Economies of Scale

These usually mean big numbers. In Volvo’s case that means only 20,000 annual sales for the S90.

2017 Volvo S90:
2017 Volvo S90:

Automotive News mentioned this figure yesterday. There are another 40,000 units annually for the V90. Still, that’s quite modest really. The reviews so far have been good and my static inspection revealed a pleasingly high quality product. Is a figure of 60,000 enough for a firm without multiple brands to

spread the costs (VAG or GM) or the overall volume (BMW) or prestige to charge enough (MB)? Volvo is in a curious position in terms of prices and volumes as Rover, Lancia and Saab found out.

Author: richard herriott

I like anchovies. I dislike post-war town planning.

5 thoughts on “Economies of Scale”

  1. It’s actually Jaguar XF level, so I suppose that is realistic. We mention the current C5 below (a smaller cheaper car, of course. That peaked at just over 80,000 a year and, at 7 years old dropped below 20,000.

  2. I’ve long thought a fascinating dissertation for some business student would involve finding an industry traditionally hamstrung by overproduction (this is just off the top of my head, but maybe automotive fit the bill), selecting a given time period, looking at actual sales for that period, and comparing that to the projections declared by the competing manufacturers. You could write a book analysing the reasons for the (presumably vast) difference.

    1. People base whole careers on making scientific projections. In some cases these are worthwhile and accurate. In other cases (eg voting, as we can vouch in the UK) they are at best just wrong, at worst divisive. In the case of car buying, which is actually a pretty irrational process, it’s reasonably essential for manufacturers to have an idea what demand will actually be. Probably Mercedes can rely that their latest S Class will fly off the shelves, but other manufacturers can’t. So i assume they end up plucking figures from the air as something to head for, then hope that they can scale production to fit. If they don’t and pay dedicated professionals to make these predictions, they are wasting their money.

  3. I believe the XC90 is related, so there’s some more scale over which the capitalized costs can be spread. There is so much in terms of common components these days that it’s really just body panels, head and tail lights and interior mouldings that are bespoke. Looking at Mazdas recently (as I do, a lot), the read across of engines, instruments, HVAC controls, etc. is astonishing. The 3 really is a 6 in shrunken form. Volvo will go a similar route, increasingly referred to as ‘matrix sharing’ rather than ‘platform’, I have noticed.

  4. A figure of 40k in the first year seems sensibly conservative for the new V90, given that the very dated (but significantly cheaper) V70 still managed to shift 27k after 9 years in production. They have quite a few options open to increase volumes too, the three trim levels available at launch are all absolutely loaded with kit so if they want a lease friendly competitor to a 520d they have plenty of space to introduce lower spec versions. I suspect, however, that they are aiming for lower volumes but higher transaction values.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: