Re: A few questions: cams

[picot@cpcug.org (Chris Picot)]

At 10:19 PM 10/30/96 -0600, scirocco-l@privateI.com wrote:
>
>>The general principal is correct in a broad sense but I don't think that in
>>itself explains the price difference.  The price of an item will reflect
>>development costs which will be 
>
>I don't know what this means, or if you mis-typed, I can't figure out what
>to put in it's place.
>
>>amortized 

The development cost will be spread over a period of say, years. 

For example, you develop a software product, say to record an auto
maintenance and repair histories, at a cost of $100,000, which you borrowed.
In order to be competitive with similar products you price it at $70.  You
sell from your home.  It costs you $10 per unit for the disks, manual,
packaging, and postage.  You take $10 per unit as profit and pay it to
yourself.  $50 goes into a fund to repay the loan.  You sell 300 the first
year, 600 the second and 1100 the third year.  You have recovered your
development costs.  The forth year you sell 2,000 copies and earn a profit
of $60 per unit or $120,000.  Amortization is an accounting concept in which
you "pretend" you incurred the expenses over 3 years.  

>Okay, but you are talking development, and I am talking production.  They do
>tend to overlap, but in this case, since there are remarkably fewer 16Vs
>then 8Vs, it would seem that it would *have* to be in the sheer number
>produced.  

If we are only talking about production: There are certain economies in
large production runs but it is a case of diminishing returns.  Once VW has
their cam shop set up, manufacturing a new cam may only be reprogramming the
cam grinding machine to do a different profile.  If you jump through these
hoops to make just one cam, the cost is high.  It will be less if you make
10 or 100 or 1,000.  It might cost you $1,000 to make 1 cam but only $2000
for a production run of 10 cams. ($200 per cam.)  The amount you save will
diminish as the runs get larger.  

>>It would be interesting to compare the number of 16v cams made to the number
>>of, say Crane high performance cams made for, perhaps a Ford V8 engine, and
>>compare their prices.  
>>
>Yes, and I think some good answers to this discussion would come out of that
>comparison, along with import duties, problems with manufacture in the area
>where they (16V cams) are produced, etc.

>I suppose it all depends on how you look at it.  This is a very complex
>issue, marketing.  It becomes even more complex when you believe that a
>company is over-pricing a part, you are therefore stuck with the initial
>emotive of your first judgement (they are gouging us).  I understand and
>agree with most of your reasoning, my point here is to say that they may or
>may not be gouging 16V-ers. I would like to know why you think that they
>are, besides the cam issue.  DOn't get me wrong, I am not defending VW
>because I sell parts, I just don't see it happening.  Let me know your
>reasons, beyond the price itself.  Other examples, maybe?  Similar situations?

I don't know if VW is gouging us or not, thus the reason for the original
question.  The following imaginary scenario might be the answer.  Say VW
found that the cams for 8vs were reliable to 6200 rpm, but had an
unacceptable failure rate over that speed.  They wanted to make the 16v rev
reliably to 7200-7500 rpm.  Assume there are three ways to make cams:
casting, forging or machining from a billet.  Assume forging is more
expensive than casting and machining from a billet is more expensive than
forging.  VW finds that machining from a billet is the only way to make a
reliable cam.  Thus, the higher price.  There are a number of treatments for
steel to make it harder and some may be required for for the 16v cam, or
perhaps the grinding machines they had were not able to produce the 16v cams
and they had to buy new ones, thus the increase costs. There are a lot of
variables.  

It might be cost of manufacturing or just what the market will bear.  Did
you ever wonder why you can pay $5 for an 18 oz box of cereal?  Look at the
cost of 5 lbs of flour and think about what cereal is.  Mostly flour.  Want
to save money?  Have steak and eaggs for breakfast.  Of course you die of a
heart attack at age 22, but thats life.

Chris
>
>David
>
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