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2010 Honda Insight  (Source: Motor Authority)

2010 Toyota Prius
Hybrid vehicles are fast becoming the cash cows of the automotive world

Money doesn't grow on trees, but it does grow from something else green -- hybrid vehicles.  From expensive pet projects, Honda and Toyota have refined the state of hybrids into a money-making venture for their companies.  Now, with sales posting long-term growth trends, these vehicles and the profits they bring have become an increasingly integral part of the company.

Some suspected the price war between 2010 Toyota's Prius, priced at $21,750, and the 2010 Honda Insight, priced at $20,470, would hurt the companies' bottom lines.  However, recently revealed information from the Japanese newspaper Nikkei indicates that both hybrids have a profit margin of approximately $3,100.

This figure seems especially staggering given that last year GM reportedly lost $1,271 per vehicle sold, while Ford lost $451 per vehicle sold.  Toyota managed a profit, but only $1,715 per vehicle sold, while Honda pulled in $1,259 on average per vehicle.

Part of the advantage of hybrids is that there's less discounting and more demand, though production numbers are lower.  The vehicles also are typically priced higher.  However, the new models from Honda and Toyota that toe the psychologically significant $20,000 price level are coming much closer to traditional sedan prices than ever before.

According to the Green Car Congress, a hybrid advocacy group, hybrids have finally achieved profit parity with small-engine gas-only vehicles, all while prices have dropped. 

Assuming that the numbers are accurate, the new state of hybrid profitability represents a win-win situation -- a win to customers, who pay less for gas and score lower prices; a win for businesses who are turning bigger profits; and a win for the environment, with less fossil fuels burned, reducing emissions of carbon and refining-stage emissions of sulfates, nitrates, and other compounds naturally trapped in oil deposits. 

It also offers hope to the electric vehicle industry, which, like the hybrid industry in its early years, features losses per vehicle and fledgling technology.



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RE: Kinda says something about the article
By Suntan on 4/29/2009 2:12:08 PM , Rating: 5
quote:
Someone woke up on the wrong side of the bed.


Sorry if you think I’m cranky because I would rather read articles that are based on solid information instead of reading articles that bend the truth so far that even the author has to put disclaimers into the main body.

quote:
Regardless of if that number is accurate, the interesting thing to me was this...


This piqued my interest so for the fun of it I followed the links back to try and get to the source info (unfortunately I only made it back through two “green” websites before I hit the newspaper website that requires a membership) it is interesting to see how the reality keeps getting distorted each time a new website copies the info it links to.

For instance if you hit that “indicates” link you go to the “Autobloggreen” website (don’t think they are going to have a slightly biased outlook on hybrids do you?) Never the less they have this to say:

quote:
According to the Japanese newspaper Nikkei (via Green Car Congress), each hybrid that Honda and Toyota sell earns the respective company about $3,100 in profit. Of course, Toyota also sells the Lexus hybrids, which bumps up the average, and the numbers are calculated using 2008 sales of the second-generation Prius, but this is still good news for the Japanese automakers.


Fair enough. Now let’s follow that link on their page labeled “Green Car Congress.” They say:
quote:
The Nikkei report said that Toyota appears to have earned gross profits of around ¥100 billion yen (US$1 billion) on its sales of second-generation Prius hybrids last year. Toyota’s gross profit margin on the sales of the next-generation 2010 Prius are projected to be in the single digits in the first year.


Now a look at what that webpage actually quoted (or possibly cheerypicked) out of the original Nikkei article:

quote:
The gross profit earned on the Insight is still low when factoring in the large R&D costs involved in its development. However, the profit margin on its hybrid operations has risen to the level where Honda can count on it to generate the fourth-largest revenue stream behind its luxury, midsize and small car operations.


So now you have the source article saying that Honda’s continued efforts at refining and improving on its hybrid design will now bring it solidly into last place as far as its automobile sales are concerned (I guess the Honda Hybrid guys can finally can stop taking heat from the lawn mower engine guys about profits at the annual picnic at least…) and you have Toyota figures that benefit from the horridly overpriced Lexus hybrids as well as old figures of the previous Prius that didn’t have to price match the new Insight, further they expect the new Prius to have single digit profit margins! Then you have a Dailytech article twisting it into saying that hybrids are a “cash cow.”

…Color me unimpressed with the integrity of the Dailytech article.

Now before this devolves into yet another 200 post bicker-fest about American automakers, I don’t think anyone here is about to disagree that US makers are sucking wind and that they are not doing well. This is not the argument I am making. I have issue with the horrid sensationalism that goes on around here each day. Just because one is doing bad, doesn’t mean that the other is “raking in the bucks.”

I would be thrown out of a project approval meeting if I proposed a project that was only going to receive 15% ROI, much less 15% gross margins. Now the auto industry is in a much worse situation than the industry I am in, but the fact remains that 15% gross margin is not a cash cow in any industry.

-Suntan


RE: Kinda says something about the article
By Reclaimer77 on 4/29/2009 2:46:35 PM , Rating: 5
You nailed it. As soon as I read "cash cow" I knew it had to be a Mick article.

What is the deal with that guy ? It's so biased !


RE: Kinda says something about the article
By LRonaldHubbs on 4/29/2009 3:42:28 PM , Rating: 5
Y'all got Micked


By callmeroy on 4/30/2009 10:52:47 AM , Rating: 2
Move over Rick Rolled.....

new term

"Mick rolled"....


RE: Kinda says something about the article
By bighairycamel on 4/29/2009 4:28:01 PM , Rating: 1
quote:

quote:
The gross profit earned on the Insight is still low when factoring in the large R&D costs involved in its development. However, the profit margin on its hybrid operations has risen to the level where Honda can count on it to generate the fourth-largest revenue stream behind its luxury, midsize and small car operations.

So now you have the source article saying that Honda’s continued efforts at refining and improving on its hybrid design will now bring it solidly into last place as far as its automobile sales are concerned

I'm not sure how 4th largest suddenly turned into last... did you forget Honda also makes Vans, Trucks, and SUVs? Unless you were figuring in R&D costs in which case it is reasonable to assume that a technology as relatively young as hybrid technology would still be expensive. I doubt the folks at Honda are expecting them to recoup R&D costs in a year.


RE: Kinda says something about the article
By Suntan on 4/29/2009 4:48:29 PM , Rating: 2
quote:
I'm not sure how 4th largest suddenly turned into last... did you forget Honda also makes Vans, Trucks, and SUVs?


Sorry, should have said “car” sales. But is that *really* the only thing you got out of all that? Or are you now just fixating completely on trying to find minor technicalities in what I say for the sake of argument? Honestly, read all the articles completely linked in the dailytech article and tell me you still agree that you would call the Prius and Insight “Cash Cows.”

quote:
Unless you were figuring in R&D costs in which case it is reasonable to assume that a technology as relatively young as hybrid technology would still be expensive. I doubt the folks at Honda are expecting them to recoup R&D costs in a year.


I honestly don’t know what you are trying to convey here. The article stated gross margin, which is the difference between selling the thing and the cost to build the thing in the factory. It does not include R&D, tooling or other project costs.

-Suntan


RE: Kinda says something about the article
By bighairycamel on 4/29/2009 5:27:40 PM , Rating: 1
OK I think we have a mixup here....
quote:
Sorry, should have said “car” sales. But is that *really* the only thing you got out of all that? Or are you now just fixating completely on trying to find minor technicalities in what I say for the sake of argument? Honestly, read all the articles completely linked in the dailytech article and tell me you still agree that you would call the Prius and Insight “Cash Cows.”

First, I didn't know we were having an argument. My childish little poke at you in my first post was merely a springboard to the rest, which was just to say that seeing the actual numbers of profit for domestic compared to foreign was interesting. I never expounded on Hybrid numbers at all.

I just assumed your reply to my post was also just a springboard to post your research. All of which pertained to hybrids, which again, my post had nothing to do with.

Which brings me to my next point; I never "agreed" that I thought Hybrids were cash cows. In fact, I never said anything about hybrids except my agreed disclaimer that the numbers could have been fudged or inaccurate. In my second post, I only mentioned hybrids because I questioned the way you comprehended your source, because I read it differently (automobiles vs cars).
quote:
I honestly don’t know what you are trying to convey here. The article stated gross margin, which is the difference between selling the thing and the cost to build the thing in the factory. It does not include R&D, tooling or other project costs.

Exactly, which is why I coudn't understand what was so upsetting about the profit margins. It seemed to me like you went from attacking Dailytech to attacking Honda hybrids. I never agreed that they were cash cows, but having a profit at all with a relatively young tech is still respectable.


RE: Kinda says something about the article
By Suntan on 4/29/2009 11:38:13 PM , Rating: 4
quote:
First, I didn't know we were having an argument.


You originally replied with a rude, round-about comment accusing me of being crabby. And you have been replying to further posts offering rebuttals to counter mine. Added together, they sure make for what looks like argumentitive behavior.

quote:
which was just to say that seeing the actual numbers of profit for domestic compared to foreign was interesting.


Interesting maybe, but your further comments alluding to the fact that the numbers for hybrids expressed in this article show that Japanese car makers have a viable market segment is still faulty.

Just because they are doing "less bad" with their hybrids than the American car companies are doing, does not equate to "doing good."

quote:
All of which pertained to hybrids, which again, my post had nothing to do with.


Hybrids being "cash cows" is the main topic of the article. If you want to talk about Japanese vs American car makers in general, go find one of the umpteen other articles that Mick has started on the subject.

quote:
Exactly, which is why I coudn't understand what was so upsetting about the profit margins. It seemed to me like you went from attacking Dailytech to attacking Honda hybrids.


My main point is that dailytech is rife with sensationalist stories that border on the "blatantly untrue", while routinely crossing clean past "journalistically devoid of integrity."

My comments about Honda are what they are, not an attack, but not saying they are doing great things either. Planly put, 15% margin is crap on any product that isn't a commodity. Certainly not acceptable for a company to survive long term on. Given the newness of the market segment, and the current state of the automotive market in general though, it is understandable.

quote:

I never agreed that they were cash cows, but having a profit at all with a relatively young tech is still respectable.


Profit margin on a product is not the same thing as having a "profit" at the end of the day. Profit margin is not the last line on the P&L statement, it comes in closer to the middle and there are a lot more negative numbers that get added after it (paying engineers to design and test it, regulatory testing, purchasing tools to build it, paying for all those fancy commercials, etc. etc.)

Personally, I've seen projects that show a profit margin over 30% and the project still ends up in the hole after a total ROI analysis is done, and they didn't even have a fraction of the overhead as developing a hybrid system would.

To sum it up. 15% margin is not good enough to be considered a success in any of the big offices where the guys wear suits and the tables are made out of mahogany. Therefore, the hybrid market segment either needs to continue to mature and improve its margins, or it will die and be replaced by something else. Not bagging on it, just being realistic (but I am bagging on any e-turd that sits and writes a web blog proclaiming that a pathetic 15% margin is equal to being a "cash cow.")

-Suntan


By Hieyeck on 5/4/2009 8:27:33 AM , Rating: 2
quote:
My main point is that dailytech is rife with Mick- stories that border on the "blatantly untrue", while routinely crossing clean past "journalistically devoid of integrity."
Fixed


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