Industry’s worst flops cost €20bn

Volkswagen loses astonishing €4.6m per car on every Bugatti Veyron it sells

 

You probably don’t want to admit how much money you’ve lost on cars over the years. Neither does the car industry, but the amounts its biggest mistakes have cost will make you feel much better.

Automotive analyst Max Warburton has complied a list of the European car industry’s 10 biggest losers of the past 15 years, which together lost their makers nearly €20 billion. For the first time, he puts a number on how much the Volkswagen group loses on every Bugatti Veyron it sells: an eye-watering €4.6 million per car. Yes, per car. But it’s the tiny Smart Fortwo that racked up the biggest overall loss at a vast €3.35 billion.

Because the carmakers don’t like to talk about their flops, some of the figures are conjectures. But Warburton, of US financial research house Sanford Bernstein, has been ranked by investors as the leading European car industry analyst for 10 years and is a familiar face in the biggest boardrooms. This is as close as we’ll get to the truth.

The Irish Times has seen Warburton’s full report, usually reserved for Bernstein’s institutional-investor and wealthy individual clients. In it, he spots the links between the cars in this report, and advises investors on how to spot the losers of the future.

Cars that try to make a great leap forward are at the greatest risk, especially if they’re attempting to pioneer a new technology.

The Smart Fortwo, Mercedes A-class, Peugeot 1007 and Audi A2 all fall into that category with their radical new construction, as do the Bugatti Veyron and Volkswagen Phaeton with their ground-breaking engines. Warburton warns that some of today’s new electric cars could be the big losers of the future, with BMW and the Renault-Nissan Alliance, among others, offering expensively-developed production cars with low or non-existent profit margins to an uncertain market.

A carmaker making a big leap into a new market sector should also set investor’s alarm bells ringing. The A-class and the Jaguar X-type are good (or bad) examples in this list. In the future, Warburton warns of the risk of super-premium brands such as Bentley, Lamborghini, Maserati and possibly even Rolls-Royce all moving into a new super-luxury off-roader niche at the same time.

Another red flag is the influence of one dominant figure. The Veyron and Phaeton were vanity projects of VW boss Ferdinand Piech; in the future, the big bet on electric cars taken by Renault-Nissan’s talismanic leader Carlos Ghosn could prove expensive.

The US and Japanese car industries have had their flops too, but Warburton’s numbers on the European carmakers are more reliable. But although catastrophic new products are rare, Warburton reminds us that this is a “brutal industry”, and that when cars fail they can take “careers, workforces and even communities down with them”.

So bad cars are no laughing matter. Here are the top 10, and more detail on five of the most interesting.

1 Smart Fortwo
The Smart really had all the problems. It was a grandiose vanity project, conceived initially by Swatch pioneer Nicholas Hayek. It was a small car engineered by a premium carmaker with very expensive, almost supercar-spec technology (tiny turbo engines, sequential gearbox, part-aluminium construction). It got its own bespoke factory. It sold way fewer than planned, and for less than planned. Like some others on this list, it wasn’t a bad car, and the massive subsidy Mercedes effectively put into each one just makes it more of a bargain.

2 Fiat Stilo
Only biggish volumes among which to split its jaw-dropping €2.1 billion loss save the Stilo’s loss-per-car figure. But those volumes – peaking at 200,000 – were just half what Fiat hoped for from its imitation of the VW Golf, before it learnt the hard way that people – even Italians – who wanted a Golf would just buy one, and that people who liked Italian carmakers preferred them to make Italian-feeling and -looking cars. After the first couple of years, sales collapsed completely. The car nearly killed the company.

4 Peugeot 1007
The Peugeot 1007’s fancy sliding doors weren’t just a gimmick. Peugeot really thought they were the key to a revolution in the city car market that would see it shifting up to 200,000 1007s every year. In fact, they were a portal to financial doom. Buyers didn’t want them, and bought just 123,000 1007s over its life. The cost of building them, and the hole it left in the factory, means the 1007 lost more money per car than Peugeot tried to charge for it, a feat matched only by the deliberately loss-making Veyron.

6 Bugatti Veyron
Yes, you read that right: Volkswagen has lost €4.6 million per car on the 370-plus Veyrons it has sold.

Of course, as another pet project of cylinder-crazed Ferdinand Piech, nobody expected it to do anything other than lose money, especially once he’d managed to persuade shareholders that an R&D budget bigger than Concorde’s was a good idea.

But until now, nobody has put a figure on the scale of those losses, or split them among the handful of Veyrons made. Even with a price to buyers of €2 million-plus, VW’s contribution makes your Bugatti look like a bargain.

7 Jaguar X-type
Jaguar has just shown the C-X17 concept and is about to re-enter the small premium-car fray. It won’t make the same mistakes as it did with the disastrous X-type.

The new car will look good, rather than retro and dumpy. It will have a bespoke aluminium platform, and not one borrowed from a humble Ford Mondeo.

It will have a full range of body styles and engines, and not just a saloon with two V6 petrols. It should also be cautious about its planned volumes, unlike the X-type.

But it would struggle to do much worse. The X-type is actually Jag’s best-selling single model, but the fact that Jag just axed it without an immediate replacement tells you all you need to know about how badly it underperformed.

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