, but will not allow the Z06 option to drain the profit margin on coupes/verts.

What do you guys think?

Regards,
Scott

CliffB-99

If you read the book "All Corvettes are Red" it was very important for the C5 model run to make a profit. I don't think the GM executives would have approved the Z06 if it didn't make a profit.

Also, at 20% of C5 production, the Z06 is not a one-off custom model. There is enough volume there to gain the effeciencies they need to make a profit.

eb0206

Scott,
Interesting market analysis. You could be right.

Usually more product types increase sales. I think enough components
are shared to make the cost similar, except the titanium exhaust.

I'd assume there's plenty of profit or production would be limited to much less than 20%.

Of course, after all the warranty work adds up, they may not break even.
Maybe they're just managing risk. Just think if every '01 needed new rings.

-Len

MitchAlsup

Over a few years, the added cost of a Z06 over a Coupe will pay for the engine development, the tranny development, and the added costs incurred with the rest of the difference in the Bill-of-Materials. So I believe its a net zero, or a small positive. It certainly stirred up the intrest level in the C5 model.

SWCDuke

The Corvette group has to justify its existance financially, and the C5 was always envisioned as three models beginning with the Coupe, followed by the Convert. and then a "super sport" model for lack of a better word.

The super sport was originally envisioned as a de-contented model that would sell for less than the others, but the C5 proved so popular that this thinking was abandoned, and I think that Dave Hill is correct that a "heater and radio delete" Corvette would have too little appeal to make it worthwhile.

As far a a cheaper Corvette is concerned, kiss it goodbye. When you can sell out the entire production run using all the o/t the UAW will give you, you don't drop the price.

As far as Z06 cost is concerned, is it is probably not that much more costly to build than a Coupe, but carries a higher profit margin. Other that different springs, shocks, bars, wheels, tires, different gearbox internals (which already existed) and modified engine castings, which will likely migrate to other engines it is basically the same as a '99 FRC, and at 6000 units per year for three years, amortization of the tooling for the unique parts is not a stretch at all.

As far as convetible prices are concerned, it's demand pricing. Ever since the rebuilth of the convertible in the eighties they've commanded premium priciing - more so than in the sixties - and the market is willing to pay.

The Z06 and Convert. probably carry higher margins than the Coupe, but the Coupe is the best value.

Duke

EricVonHa

Thanks for taking the time to post the initial post. Sometimes we work so hard during the day, logical thoughts on the forum can be hard to come by sometimes!

Anyhow, I was surprised that GM has brought out the Z06 at the chosen MSRP. Reflect in history again for a moment: Looking back at the ZR-1... performance was there, the price was not. Considering how much bang for the buck, it was a down hill battle to to sell the car in mass volume. It had 85 to 105 more hp over the standard model. Ok, great. But for over 1.5 times the cost of a standard Vette? There were really no extra standard features to speak of. True, it was the king of the hill, but the price was almost insane. Market testing it was. If I had to guess, GM made out quite well with overall profit. Reason being, I believe the "mule" LT-5 drivetrain was developed by an outside GM source, no? Mercury Marine was a subcontractor or daughter company or something, right? So in GM dollars, the development was not a factor (short of other development costs of putting in the LT-5 (ie: extended bodywork, electronics,etc.) With an existing and functional platform and assembly line, the changes were minor. It was relatively the same thing as changing from model year to model year with other automotive lines (ie: different sheet metal, different gadgets, new PCM) So, I don't think that GM experienced much increase in overhead to reflect the massive increase in MSRP. I'm on the outside looking in... maybe somebody'll say that they made an entire new production line for the ZR-1... then you can throw my logic out the window!

Back to the Z06. Without a doubt. It's priced low (just right if you ask me, more money in my pocket!) If I was a GM exec... at this point, I'd be kicking some butt in the market analyst department and consumer rating division and just about everybody that gave input as to where to land the Z06 pricepoint. They FLY off the dealer lots. Orders from the factory exceed demand. Cars sell at MSRP (or typically no less than $1000 off MSRP). What does this indicate? Consumer demand. Intense and vigorous consumer demand is a flag for "damn, we could be selling this for more dough!" Without a doubt, I think if GM would have landed the MSRP $5k to $10k higher... it would still be a tremendous bargain and they would still be selling the heck out of them. It just makes sense. The convertible sells for more but yet the Z06 has all the performance underpinnings way above and beyond the convertible. Performance typically demands a premium price, right? In this case.. GM chose an interesting strategy. A good one indeed. They are selling a highly desireable car that in my opinion already has the notoriety of the ZR-1. Exclusivity it does not. The more cars they make, the sooner it'll be forgotten because the car will become commonplace.

What's next? I wouldn't be surprised if GM raises the MSRP for 2003 by a wider than normal margin. Let's suppose they add a little feature here or there and up the hp by 20. What's this typically worth in a Vette from model year to model year? Take that number, multiply it by two. The general has got a good thing going, but I think they know they could still be selling the Z06's for more than the convetibles!

It's an awesome car for tons less money than the competition. Proud to be American to say the least!

Zapper

The Z06 is not a loss leader. Chevrolet is making a profit on the car and so are the dealers.

It is a win - win.

The manufacturing / labour costs are virtually the same for each car.

The parts costs do vary, however the premium at the wholesale level is not as high as it is at the retail value. Interesting theory, however I think they are doing OK at Chevrolet, otherwise they would not have done this model.

Dave Hill and his team are doing all of the right things and moving in the right directions.

rickvette

Let's talk first about the 1990-1995 ZR-1. That was a $15,000 option over the "standard" ZF-6 coupe. If I remeber correctly it MSRP's out at around $65,000.

I agree, parts are parts with the LS6 and the M12 transmission. Let's face it, GM would have to pay wholesale for a cam, heads, intake, gears, etc. either way. The cost of changing out to the LS6 design and the M12 is not that large of a variance over the LS1 and MN6. GM then packages this in a $38,000 FRC body and adds (for 2002) $12,000 to the MSRP! Loss Leader-hardly-cash cow - yes! The performance is superb, the interior noise louder due to the reduction in sound insulation, the sound system utilizes smaller rear speakers (most likely virtually same cost factor), and the ride great! In theory they should sell every Z06 they can produce and maintain a very healthy profit margin.

:yesnod: :yesnod: :yesnod: :yesnod: :yesnod: :yesnod:

jerboa

Lots of people are on record as saying the Corvette operation has never produced a profit ffor GM. However, the "Corvette" image sells lots and lots of Chevys. This is the definition of loss leader.

jerboa :)

SWCDuke

Lots of people, huh? How about some names!

The Allante was an "image car", but it was hopelessly unprofitable, so it died. I don't know who at GM came up with the great idea to have Pininfarina build the bodies and ship them to Detroit in 747s, but it was a disaster.

GM dropped a lot of cars and has gotten rid of divisions like crazy because they weren't profitable, and the Corvette would have been gone long ago if it didn't turn a profit.

It was touch and go for the Corvette in the fifties, but Ed Cole had faith in the concept and put Duntov in charge to make it work. Back then GM made about 10 cents net on every sales dollar, so they could afford to wait. The Corvette became profitable in the late solid axle era, and it has been carrying its own weight ever since, but Dave Hill still had to make the "business case" for the C5 and C6.

Now that some tooling and engineering costs can be shared with another model (the new Cadillac two-seater), I think the improvements might come more often, but we all need to keep our fingers crossed that the Caddy will be successful, because GM doesn't have the financial strength to keep money-losers around for very long, nowadays.

Duke




[Modified by SWCDuke, 10:31 PM 12/11/2001]

FRC Tom

I have heard people say that the Z06 was made to keep the FRC from being axed. GM would have sold a lot more FRCs just by offerring the same options and color choices as the Coupes and Verts. By offerring a car that was geared for performance and few options I'm sure the profit is more than the Coupes and Verts, percentage whys. Most all of the models have had the LS6 short block since 2001 so we are only talking heads and cam and the M12 as Rick has said. Are they making money on the Z06? Oh Yea.
:yesnod: :yesnod: :yesnod:

LT1GMC

The Z06 came about due to a dedicated group of Corvette enthusiasts in GM(Dave Hill and others) coming together with bean counters and marketing to develop a plan to offer a super performance car(engineering) at a nice profit(bean counters) and good magazine material and publicity(marketing). The truth is that GM makes a Great profit on the the Z06, as it truly doesn't use any special cost components other than the Titanium exhaust. The other things, the heads, valves, wheels, and cam are just normal production style parts, costing no more than say polished wheels versus painted on a Tahoe. I love my Z06, but having still a 92 C4, am constantly seeing places where cost was cut from the car. No power passenger seat, no lumbar adjust, no power antenna, no keylock on pass door or trunk, no tire pressure sensor system, no removable top, lots of areas GM recovers cost under the name of "Lightweight"!
MAKE NO MISTAKE: GM is not going to make 7000 copies of a model a year continuously losing money on each one!!!
Cost leader cars are true losing money image cars like the Ford Mustang built last year with no AC, aftermarket brakes and ect. or the cars like the Superbird, built to satisfy racing regulations for promogulation.

t.renz791

I highly doubt that it costs $10,000 more to build a Z06 as oppsed to the standard car. The LS6 is hust about the same motor as the LS1, with some obvious differences, but those differences shouldn't cost any more to make. I would suppose the biggest expense for GM was the R&D costs.
:cheers:

newme

I doubt that GM is loosing any $$ on the Z's...

But even if it were, if one looks at Acura loosing lots of $$ for every NSX (their flagship) sold, but more than making up for it on Integra and other VTEC Honda models... Image can mean a lot to a brand.

jerryv

I'm convinced that GM is making money on the Z's. Why wouldn't they? Normally a store presents a loss leader as a way of enhancing sales, but the Corvette has never had a problem selling .. they sell all that they can make, and they absolutely DON'T make an unlimited number; production is pretty fixed from year to year, at least in the recent past.

As to the price diff between a Z and a vert ... I think they're simply approaching two different segments. The Z is a pre-optioned car .. there's almost no price variation between one with no options, and one with all options. The vert is a different story, however. There's a substantial price diff between the 'bare' and 'loaded' versions. I think the Z is exactly what GM told us it was .. the car for the extreme preformance enthusiast. They've added power, reduced weight, and trimmed the suspension to make the fastest car possible using currently available technologies (ie. cheaply).

Since the LS6 is not an 'exotic' engine, in the conventional sense, there shouldn't be that much cost difference between it and the LS1. As mentioned above .. parts is parts.

Joecooool

The Z06 is the most profitable C5 made. You don't have the glass or convertible top to contend with, the sport seats, many of the options that are available on the vert and coupe, or the very expensive run flats.

Every upgrade that is on the Z06 is replacing a part that cost about the same.

Closer_2001

Read: All Corvettes are Red. The C5's sales are beyond anyone's wildest dreams! Dave Hill and others, I'm sure have much more creative license after developing and producing a profitable Corvette for GM.

J Lance Miller

Scott,
You make a good point. You propose that they "intended" to do this - another possibility is that things may just turning out that way and they are going with it. I bought my '02 fairly early and watched as price was developed - definitely seemed as though they were having a hard time coming up with it.
Glad I bought one - love it.

newme

Closer, great looking car but please reduce the width of that sig.

Thanks! :cheers:

kentck

I too can appreciate the discussion and thinking, but one must realize that the C5 is now in it's 6th year of production. They have already made in excess of 140,000 C5's. The tooling is paid for. A new "plastic" front bumper, from GM, is only a little over $500 (and 6 of the body panels are plastic). The C5's are not only profitable, but by now very much so. Without a doubt, the LS6 has added cost to the car, but not enough to make it a loser. More importantly, the technology gained will be utilized by not just Chevrolet, but the entire GM fleet. As an example,the same basic motor (LS1) is now in the pickups in a cast iron block. The technology gained from continued research on all three models will be reaped by GM for years, and the bean counters know this. The C5 is not just profitable on each individual car, but to the entire GM fleet. Chevrolet prides itself on making a world beater of a sports car that working folk's can buy. That is not idle chatter. This car is both profitable and the envy of the world.