- The Washington Times - Friday, July 6, 2001

Today's cars are extraordinarily complex.
Even the simplest car includes miles of wire. Computer chips control engines, brakes, exhaust settings and more. Scores of small motors run heating and air-conditioning systems, windows, steering, seats, brakes and windshield wipers. Because of all the luxuries offered by automakers today, cars may well be more complicated than small airplanes.
But how does an automaker put a price on all that technology?
Jack Collins, the vice president of marketing and product planning for Nissan, says carmakers estimate the cost of design and development of a new vehicle, parts and supplies needed for production, tooling costs, new plant costs (if necessary), distribution, dealer margin, advertising, incentives (if applicable), then divide by the number of cars they expect to sell over the life span of the car (a model typically lasts five to six years). Add a percentage for profit, and voila you have the price of your car.
But it's an art, not a science, Mr. Collins says. Carmakers can usually manage their costs, but variables such as an energy crisis can wreak havoc with the process. Most cars take 30 to 60 months to be developed (although the Japanese have reportedly done it in as few as 19 months), so carmakers are peering through a long tunnel, hoping to see what's at the other end. Foresight is rarely perfect.
One of the final steps in bringing a car to market is what Mr. Collins calls a "dynamic pricing clinic." That means an intensive study with 250 to 300 prospective customers to help finalize the price of each car. Nissan just finished one of these studies for its new Altima.
Like other manufacturers, Nissan hires an independent firm to conduct these clinics, which compare its new model with the competition. In the case of the Altima, the company wanted to see how it would stack up against the VW Passat, the Honda Accord, the Ford Taurus and the Toyota Camry. However the car fared the results of clinics are closely guarded secrets the Altima, with a lot of power and sharp, new styling, is bound to turn heads when it motors into showrooms this summer.
"We recruit clinic participants from our expected source of sales," Mr. Collins said. That means some people will be Nissan drivers, and the rest are driving Camrys, Accords, Passats, and Tauruses. But as Mr. Collins said, they're all people who have "an intention to buy in the segment."
Participants circle the cars with electronic boards on which they mark answers as they stop at X-marks on the floor, so each person judges from precisely the same point. "Rate the car from this view," they might be instructed. As the person makes his or her judgment, the results are instantly recorded. At the end of the day, Nissan knows precisely what the strengths and weaknesses of its design are, at least from the perspective of potential customers. It also has the same information about the competitors' cars.
Clinic participants are also quizzed on the interior, the controls and the gauges. They are asked to sit in the back seat to test for roominess and visibility. The Altima, which has a very spacious back seat, surely beat out the opposition in the latter category.
Nissan works hard to eliminate any bias that might skew the data. Although all the cars are "badged," meaning they retain their normal company logos, there are no Nissan employees present to indicate that it's a Nissan survey. "But they probably figure it out," Mr. Collins conceded.
Cars are kept to lighter colors, since stronger, darker colors (metallic blue or red, for example) tend to evoke stronger reactions. Silver is the most popular color of today's new cars, surveys have shown, so silver is a good color for these clinics. "We want to make the appeal of each car as broad as possible," Mr. Collins said. "We try very hard to get them [all the cars] in the same color and the same trim level."
After people have thoroughly "kicked the tires" on the four models, they take a drive for 20 minutes, accompanied by a technician, on urban streets, suburban streets and freeways. The technician watches how they drive and tries to get them to match their acceleration, braking and other driving habits on each of the four cars they're asked to drive. Then it's back inside for a final session, this time to actually price the cars.
Participants sit in front of a computer screen. Each car is shown with its recommended price. "Which would you buy at these prices?" they are asked. If they pick the Altima, the Altima price is then increased by $500 or $1,000 to see at what price the potential customer would switch and purchase a competitor's car.
So automakers just keep jacking up the price to see how much they can get? No. What they want to find is the price at which they will get their projected share of the market and sell the number of cars they have scheduled, Mr. Collins said. It all comes back to the plans laid out three to five years earlier, when the car was first proposed.
"If we have an Accord or a Camry and a Passat and our car, [and] we want to sell 190,000 [the annual target for the new Altima], we're trying to set the price low enough to make sure we get that share," Mr. Collins said.
And that's how cars are priced today.
TRIBUNE MEDIA SERVICES INC.


LOAD COMMENTS ()

 

Click to Read More

Click to Hide