Ever since Henry Ford unveiled the Model T to the public 105 years ago today, the formula for success in the world's auto industry has been fairly simple: Build enough cars to keep the factory full, as efficiently as possible. And yet automakers find new ways to violate that dictate every year, paying tuition of billions of dollars in losses along the way. Thanks to a new report from Europe, we have some fresh insights into just how bad some of those lessons went — and how it makes a $2.2 million Bugatti Veyron the best new-car value on the planet.
In a recent report highlighted by The Economist, analysts at Sanford C. Bernstein looked at the top 10 European models that had produced the biggest losses for the parent company. Thanks to the European economy and business choices that often made political concerns as important as consumer tastes, the Bernstein analysts had a huge field to choose from; the smallest total in the list hit $1.6 billion.
By their reckoning, the Volkswagen Group has lost $2.2 billion on the hand-built, 16-cylinder Bugatti Veyron since its launch in 2003. But unlike all other vehicles, those losses came on sales of only 367 cars — meaning that despite charging a minimum of $2 million for each Veyron, VW had taken an average loss of $6.2 million on every one.
Bugatti and VW executives have been frank in the past about the car not being a profit maker for VW. At its essence, Bugatti ownership has more in common with joining a global country club for billionaires than buying a mere car, and VW chairman Ferdinand Piech has kept Bugatti going as a way to give VW a calling card among the world's wealthiest consumers with custom interiors and 1,200-hp engines — even if it means losing a billion here and there.
Despite those costs, the Veyron isn't the largest financial calamity created by an European automaker. VW's own Phaeton sedan, another Piech attempt to move VW upmarket, has lost $2.7 billion. And Berstein reckons no model has even failed worse than the first-generation Smart fortwo, a joint venture between Mercedes and the Swiss watch brand that fell wickedly short of sales expectations. Between a new factory, all-new models with no shared parts and new dealerships, Mercedes lost $4.5 billion on Smart between 1997 and 2003, a level of futility that may never be matched. Henry Ford would have known better.