The Honda Insight, the Toyota Prius and profits

Posted by: Ian Rowley on April 28, 2009

Ask a Toyota or Honda executive how much their respective companies make per hybrid car and you’re unlikely to get a straight answer. Indeed, it was progress of sorts a couple of years back when Toyota began saying that the Prius, which debuted in Japan over a decade ago, had begun contributing to the bottom line. Honda, meanwhile, prefers to point out that with the Insight it achieved its aim of reducing the cost of its Integrated Motor Assist hybrid system to below $2,000.

All of which makes some of the claims in an article in Monday’s Nihon Keizai newspaper interesting. Without citing sources, the paper reports that the gross profit on the new Honda Insight is 300,000 yen (a little over $3,000) per vehicle—or a gross profit margin of 15%. If that sounds high, in accounting terms, gross profit equals the difference between revenue and the cost of making a product and, therefore, ignores lots of other costs. Still, the 15% figure puts the Insight on a par with a Fit compact in terms of profitability per vehicle. Of course, that’s much less profit per car than it gets from selling an Accord or an Acura but, with Honda aiming for 200,000 Insight sales a year, it at least helps shore up finances in these difficult times. (Honda today announced a net profit of $1.4 billion for the fiscal year just ended, but notched up a $1.9 billion loss in the January-to-March quarter).

Also of note is that the new Prius may be less profitable than its smaller rival. The Nikkei adds that the gross profit margin on the latest Prius, which goes on sale in Japan in May for as little as $21,000, is likely to be in single digits this year.

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Reader Comments

JerryW

April 28, 2009 10:23 AM

Strange article... ever tried asking Ford how much money it makes on a Mondeo? If they gave you a straight answer, would you believe it?

In the first place, this is an impossible question since every production car includes a good dollop of research costs, model non-specific overhead and similar. A Prius, more than most. Take the research into hybrid technology: Toyota/Lexus have six models using it. How do you split the cost? Some are worldwide, some only in Japan. Now how? See what I mean?

Second and more important, you don't get to be the world's most profitable car company by pushing loss leaders.

Please learn to ask better questions..

Ian Rowley

April 29, 2009 03:16 AM

JerryW, Thanks for the comment, although I think it's a pretty fair question to ask if hybrids are profitable or not, despite the complexity.

Also, while I'm sure they'll be back stronger than ever at some point, Toyota's reign as the world's most profitable carmaker is over for the time being. They'll likely announce a $3.5 billion loss next and most analysts in expect it widen during the current financial year.

Tom

April 29, 2009 03:26 AM

The point of the article isn't why companies don't give straight answers over profit margins, but that the Insight is more profitable per unit than the Prius.

ps

April 29, 2009 10:30 AM

If they make a profit on the hybrids, fine. The fact is the halo effect on Toyota has been amazing. In addition to the free press from articles about green-ness of Toyota, it burnishes their environmental credentials while they sell various gaz guzzlers. The stupidity of Detroit was that the bean counting idiots look at only dollars and sense and not the intrinsic value of image which drives many in addition to the environmetally conscious to Toyota and now Honda showrooms. When people think Toyota, they think Prius, when people think Honda, they think Fit, Civic and now Insight. When peopple think of GM, what do they think of? Suburbans and Hummers, even though they make a number of efficient vehicles. It's not all about profitability, it's about image and the goodwill + revenue that brings in.

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Want the straight scoop on the auto industry? Detroit bureau chief David Welch , Dexter Roberts and Ian Rowley bring daily scoop, keen observations and provocative perspective on the auto business from around the globe. Read their take on such weighty issues as Detroit’s attempt at a comeback, Toyota’s quest for dominance and the search for an efficient car.

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