What am I missing here? (auto economics content)

According to a TV ad, Ford, via The New Lincoln Motor Company, wants to put me in a new MKX for 48 months at zero percent. They also want to throw in a no-charge maintenance package. Is there really enough markup in these things that Ford can make this kind of deal and still pay everybody and keep the lights on?

I once read somewhere that Ford would have been financially ahead if they'd been able to skip the whole Edsel debacle and simply give a free new Mercury to everybody who eventually bought an Edsel. Is this more of the same?

Clearly, there are a lot of aspects of this that I don't understand. Help?

Well 0% does not mean $0.

As low as 0%

Probably not many people that qualify for that rate. But they see it, it gets them in the dealer, and maybe they'll like it enough to finance it at 3% or whatever/

I'd have to imagine they have parking lots full of Lincolns, what with their incomprehensible naming system, odd looks, and complete lack of appeal. They are probably giving them away with a tank of fuel down at the convenience store.

At 45K for one optioned the way my fathers new RDX is and based on a recycled platform with some badge engineering thrown in they should have HUGE profit margins built into the very very few they sell.

Maybe accounting rules allow Ford to count "customer did not buy an Enclave" as income?

Cheap lease deals are often floated to ensure a stock of highly profitable certified pre owned cars.

Nothing to do with the economics of the thing, but the ad with the silhouette of a guy in a stovepipe hat made me want to yank a knot in someone's ass.

I agree that appropriating the image of Abraham Lincoln to sell cars is tacky, but there IS a tiny amount of justification, in that Henry Leland named his company "Lincoln" in the first place because he had voted for him in 1864, the year he turned 21.

However, I still don't see where actual cash comes back to Ford from these deals. You lease at 0% with no money down; they give you $1500 off just because; and you don't even pay for maintenance. There must be cash coming in somewhere, or how would Mr. Mulally buy a new suit?

That ad is vaguely worded... "As low as..." and "on select models." Even at that, do a financing calc on say $45k for 48 mos at say 2.9% and look at the total interest paid. You'll notice its not far off what discounts on leftover cars in the price range often get.

Well, with a prime rate at 3.25% this loan isn't costing Ford much... Add in:
the steep markup on luxury vehicles (notice that navi in a new car costs $2K but you can buy one at Wal-Mart for like $70),
the litany of fees and charges they are going to hit you with over the life of that loan,
the aforementioned "as low as...," "on select models," and "get up to..." language, AND
if that "maintenance plan" is like some it lasts for two years/24k miles, so it covers two oil changes and an air filter.

Usually incurs a hefty down payment for starters. The markup on high priced vehicles is astounding.

How can companies offer 7k off on a pickup truck and still make money ?

Datsun1500 wrote: If a Dealer has a truck with a $40,000 MSRP and cost of $36000, anything the dealer sells that truck to you over $36,000 is profit. They paid Ford $36,000 for that truck, what do you think it cost Ford to build? $20,000?

Based upon the profitability of most manufacturers lately, the true cost of that truck is closer to $50,000.

Datsun1500 wrote: Remember the offer is from Ford, not the dealer. There is a big markup between the manufacturer and the dealer. If a Dealer has a truck with a $40,000 MSRP and cost of $36000, anything the dealer sells that truck to you over $36,000 is profit. They paid Ford $36,000 for that truck, what do you think it cost Ford to build? $20,000? That's why Ford will give you the money for free, every one the dealer sells, Ford is making a bundle on, the dealer is making a little in comparison. That's why the manufacturer can do large rebates if they need to move units, the markup is there.

My Aunt's Father worked for Ford. When she and my Uncle bought an E350 for their business.. they were able to buy it through her father and use the "at cost" function he was able to do every couple of years. I forget what they actually paid for the beast, but was lower than a lot of compact cars

Streetwiseguy wrote:

Datsun1500 wrote: If a Dealer has a truck with a $40,000 MSRP and cost of $36000, anything the dealer sells that truck to you over $36,000 is profit. They paid Ford $36,000 for that truck, what do you think it cost Ford to build? $20,000?

Based upon the profitability of most manufacturers lately, the true cost of that truck is closer to $50,000.

I am not sure what you are referring to.

If I am reading the data right, since June of 2008, Ford Motor Company has only had 2 quarters where they posted losses (June 2008 & Dec 2008). Their profits haven't been big, but they haven't been negative.

Am I wrong?

Judging from supplier discounts I've seen over the years I figure they can discount 15-21% off sticker price and still make money. Just a random observation tho.

Stealthtercel wrote: I agree that appropriating the image of Abraham Lincoln to sell cars is tacky, but there IS a tiny amount of justification, in that Henry Leland named his company "Lincoln" in the first place because he had voted for him in 1864, the year he turned 21.

Not to mention Lincoln was shot in Kennedy's Town Car or something like that

If you are curious about how any publicly traded company makes money, I suggest reading the quarterly and annual reports.

For the auto world, the vast majority of cost is in making the product. And the revenue vs. cost of revenue isn't as much as many seem to be suggesting. Also, where you see interesting deals, that's marketing paying for it. You'll see that in the reports.

Seriously, read the reports. They are interesting.

mad_machine wrote:

Datsun1500 wrote: Remember the offer is from Ford, not the dealer. There is a big markup between the manufacturer and the dealer. If a Dealer has a truck with a $40,000 MSRP and cost of $36000, anything the dealer sells that truck to you over $36,000 is profit. They paid Ford $36,000 for that truck, what do you think it cost Ford to build? $20,000? That's why Ford will give you the money for free, every one the dealer sells, Ford is making a bundle on, the dealer is making a little in comparison. That's why the manufacturer can do large rebates if they need to move units, the markup is there.

My Aunt's Father worked for Ford. When she and my Uncle bought an E350 for their business.. they were able to buy it through her father and use the "at cost" function he was able to do every couple of years. I forget what they actually paid for the beast, but was lower than a lot of compact cars

It would be nice if that was still true.