Big, boring but profitable
|Luca Ciferri is Editor-in-Chief of Automotive News Europe.|
They are big and boring-looking, but light commercial vehicles are crucial to the financial health of many European volume brands.
LCVs provide hefty profits -- as high as 9 percent -- and that cash has been invaluable to companies such as Renault, Fiat, Peugeot and Opel in the last few years.
"Profitability on making cars has gone from poor to utterly dismal, with vicious pricing and no action on capacity. Along with some BRIC earnings (Brazil, Russia), the profits and cash flow from LCVs are critical to subsidize passenger car losses," Bernstein Research analyst Max Warburton says.
Warburton identified a number of reasons why LCVs are structurally more profitable than passenger cars.
Vans are typically priced 30 percent higher than volume cars.
Fewer discounts are offered because the market is consolidated and customers usually buy from a national brand.
Fixed costs are shared by partners.
Engine costs are low because the automaker just borrows powerplants developed for its passenger cars.
LCVs are not loaded with high-tech features, which makes them easier, faster and cheaper to produce than volume cars.
The typical life cycle for LCVs is 12 years vs. seven years for passenger cars.
Aftermarket sales and profits are two to three times higher for LCVs than passenger cars.
You can reach Luca Ciferri at email@example.com.