"And they lose money on them"
That's not what Toyota has said. They say they've been making money on Prius's since 2002. But, I'm sure YOU know better Jim!
priuschat.com
In a column a couple of weeks ago, I wrote about the Toyota Prius, which deservedly swept most of the "Car of the Year" awards for last year.
I said: "Last year, the Toyota Prius dominated the awards, as the redesigned gasoline/electric hybrid vehicle was so loaded with technology that we wondered how Toyota could make any money selling it for the base price of $20,000 or so.
"The answer is that Toyota isn't making any money -- despite the company's insistence otherwise -- and that the company is so rich it doesn't care. Toyota's profit plans are mapped out for a decade or more in advance, and when Toyota executives insist the Prius is profitable, they mean it's on track to eventually make a lot of money. Someday. This is legendary Asian inscrutability at its most effective, and it's why Toyota is the most successful car company of our time."
This drew the attention of Irv Miller, Toyota's group vice president for corporate communications, who e-mailed: "My sources tell me that we do, in fact, make a profit on every Prius sold now. Your position may have held some validity for the first-generation vehicle, but not today."
We entered into an interesting discussion about what "profit" actually means. My definition is that if you make something, then sell it, and if there's any money left over after covering what it cost you to make and market, that's profit.
That's oversimplifying my position, but that's what it boils down to. Until proceeds from the sales of the Prius cover all the research and development costs that went into it, plus the costs of the hardware and construction labor, I can't see a profit there. Especially because Toyota, unlike most other manufacturers, develops most of its own technology, rather than buy it from subcontractors. This means Toyota owns it, but it also means the company paid all the developments costs -- a great strategy for the long term, at a time when many car companies are thinking short term.
"I look at what makes up a Prius, base price $20,875, and what makes up a Camry LE, base price $22,380, and it seems one is conceivably subsidizing the other," I told Irv. Even with about a quarter-million Priuses sold globally, I just couldn't make the math work to cover the cost of developing the car, plus the proprietary equipment that goes into it, such as the pricey battery pack and the electric drive motor.
"I think we are on the same page," Irv said. "With R&D [research and development] amortized over the number of vehicles sold thus far, there is no way it comes clear. But our thinking is that this R&D investment is to be spread out not only over the breadth of our hybrid line," which is the Prius, the upcoming Highlander, the Lexus RX400h, plus another Toyota and Lexus, and possibly a pickup truck, " but that it is the foundation for all our [hydrogen] fuel cell development, as well.
"So when you say that we don't make money on the Prius, you are technically correct. When do you say that critical mass has been reached unless you take out the long-term investment and let the car stand on its own? If you consider manufacturing cost, sales, marketing and distribution cost, the car makes money."
On that, we agree. And the money Toyota has invested in hybrids, and fuel cell development, will likely put the carmaker so far ahead of the competition that it won't be long before these vehicles make money, no matter what definition you use.
Sentinel Automotive Editor Steven Cole Smith can be reached at scsmith@orlandosentinel.com or 407-420-5699. |
