If you are looking to buy a four-wheeler, you might be pretty surprised by the value that sales tax adds to the total equation. Well, you are not the only one. Even we were shocked at the total sales tax. And we knew for a fact that the manufacturing cost is not equal to the vehicle’s actual price.
So, we wondered, how much does it cost to make a car? Is the production cost even close to the price tag?
That is what got us into digging a bit deeper. And we know that it is certainly not possible to determine the exact manufacturing cost as the production volume lowers the production costs. We still wanted to get an estimate.
Categories of Expense
The expenses fall into four categories for the vehicles that are on the road. This also means that the car manufacturing costs of one model will not be equal to the other. And usually, the car manufacturers will not disclose the expenses incurred in the manufacturing process.
Nonetheless, we did manage to scour out the manufacturing costs of some cars. These are not collected straight from the auto manufacturers, which means these manufacturing costs should also be treated as an estimate. And the marginal costs that we have gathered are as follows:
One of the most popular car auto manufacturers is Toyota. The Toyota Corolla is the best-selling car globally. And that statement is taken directly from Forbes.
Just like you might have expected, Toyota relies on huge production volume to lower the total manufacturing cost. As a result, they can sell a car for about $5000, which had a manufacturing cost of $2500. That is double the profit!
Another popular car manufacturer that you might already know a lot about is Porsche. The car manufactured by this manufacturer is plenty in number. And their models usually have a lot of price differences between the models.
That being said, most of the vehicles from Porche will sell between $50k and $150k. They make about $17k profit with each car sold. Now, that range is something that a manufacturing company will not make by selling a single car unless they are Porsche.
Nonetheless, that range makes the actual cost of the cars fall between $33k to $133k.
As a car manufacturer, Ford has a good amount of popularity. The cost of each model is around $22K. And the profit margin for each of Ford’s sales is $2.2k on average. As a result, we are left with a car manufacturing cost of around $20k.
However, these values can take a huge turn if the prices of the raw materials, such as steel, copper, aluminum, and others, hike up.
The retail price of a sports car is always high. And the same goes for the smaller cars. Well, there is a lot that justifies this total price. First, the sales volume of these cars is not that much. Secondly, the gross margin for the cost of high-end cars is always high as they are always testing prototypes.
Nonetheless, after doing mandatory research, we found out that the minimum cost that is required to own one of these sports cars is $200k. And unlike the other auto companies, Ferrari has revealed that the costs involved in manufacturing come about $195k. That makes the profit margin about $5k to $6k per vehicle.
Just like Ferrari, the other sports car usually costs around $200k. And the manufacturing process can cost about $190k. However, you will be looking to spend tens of thousands more on exclusive versions. Those do not go through higher production volume, which makes them less cost-effective.
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What Factors Contribute to the Cost of a Car?
Car companies need to factor in a lot of things when it comes to slapping a cost on a specific car. Even though it was hard for us in terms of finding suppliers that state the exact figure, we did manage to scour out the things that play a role in terms of the costs that the auto industry has to pay to produce a car. They are:
Auto Parts and Raw Materials
The raw materials and auto parts play the biggest role in terms of dictating the fixed costs. Manufacturing a car will require a lot of raw materials. And not all of their auto parts are of the same material. So, about 57 percent of production costs will consist of the cost of making cars.
This factor also falls under the variable costs category. Do you know why? The cost of materials does not remain the same. As a result, when it comes to gathering these basic raw materials, a car brand must pay a different rate, which makes them part of the variable costs category.
Advertising Charges and Direct Labor
A car company has to go through a lot of advertising. And this advertising charges a lot. Also, this falls under variable costs. The advertising charges do not exactly stay the same all the time.
Secondly, we have the labor costs. This one falls under internal costs. However, it does not have that much impact on the final cost. Some manufacturers do save money in this regard. They do it by operating in a region where the labor costs are not that much. So, this does not really fall under fixed costs either.
One thing that is under fixed costs is the sales tax. For making a profit, the manufacturers must include the tax into the cost to make a car. And this margin will help to determine the final cost of the car.
A car business has to spend money on other factors too. These other factors contain dealership markups, warehouse costs, sticker price, packaging cost, and others. The dealership markups will usually depend on how many cars the car company is providing.
Usually, the more cars the dealership carries, the more money the manufacturer has to spend. This thing does not depend on the size of the car, though. A small car will generally have the same dealership as a large car as long as it does not have a higher price.
However, when we consider sticker price, it comprises about 1% of the total cost. But these different costs do play a role in the average cost of cars we described in the previous segment.
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Is It Possible to Make a Car by Yourself?
It will certainly depend on a lot of factors. The car market does offer parts and replacements. So, if you can source out all the parts by yourself, you can certainly make a car by yourself.
And if you are wondering how much does it cost to make a car by yourself, it is not really possible to give an exact figure. Even when you take the replacement parts directly from the manufacturer, it can cost a load to build a car because you need to consider the equipment required to put all the pieces together.
Additionally, the car manufacturers will not sell you all the parts. You need to scavenge a lot from the second-hand market. If you are lucky enough, you will be able to scavenge all the parts from that second-hand market. And that will allow you to save a lot of money.
However, scavenging parts is not easy. You need to invest a lot of time into searching for the parts. Also, the research you need to do on the parts needs to be extensive. But if you can get a good deal on the parts, you are sure to save tens of thousands of dollars.
Which Country Has the Cheapest Car Prices?
The car prices do not vary that much from country to country unless there is tax involved. However, we can certainly find out the countries where it is easy to afford a car. According to our research, it takes an average Australian 49.48 percent of their yearly salary to purchase a car. And this is the cheapest.
In comparison, an average person needs to spend 54.87 percent of their yearly salary to own a car in the United States. And this difference between the expenditure depends on many factors, such as income tax and taxes on the purchases.
It is quite apparent that if you want to know how much does it cost to make a car, you must consider loads of factors. And the manufacturing costs are usually around the halfway mark for most of the cases. However, the good news is that there are brands that offer cars without making too much profit. So, if you want most for your money, consider one of them.
Hello, I’m Michael Rosales an expert in cars. As a little boy, I have always loved cars. Over the years I became lucky to have the opportunity to work as a car dealer. It was at this stage I became vast in the knowledge of cars, things you need to know when buying cars and how to minimize cost while still getting your dream car.