A Lean Obituary for Maybach – A Cautionary Tale about Cost of…

4 Апр 2015 | Author: | No comments yet »
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A Lean Obituary for Maybach – A Tale About Cost of

$439,000 gift with car purchased

With the end of last Daimler stopped selling its vehicle, Maybach. I would to use this opportunity to talk the danger and harm to your by increasing the number of product sold. As an illustrative (and example, I would like to the total cost of the Maybach in its parts (as far as I can estimate them).  My is that this motivates you to or at least no longer increase, the of variants in your product

The Maybach Story

Maybach was a luxury car maker.  Operations in 1909, and the last passenger car was in 1940. In 1997, Daimler the revival of the Maybach brand, built in 1940. The goal was to a top-of-the-line luxury car that had no Money was no object. This was one of many bad decisions by then CEO Jürgen Schrempp (also for the disastrous “Marriage in Heaven” Chrysler). In any case, whenever is no object, it will become

The base price of the cheapest was around $350,000, but additional could easily multiply the The average sales price of unit was probably at least Sales were optimistically to be around 2,000 units per In reality, however, this was overestimated, and only a few hundred were sold worldwide per

Additionally, there were different Maybach models splitting the low sales number different versions. Additional were, of course, available. For in this price range, the is not so much what options the offers, but what extras the wants. Examples included fridges for champagne, real interior, and air-conditioned seats. a list of Maybach models

Maybach 57 – 570 cm long

Maybach 57 S – S for Spezial . having, for more engine power and a suspension among other

Maybach 57 S Coupé – two door

Maybach 62 – 620 cm long

Maybach 62 S – S for . having, for example, more power and a different suspension other things

Maybach – limited edition, more engine, also available in and 620-cm length

Maybach – sliding convertible roof for seats

Maybach Exelero – for speed exceeding 350 km/h considered a prototype, but a few units at  about $8 million per vehicle)

Guard – armored version for customers

Overall, the venture was a disaster. With every car Daimler lost $439,000, or $1.3 billion in total. In Daimer CEO Dieter Zetsche pulled the plug. Overall, 1997 and 2013, only units were sold, than 200 per year. The primary for this financial disaster was sales for too many different Hence the fixed costs any chance of profit.

The Largest Factors


Cost of starts with development. new product has to be developed, including all components. With cars, it is that development of a new car will between $1 billion and $2 billion. Maybach, I took a conservative of $1 billion development cost for all combined. This does not for example, tooling and paperwork which may have been in the development cost. Overall, the $1 development cost spread 3,000 cars over added around $330,000 to and every car .


To produce, you tools. Depending on your these tools may be expensive. If you are cars, say, for example, a you need lots of tools. the tools for the sheet metal are insanely expensive, as are the tools for parts. You also may occur costs by changing tools or tools due to design changes or problems.

For Maybach, I estimate that paid around $300 in tooling cost, adding $100,000 to every car sold .

Do not underestimate the importance of paperwork! It is that in the car industry, a single number over its lifetime cause costs of around simply for the paperwork. The number has to be the documentation filed, updated, updated again for changes in the documented, etc. It is easy to see this may cost $50,000 for a number.

It is said that 30,000 part numbers are to produce a single car. As for I assume (hope!) that utilized many parts other vehicles. Nevertheless, I that around 8,000 may have been created for the Maybach versions. Hence, in sum created additional costs of $400 million merely for the or another $130,000 per car!

car manufacturers have higher on documentation than most industries. Nevertheless, even in complex technical industries you can paperwork cost of around for every individual part

Raw Material and Finished Goods

To make cars, you need While there is lots of about Just-in-Time deliveries low inventory, most Western car still have weeks’ of inventory in a single plant and worth of inventory in their chain.

Unfortunately, the fewer you sell, the higher your becomes per unit sold. for example, finished goods. If you to have your product in and readily available, you need at a minimum one part in stock. if you sell one part per year or ten per year, the cost of your as a part of the unit cost up.

Granted, if you sell more you need more inventory for a availability, but the inventory increases more slowly than the of parts sold. Overall, the you sell of one product, the less you need per unit sold.

With Maybach, sales abysmal. Making another conservative estimate, I believe had at least four months’ of inventory and finished goods in the chain. Estimating $500,000 per car for an of 187 cars sold per year, months of inventory represents $30 of tied-up cash. In traditional this is now multiplied by the cost of (sort of the interest rate for $30 million to put them on the shelf), on the magnitude of 10%–15%.

However, traditional cost of capital not include the handling cost, cost, logistics operation, and effort. It does not include the of defective goods, aged or goods damaged while Overall, I believe the cost of inventory is closer to 25% of the value of the per year. Hence, $30 million of inventory would create of around $8 million per year, or $41,000 per vehicle for only its On the other hand, $41,000 per is small fry compared to the other .


Let’s not forget, you have to actually produce the Again, taking general knowledge, the actual production including raw materials, labor, and so on is around half of the retail car As for the Maybach, the actual cost of may therefore have been $250,000 per vehicle .

Of course, due to the low produced, Maybach was anything but an line. The car was probably mostly wherever possible. The ideal for manufacturing is to make lots of of a single part. The more you your variety, the more is needed to switch between train workers, shift raw materials, and so on. In that aspect, was probably a very inefficient

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You also need to the product. With manufacturing, the units you sell of the same the cheaper your sales will be. In automotive, a common is to assume sales as 25% of the total price, including advertising, rooms, and so on.

With Maybach, the 25% is probably a conservative estimate. In view, the Maybach was too good for a Mercedes showroom, so new, showrooms for the Maybach were Considering the total number of these rooms were not too busy.

In any case, assuming 25% of the price for sales gives cost of about $125,000 per car or million over lifespan .

Parts and End-of-Life Ramp

Finally, last year in Daimler pulled the plug and the sales of Maybach. Unfortunately for they have to provide parts for at least another ten   This is a major drag on for a company. Usually there are two

Option 1 . Keep on manufacturing This is unpleasant and expensive. The and tools were usually for much larger quantities. them for a few hours every is quite a waste of resources. have to be maintained, set up, the workers to be trained, the material suppliers to be kept active, quality has to maintain the standards, and so on. Alternatively, you can even more money on the tools and machines, which is quite a drag.

Option 2 . Put spare parts in stock to for ten years. Naturally, this is an unpleasant option, as it ties up of capital, not to mention the storing, and organizational expenses. There is the risk that parts may defective. Or you may run out of parts before the ten are over. Or you may have too many left after ten years, you now can throw away. In any case, not a option either.

In reality, most manufacturers try to by producing for a few years before a stockpile for the remaining time and the old tools. Maybach will have to stock spare for the next ten years, long production ceased. It is hard to the cost of these spare but it is again not to be underestimated.

Wrap Up

the Maybach venture was a huge for Daimler. Honestly, this was pretty clear to me (and others) when Daimler to produce Maybachs. Yet, it business rationale went out of the in favor of gearheads wanting to the perfect car.To me it seemed the former CEO, Mr. Schrempp, Daimler as his personal toy box to build a dream car. When calculations did not add up, sales numbers probably adjusted upward, and fuzzy factors like “ for the brand image” added. current CEO Mr. Zetsche finally the plug on this crazy

According to official numbers, lost about $1.3 However, as this is very for Daimler, I suspect that the numbers are only the bare There are probably many losses related to Maybach are accounted for somewhere else to the officially reported losses The true losses may much and I wouldn’t be surprised if they $2 billion.

The graph below an estimate of the costs of a car averaged the production run between 1997 and (but not accounting for inflation). keep in mind that of these numbers are my rough estimations and not official Daimler

Maybach Cost Structure (not official Daimler

The main problem is the low number of sold. The first three cost-drivers – development, tooling, and – make up more than the total cost. Yet these are all more-or-less fixed costs. The is split evenly over the of cars sold. Hence the cars sold, the smaller the per car – so, as in Daimler’s case, the less sold, the higher the cost.

The second three points – manufacturing, and sales – are traditionally costs (i.e. assumed to be the on a per car basis). However, even larger numbers will the costs, albeit less for variable costs. Overall, was killed by its small numbers. to my numbers, they would have to sell seven as many vehicles just to break even. Please note the large share of for paperwork!

However, similar happen every day in industry, that the exotic product is not but kept in the portfolio. I have many companies where, on a scale, complexity escalated and the of product types multiplied the total units sold did not much. As an effect, cost up and times got tougher for the companies.

If is anything I want you to take you after reading this long) post, it is: Try to keep number of product types control, or even reduce if possible! The cost associated dividing the same number of sold on more product is significant!

I hope this was for you. Now go out and improve your

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