Newspaper Page Text
(No. 2)
Facts—not opinions—are the foundation and basis of all enlightened knowledge. Here are some facts
concerning automobile values and prices which explain why and how Studebaker offers low prices
and high quality in its cars.
The Automobile
The automobile is the highest type of mov
ing vehicle, either drawn or self-propelled. It
is a highly developed machine, containing
three thousand separate parts—more moving
or frictional parts than a railroad locomotive.
The locomotive runs over a smooth track; the
automobile is driven over rough roads with
sharp turns and grades; it is subject to far
more wear and tear than the locomotive. Ob
viously, it must then be necessary that each
one of the three thousand automobile parts,
both moving and stationary, fit, co-operate and
function with the greatest possible precision.
The quality of the automobifi:odepends entirely
on the quality of the raw material, and the skill
and experience with which it is designed and
manufactured. The locomotive at all times is
operated and cared for by experienced engi
neers and skilled mechanics. Automobiles
are operated by owners who sometimes pos
sese only limited mechanical ability, therefore
an automobile must be designed and manufac
tured to meet every emergency of service and
to withstand the abuse andg neglect of unskillful
operation.
Who Makes Automobiles?
There are over one hundred concerns “‘mak-
Ing”" automobiles in this country, of which
about ten are manufacturers, while the others
are “assemblers.”
The manufacturer owns and operates a com
plete manufacturing plant consisting of an ex
tensive engineering and experimental depart
ment and a chemical laboratory; a power
plant; foundry, forge shop, machine shop,
stamping plant, body shop, trim shop, paint
shop, and assembling departments.
The assembler either owns or rents a plant
consisting usually of a bare building without
power plant and without machinery, but
equippes simply with assembling benches,
forms and racks and stock rooms for the fin
ished parts which he purchases from parts
manufacturers or middlemen. He “‘makes”
automobiles by putting these parts together in
his assembling J:partmcnt.
Excessive Cost of Assembled Automobiles
Practically all manufacturers as well as as
semblers buy finished parts from middlemen,
such as wheels, tires, el::trical equipment and
some minor parts, and therefore the costs of
both the manufacturer and the assembler are
on a par for these parts, but these parts consti
tute less than 209 of the cost of an automobile.
Other parts constitute about 80% of the cost of
the automobile, the engine, axles, transmission,
differential, steering gear, body and top making
up most of the 80¢. Hence, a manufacturer
who manufactures these parts from raw ma
terials in his own plants roughly speaking is
making 80% of his car, whereas the assembler
who buys them from parts manufacturers is
purchasing from middlemen practically 100%
of his car.
Studebaker manufactures in its own plants
all of its engines, axles, transmissions, differen
tials, steering gears, bodies and tops. Even
some manufacturers buy bodies, axles and
steering gears from middlemen.
Cost of Manufacture
Assuming a car costs S7OO, and deducting
207 or $l4O for the parts both manufacturer
and assembler buy from middlemen, the bal
ance, or $560, represents the value which the
manufacturer sells at only one profit, but
which the assembler must buy at the parts
makers’ profit; and the parts maker asks an
average profit on these parts at least 254 above
manufacturing costs. q:hia adds $l4O to the
OPEN CARS
FOURCasS + « . .$ 788.00
POURResliter « o . GBO.O®
FOURTowingCar - . 875.00
FOUR Landau Roadster - . 1,150.00
SR . e e o e
SXReaditer . - o < ILOOOSO
SIX Touring Car - . . 1,088.00
SIX Landau Roadster . . 1,350.00
F. O. B Detvoit
Atlanta Branch, 245-247 Peachtree Street
HEARST™S SUNDAY AMERICAN, ATLANTA, GA., SUNDAY. OCTOBER 1, 1916.
cost of the $560 worth of parts which the as
sembler must buy, and on which he must still
add a good substantial profit of his own.
The Selling Cost of Any Car
Consider the following table as the basis
upon which the selling price of any car must
be fixed:
s LR R
Excess cost
Items which make Mirs. Assembler’s of Assem
up Selling Price Cost Cost bled Car
R e g
Factory Cost S7OO SB4O $l4O
Administrative, adver
tising and selling and
general expenses — say
they are the same in
both cases . ....ce.er 80 80
Discount from list al
lowed dealers, assum
ing 20% the maximum. 220 270 50
Maker's Profit ....... 100 160 60
TOMIB: oo ninssne s 300" $1.350 $250
(Increase 239%)
e —————————
This illustration shows a selling price of
$l,lOO for the manufacturer’s car and $1,350
for the assembler’'s car. The buyer must pay
$250 (about 23%) more for the assembled car
simply because it is an assembled car. The
manufacturer gives his customer the benefit of
the savings derived from manufacturing his
own parts, whereas the assembler has to pay
this excessive cost and put the burden on the
customer.
Manufacturers’ Advantages
It is well known within the automobile in
dustry that large manufacturers, with $lO,-
000,000 to $15,000,000 invested in complete
plants and ample capital and resources, pur
chase the most modern and expensive labor
saving machinery, and then in manufacturing
their engines, steering gears, axles. transmis
sions, differentials, bodies, tops, etc., their costs
are lower, if anything, than parts manufactur
ers’ costs for the same articles.
Manufacturers producing 75,000 cars an
nually produce more parts of a specific type
than any parts manufacturer produces. As a
rule, parts manufacturers are not specialists in
the sense that they make only one type of body
or axle or engine. Although their total output
may sometimes (but rarely) exceed the quan
tity of any large automobile manufacturer,
they make numerous varieties, and hence do
not obtain as low manufacturing costs as the
large automobile manufacturer obtains.
Hence, the large automobile manufacturer
produces his own parts at a lower cost than the
parts manufacturer produces similar parts for
an assembler who buys in small quantities, and
it follows that the 237 excess cost of the assem
bler illustrated above is not exaggerated.
Another point is that the assembler, buying
parts from numerous sources, and often the
same part from several sources, cannot obtain
the same precision of machining and assem
bling in the finished car which the large manu
facturer obtains.
Still again, the assembler’s profit per car is
larger than the manufacturer's profit, because
the assembler usually sells only a few thousand
cars annually. The illustration shows that this
profit is 60% more than the manufacturer re
ceives, and we believe this percentage is not
overstated. Also the dealer's discount is
greater on the assembled car, because his list
price is higher.
As stated above, out of a hundred automo
bile concerns selling cars in this country, about
Studebaker increased its output from 37,000 cars in 1914 to 45,000 in 1915 and from 45,000 in
1915 to 75,000 cars in 1916. In 1914 the price of the Six was $1575; in 1915, $1385 to
$1450 and in 1916 SIOBS, and each year the car was better than the preceding year. These
significant reductions in price were made possible only by the increase in production.
In the last fourteen months Studebaker has produced and sold more seven-passenger SIXES and
more seven-passenger FOURS than any other manufacturer in the world for a like period, thus
establishing Studebaker as the world’o"firgut manufacturer of fine cars—
. 5 m a
South Bend, Ind. Detroit, Mich. Walkerville, Ont.
90% are assemblers and only 107 manufac
turers in the true sense of the term. This
means that consumers are paying 237 premium
to 907 of the automobile concerns in the coun
try, over and above what they could buy the
same cars for, and in fact, much better cars,
from the large manufacturers.
Quantity Production of Automobiles
Vague statements are frequently made con
cerning the effect of quantity production in re
ducing manufacturing costs. To illustrate this
truth to uninformed persons, it is necessary to
state the elements that enter into costs and
selling prices of automobiles. Many people
will be astonished at the number of these ele
ments. Primarily, the basic cost of an auto
mobile is:
(1) The raw material contained in it.
(2) The wages of the workmen who fashion
the material into a finished car. The sum of
these two items is the prime cost and the actual
car value the customer receives. All costs and
expenses beyond these are of little, if any, value
to him.
(3) Factory overhead expenses should be
included providing the manufacturing methods
are simple, direct and economical.
Factory overhead expenses include sup
plies, supervision and factory organization ex
penses which, according to the intelligence of
the personnel, determine whether the output
of the manufacturer is large or small, whether
the proper material is purchased and at the
right prices, whether the design of the car is
correct and the manufacturing methods simple
and effective. Hence, we may say that factory
overhead expenses are a legitimate part of the
actual car value received by the customer, and
if we admit this, these three items, representing
manufacturing cost, are all the actual car value
the customer receives. In making up the sell
ing price, however, other items are added, as
follows:
(4) Administrative, advertising and sell
ing and general expenses.
(5) Discount allowed automobile dealers
who sell the customer and give him service
afterwards.
(6) Manufacturer's or assembler's profit.
Quantity Production Distributes Expense
The total of these six items comprises the
selling price. It may be astonishing, but it is
true that every one of these six items must and
does vary with production. Every, small pro
ducer, whether he is a manufacturer or an as
sembler, necessarily suffers an increase in every
one of these six items, and must therefore
charge more for his car than the large producer.
lllustrating this, we will take the cars of a
manufacturer (A) producing 75,000 cars per
annum, and either a small manufacturer or the
usual assembler (B) producing 10,000 cars.
Commencing with item (1), raw material, it
should be obvious that (A) can obtain much
lower prices than (B) for the same material,
because his buying power and purchases are
seven and a half times greater.
In item (2), labor, it is obvious that (A) can
employ skilled mechanics in specialized single
operations to a greater extent than (B), and
consequently obtain better work and more
work from the same men.
In item (3), factory overhead expenses, it
is obvious that (A), owning the highest priced,
most modern labor-saving machinery, can elim
inate excessive labor and supervision; that ex
penses of non-productive departments, such as
experimental, engineering, laboratory, pur
chasing, stores, etc., are much less per car than
in the case of (B).
To illustrate, a machine that costs (A) $25,-
000, costs thirty-three and one-third cents on
each automobile he turns out. It costs (B) two
dollars and a half on each automobile he turns
out.
The same is true of salaries; the salary
of a $25,000 engineer employed by (A) adds
only thirty-three and one-third cents to the cost
of the car, whereas if (B) employs a man of
equal ability and salary, his cost is $2.50 per
car. The same excess cost for (B) occurs in
the case of purchasing agents, inspectors, fac
tory executives, superintendents, etc.
With an annual $5,000,000 factory over
head expense for (A), his cost per car would
be $66.67, whereas a $3,000,000 overhead for
(B) would be $300.00 per car.
Quantity Production Reduces Costs
Quantity production reduces the cost per car
for item (4), administrative, selling and adver
tising and general expenses, in the same way.
Supposing the annual expenses of (A) are
$6,000,000, the cost is only $81) per car, which
is much less than the average person imagines
this charge to be.
In the illustration, we have allowed (B)
SBO per car, which on a basis of 10,000
cars per annum, makes his expenses SBOO,-
000, which he can get through with if he
maintains no branch offices but markets his
cars through dealers only. In the case of item
(5), quantity manufacturers (A) allow deal
ers smaller percentages of discount, usually
running from 15% to 25% according to the size
of the dealer, whereas smaller makers (B) al
low from 204 to 40% discount, because their
dealers sell fewer cars and must therefore re
ceive a greater discount per car to make a
profit. The expenses of dealers average about
the same whether they handle a quantig' pro
duction car or a small production car, and man
ifestly the dealers in the former case, selling
seven and a half times more cars than in the
latter case, can afford and actually do receive
a less discount per car. Again, the dealer's
discount, at the same percentage, amounts to
more money, as the list price of the car in
creases. In the illustration it is shown as $220
on the $l,lOO car (A) against $270 on the
$1,350 car (B), using 20% in both cases, so
that quantity production saves the buyer SSO
on this item.
The Maker’s Profit
What_has been said regarding dealer's dis
count applies with equal force to item (6),
maker’s profit, which in the case of quantity
production (A) rarely exceeds SIOO per car,
but in the case of small production (B) usually
amounts to at least 60% more, because of the
latter maker’s smaller volume.
The large profits being made by small mak
ers, which are a matter of public record as
shown by annual reports of these companies,
prove the truth 02)0 this statement. These
profits often run from S3OO to S4OO per car
for cars selling for less than $2,000, whereas
no quantity manufacturer in this country (A)
makes any such profit per car.
Any concern which buys its engines, axles,
transmissions, differentials, steering gears,
bodies and tops, parts comprising 80% of the
cost of an automobile, from parts manufac
turers, is necessarily taxing buyers about 23¢
premium because of this fact. This truth ex
plains the difference in price of from S3OO to
SSOO in different cars on the market of appar
ently the same value, and this truth is well rec
ognized in the automobile industry.
CLOSED CARS
SIX Touring Sedan - « $1,700.00
SlXCoupe - . . . . 1,750.00
SElmahe o+ & o 2,600.00
COMMERCIAL CARS
Commercial Half Ton Chassis 785.00
Commercial Half Ton Express 850.00
Commercial Half Ton Panel . 875.00
Commercial One Ton Express 1,200.00
F. O. B. Detroit
