Re: A few questions: cams

[David Ian Utley <diutley@telepath.com>]

>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 

over a period of time.  The
>development cost of say an entirely new car will be high because of the
>complexity (ie number of parts, etc.) but the cost of developing an
>individual part like a cam will be less.  The development cost will be
>affected by the uniqueness of the item.  (For intance, the development of
>the first Golf may have been high, but the development of the first Jetta
>was probably not, as there are few differences.) If you have experience, ie
>a knowledge base, then the use of prior knowledge can allow lower
>development costs.  VW knew a thing or two about cams before the 16v was
>developed.  Also the development costs for many products will be recovered
>within the first couple of years.  If the product is sold over a long period
>of time, the development cost will no longer be a factor in its price.  
>
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.  

>My thoughts were that VW did not have high development costs for the 16v
>cams and that they produced them in sufficiently large quantities so that
>development costs would not be a major factor in the prices.  
>
>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.


>
>Actually if the supply has been at level "X" for a period of time and the
>demand increases, it tends to drive prices up.  

In the short run, yes, but not the long.  These cams have been out for a
while, and the R&D, and the push for demand is also down from it's peak, I'm
sure.

For computer memory there
>actually was a lot of demand but so many people tried to cash in on the
>demand that the competition was fierce and most players dropped out due to
>extremely low profit margins.  With fewer players, the survivors could raise
>prices, somewhat.  For a long time former players or new players were not
>willing to retool or tool-up to reenter/enter the market as it appeared too
>risky.  When it appeared that there was going to be a huge demand for
>memory, the supply increased dramatically , to a point of oversupply and it
>exceeded demand.  Thus the drop in prices. Now that the oversupply has been
>reduced, the prices are going up again.  (Part of the increase in supply may
>have been due to speculation about very high prices due to the fact that the
>only remaining major supplier of the adhesive that holds the memory chips
>together had a fire at its main plant in Korea and a huge shortage was
>anticipated.)
>>
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?

David

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