On 11/04/2012 21:34, Orchid Win7 v1 wrote:
> On 11/04/2012 02:43 PM, scott wrote:
>>> So... how the hell did Fiat manage to afford Ferrari?
>>
>> Because there are 2 million Fiats sold each year, yet only 5000
>> Ferraris. Which brand would you rather own? Hint: if you choose
>> correctly you could buy the other one with about 2 weeks of profit :-)
>
> OK, let's do the math on this...
>
> Fiat sells in the budget market. In that segment, if you have a 3%
> profit margin, somebody else will come along and start making the same
> thing, but selling it at only 2% profit, and everybody will buy that
> instead of yours, so you shut down. And then somebody else will start
> selling it at 1% profit, etc. In summary, we can take it as read that
> Fiat sells its cars at only fractionally more than the actual
> manufacture cost.
>
> Suppose for argument's sake that the cheapest Fiat you can buy is


>
> We've already agreed that Fiat is selling nearly at-cost. In other

> manufacturing a car. Now, a Ferarri probably costs slightly more to

> might be /priced/ at twice as much as a 1L engine, but it doesn't
> actually /cost/ twice as much to machine it. No doubt the Ferarri has
> nicer fabric lining the seats and a few other bits and bobs. Let's
> over-estimate and pretend that the Ferarri costs 2x to manufacture.
>


>


>
> Now, explain to me again, *how* can Fiat afford to buy Ferrari??

Errors in your above assumptions:

Volume car makers are generally on about 5% profit (Fiat had 3% in 2010)
More expensive brands can generate 10% profit (eg BMW/Daimler etc.)
Ferrari made 15% profit in 2010

The development cost for designing and testing a car is HUGE
Manufacturing costs are way cheaper per car if you are making 2 million 
rather than 5000 a year.

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