Professor Elam

My friend Terry Box writes the auto column for the Dallas Morning News. This week he wrote about a $79,000 modified Mustang, admitting that he could not understand the high price for the  500GTKR.  Terry has provided an  excellent management accounting example, let's analyze this.

I think I see the problem, indeed this car may be a classic for Ford, their stock price hit an all time modern low of about $2 just as 571 of these limited editions were produced. This parallels their peak in 1970 or so when they were building the then overweight forerunner to this overweight vehicle. 

This is a classic failure to apply Total Quality Management, Just in Time Techniques JIT to production lines.

Detroit still marvels at how Japan can produce low volume vehicles like the Miata with high quality, Miatas sell about 12-20 ,000 units a year in the US.  The reason for the GT high price is not the components but the fact that the car is being built twice. After it is completely built in Michigan,consider the added costs, all of these are non value added which is what JIT seeks to eliminate.

It is shipped to Las Vegas.

Numerous components are taken off the vehicle, like the suspension, hood, rear differential, wheels, exhaust system. Then we re install the new stuff, install in Michigan, un install in Las Vegas, then re install in Las Vegas, hmmmm are we seeing the problem here?  Even taking a semi finished car off the line and sending it would be a better idea.

What happens to the original parts that are removed I wonder, do the mechanics hock them at a salvage yard,  probably a better idea than  shipping them back to Michigan.

We even have to disassemble the interior, I would guess, to install a new shifter mechanism, gee, how much more does that cost than if we had done it right the first time?  Again, new components, what happens to the installed ones. By the way, if the Hurst shifter is such a great idea, why not re design the Ford Unit on ALL the vehicles, if it is better, why not, would it really cost that much more to design it right to start with?

And of course this is an extremely low volume process with no doubt many more hours required to do this the second time, not to mention disassembling all the first round work done in Michigan, all this has to be paid for by the consumer.

Now we are in Las Vegas, and of course the shipping dept is in Michigan. So a special hauler is necessary and admittedly it is a showy touch. But note we basically have a pickup truck engine in a not very sophisticated chassis, no independent rear suspension at this price,  with an $80K price tag by the time it hits San Antonio.

The inability to substitute the correct parts on a large assembly line has caused the massive increase in price at a time. Students will recall my example of Hunter Marine and their multiple products, many of which are closes in size to one another.  No doubt there are people who can pay the price for so few vehicles, but that misses the point. Why not put the right parts designed by folks like Hurst on from the get go, gee that is the way Mazda does it on the third generation mazda. Did I mention Ford owns a third of Mazda? So it is not like Ford could not get a few suggestions. As we say in accounting, if you own 20% of another company, you exercise significant influence. In this case, maybe not. It is rumored that Ford wants to sell their ownership of Mazda to keep Ford afloat longer, are we going the wrong way here?