01 June 2014

The Cost Of Motoring Should Be Lower

Nissan Sunderland Juke assembly. Robots help keep costs down. 

When comparing the price of appliances today with twenty years ago, you find they have more features yet are cheaper. The reason is because they are made in larger factories with mechanised production lines or cheap labour. Often one factory makes items for many companies, and a different brand name is stuck on the same product as it moves along the conveyor belt.

Cars today are much more advanced with many more safety features and gizmos. In real terms - compared to earnings - they are cheaper too, but prices stubbornly hold up. This means the outlay for a car is high and depreciation is as well. Then add the costs associated with running the vehicle and personal transport takes a large slice of our income. That is what is holding me back from buying a new car. How can I justify the cost of personal transport? It's too much!

Car makers have failed to take advantage of one key thing to reduce prices, co-operation. There are signs producers are realising that those who share will survive and those that don't won't. Still, it is happening too slowly. The cost added to cars by duplicated costs developing things alone is high and it needs to be reduced.

An example of going it alone was MG Rover. It shared much with Honda and the arrangement was profitable for both. BMW became the majority shareholder and a disgruntled Honda left. BMW needed to find a new partner for MGR but didn't. It tried to run the company without sharing the cost of doing so. It soon became very unprofitable and the butt of jokes from BMW. The joke however was on them, as that poor decision cost BMW a lot of money. They failed to ensure MGR's profitable survival through co-operation with another mass car maker.

It is going to be increasingly difficult for car makers to go it alone. Sharing as much as they can with other car makers will save money, increase profits and lowering the price of cars. It would even better if car makers made cars for each other and with clever body changes made them look quite different. That would really reduce prices (and therefore debt and deprecitation for the buyer) but that seems one step most manufacturers won't take. It would make the cost of motoring much lower.

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