He Yuanjiang said to Ye Chen. “Young Master Ye, our current product planning is to first launch a five-seater sports sedan, then a five-seater sports SUV. The sports sedan is priced in the range of two hundred thousand to three hundred thousand RMB, and the sports SUV in two hundred and twenty thousand to three hundred and twenty thousand range. For these two models, we will maximise the cost-effectiveness to let consumers feel real sincerity.”
Ye Chen asked him. “Professor He said to maximise cost-effectiveness. I see that many cars on the market say they have extremely high cost-effectiveness, and some cars are even sold at a loss. If we want to do high cost-effectiveness, do we have to lose money to make a name?”
Ye Chen did not care about money, but cared about reputation. He felt that the best development direction for Changying Automobile was market recognition, while also having certain profits.
Profits were not to make money for himself, but to prove that Changying Automobile’s own product strength was high and could make money. If it was losing money to make a name, then essentially it was a failed brand and a failed attempt, which would smear his father’s face.
He Yuanjiang said to him. “Young Master Ye, actually many car companies on the market are playing with concepts. When they say they lose money, it’s all a kind of financial concept swapping. Many car companies will calculate the upfront hardware investment and development costs as car manufacturing costs. This is like they invested one hundred million to open a high-end hotel, which can earn fifty million a year and recover the cost in two years. Clearly it’s already huge profits, but as long as this one hundred million investment has not been fully recovered, they can shamelessly say to the outside that they are losing money, and tell consumers that their rooms are sold at a loss per night, completely subsidising consumers with money, making consumers think their rooms are very cost-effective, but actually their rooms have extremely high profits.”
Speaking of this, He Yuanjiang added. “Sometimes in order to dilute profits, or even make the company’s accounts lose money, they will split off part of the profitable business, and at the same time increase investments in other areas. For example, as I said earlier, a one hundred million hotel earns fifty million a year. Although it can recover the cost after two years, but they cannot stand it when at one year and ten months, they invest in a second store, and also separate the catering and other profitable services of the first store to form another company. In this way, their third year’s accounts are still losing money.”
Ye Chen smiled slightly. “I understand. These companies actually allocate the tens or hundreds of billions of startup investments to the first batch of consumers. A car actually costs only one hundred thousand in manufacturing costs, then sells for three hundred thousand, with a gross profit of two hundred thousand. But due to the upfront investment of tens or hundreds of billions, each car has to share tens or hundreds of thousands in costs. In this way, it seems like they are selling cars at a loss.”
“That’s right.” He Yuanjiang nodded and said. “So I suggest that in the early stage, we do not play this concept-swapping trick with consumers. Do not collude with them. Since we want to grow big and strong, we must subvert their unspoken rules and directly pull the rug out from under them.”
Ye Chen asked curiously. “Professor He, do you have a plan?”
He Yuanjiang said. “Young Master Ye, my plan is that Changying Automobile might as well be like Pang Dong Lai. We directly list all the costs of a car. First is the direct costs, how much is the raw material cost per car, how much is the production cost, taxes, logistics storage, and management sales costs, all listed clearly. Then the hidden costs, such as the design cost of this car, mould opening cost, production line cost. For this part of the cost, we will apportion it according to sales of five hundred thousand units for each model. If we invest a total of five billion in the research and development and production line of this model, then the hidden cost per car is ten thousand yuan. Once the cumulative sales of this model exceed five hundred thousand units, it means we have recovered the upfront investment costs. So starting from the five hundred thousand and first unit, our car price will subtract this part of the apportionment. After listing all these costs, we will then publicise to consumers what our pre-tax profit is, ensuring that our profit margin is in a reasonable range.”
Ye Chen’s eyes lit up, and he said. “I have never heard of selling cars like this. Even the so popular Leimi Automobile has not publicised its own research and development costs and hardware investment costs.”
“Yes!” He Yuanjiang said. “Now the automobile industry has become extremely competitive. Everyone is constantly innovating and offering discounts and price reductions, but actually the pricing of many cars is inherently inflated!”
“Just like those imported brands, with a cost of three hundred thousand, first sell to consumers for one million. If one million sells well, then start the terminal price increase mechanism. Although the pricing is one million, but if you do not add one hundred thousand or two hundred thousand, you can never pick up the car.”
“If slowly they find no suckers willing to add money, then sell according to the one million guidance price.”
“When one million also does not sell, sell for eight hundred thousand, sell for seven hundred thousand, six hundred thousand or even five hundred thousand…”
“I think this practice is equivalent to directly writing the two big words ‘unscrupulous businessman’ on their own face. Consumers’ perception will certainly be very poor, and it will also have a great impact on the brand image.”
“Since we are latecomers and want to surpass the predecessors, we must do what the predecessors dare not or are unwilling to do. Simply remove the fig leaf directly, face consumers frankly. If they cannot keep up, then they deserve to be eliminated!”
