Me too and you are 100% correct. 100% markup of keystone is pretty much the norm for manufacturers. Of course that isn't always based on burdened cost but ideally it is.

 

After talking with a Corvette "person" from the factory one time, I was able to calculate a few numbers in my head. I'll pose the answer this way: I believe GM will not break even on costs and development of the Corvette for at least 2 years. They will make $300m per year and diminishing after that based on the diminishing numbers for the life of the car till the new model. These are ball park figures but in the end, they will see about $1.5-$2b in profit over the life of the vehicle. But this is just a somewhat educated guess.

 

Back in my day, over 20 yrs in electromechanical devices ($75-150K), markup for OEM was 85 to 120%. Equipment complexity very similar to C7.

 

Gross margins for manufactureres must be 60% GM to net 3% - 15%.
It is about time both Chevrolet and the Dealers make money selling Corvettes. It's been a long time coming!

 

The Corvette program is definitely not a big moneymaker for GM. Their net profit for last year was $ 4.9 billion. The revenues (sales) for the Corvette program would only be $ 1.8 billion (assuming 30k units at avg. selling price of 60k). That's probably why GM considered scrapping Corvettes (thankfully they had skunkworks from employees).

The real reason for GM to manufacture Corvettes is the prestige that it gives to a brand like Chevy. It is purely for marketing purposes that GM produces the Vette.

As far as other comments, do not mistake 'gross margin' with net profit. The gross margin may be higher, something probably in the 25-30% range but the net profit is probably around 10%. GM has a huge overhead to feed. And the auto industry is a mature one with many competitors, so GM cannot price the same as growth industries.

 

outstanding post! now we can all stop reading everyone elses educated guesses.
also, glad gm is doing the right thing with your quality control nightmare.

 

Not in that industry but I would guess you are dead on, the "add on sales" and where the dealer really makes $$$

 

 

General Motors profit from Corvette is a really tough number to guess unless you can get into their books.

Tooling costs X dollars. For example, the first 50,000 cars may pay for all of the costs associated with equipping the factory to actually make the cars. Once that's paid for, costs are down to materials (incl suppliers), labor and other overhead.

The more they sell and the faster they can sell them, the more profitable the entire generation will be. So you can't guess a profit per car until you know how many cars will be produced.

Then there's always merchandising, branding rights, etc.

 

A lot of smoke and mirrors involved and even though I did not take the time to fill out the spreadsheet that is supposed to give you all the numbers, I suspect that there are so many variables from dealer to dealer that you will never know exactly what profit a dealer made.

I have to believe that the profit is above the 6 to 8 thousand that is estimated in this thread when sold at sticker. The next model year (if not sooner) you will be able to easily find at 6K+ off sticker at the larger dealerships. Given the fact that no dealership is going to sell at a loss their profit margin at sticker has to be in the 10K neighborhood.

 

My MSRP was $69110 and the invoice was $62550 a nice profit of $6560 for the dealer.

 

At $6-8K GP at the dealer level per transaction, that is substantially more than the average GP on a brand new Kenworth Truck as I sell them. The average price of a truck I sell is probably about $160K. I can only assume that Cruze's are way less than that. In fact I know they are.

Also, in the trucking business there is no hold back, rebates, volume discounts, or games. The price on my invoice is the actual price our finance source pays for the vehicles and we get 10 days of included flooring after coming off the assembly line. Sometimes I don't even see the trucks for 30 days meaning I've already been paying 20 days of real flooring on the unit before it gets to me to try and begin selling it.

From a salesman's perspective, I am in the right business. But if I was a company owner I don't know, the car business seems like a much better deal. You just sell way more of them, and also pay the salespeople less and have much less investment in training.

 

In all Corvettes are Red (still a great read 17 years after it was published) the author states in the early 90s the C4 was producing a profit that averaged around $100M per year. This was with a car that due to its architecture probably cost more to produce than the C5/C6/C7 which benefited from improvements in car design and manufacturing technology.

Accounting for inflation since that time period 20 years ago probably puts the C7 estimated profit at about $200M per year. Sure the first few years revenues will be used to pay for the development costs (design of the car, research into new methods of design, manufacturing, refurbishing the factory and developing new manufacturing tools, etc) but once that is paid off the car should see about the same amount of profit (inflation adjusted as the C4 saw).

Bill

 

There is at least a 2% holdback which would put their gross margin near 8 grand. I have purchased 6 new Corvettes over the years at anywhere from $6,000 to $9,500 below the msrp. Invoice and factory cash incentives are quite common and will be available on the C7 in the future, you can bet the farm on that one. I'll buy then. My first day, first week, first month, first year, will be every bit as enjoyable as the guys who are paying the full sticker price now.

 

Take a look at the spreadsheet I provided a link for. It shows all three numbers: MSRP, invoice, and dealer cost.

 

But the original question was how much profit does GM make on a Corvette, not the dealer. I think we all know how much the dealer makes.

 

To put it in perspective, in 2012 GM produced 9.5Million vehicles and had $4.9Billion Net Income on revenues of $152.3Billion. That translates into a net profit of $516 per vehicle. Now, I do not believe the marginal cost to produce a $60,000 MSRP Corvette is significantly higher than the cost to produce a $25,000 Malibu. So, assuming that GM breaks even with a Malibu and it costs $30,000 to produce a Corvette, then the profit margin is, in order of magnitude, 100%.

 

Yes, you are correct. However, the post that my reply was regarding was about dealer profit.

 

I've been in finance and accounting for 30+ years and including CFO roles with public and private companies, so I think I am generally qualified to provide input on this.

First off, the definition of "profit" should not be confused with "margin". Profit would be after subtracting ALL costs including raw material, direct and indirect labor, tooling amortization, depreciation, manufacturing facility, scrap, warranty, dealer incentives, rebates, engineering, marketing, administration, and taxes.

"Margin" can mean a number of things in different business but often its after deducting the raw material costs. So in this discussion, I'm ignoring this term.

Some of the prior comments about sell price is set at 100% mark-up over cost is technically correct, but this is just on raw material cost not all the other costs to run the business. So, for example, if the raw component cost is $30,000 then the 100% mark up says selling price will be $60,000.

In the case of the Corvette, it is clear what the component and factory cost are. So is the tooling and depreciation of assets in Bowling Green. Where it gets fuzzy is how Chevy and GM allocate cost which they control to the Corvette Product line. Allocations are a snake pit, so you can make it look like anything you want. Take for example, development cost for the new LT1 engine. Since its used in trucks, what basis do you use to allocate cost to the Corvette? I bet less than 10% of the LT1-family engines go into the Corvette, so you could make the case that it should only be allocated 10% of the R&D Cost for that motor.

Anyway, I will stop here because to get an accounting degree, you have to take a few courses on cost accounting which include allocations.... Good luck on that.

 

Bet they made more than that.