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Old 27th October 2011, 16:56   #1
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Default What Constitutes the Development Cost and time of a Car?

"4 years & 900 crore rupees of development resulted in a trendy package that makes the Alto & 800 look incredibly barebone"

The above line is quoted from GTO's EON official review. I was reading the thread and a question came to my mind "What Constitutes the Development Cost and time of a Car?”

How a car company requires 900 crores of rupees and 4 years of time in developing a 3-4 Lakh rupee car? What actually is involved in the development plan which costs so much?

The same question is applicable to all cars and manufacturers; for example Toyota Etios, Tata Nano, Hyundai Verna Fluidic, Honda City etcetera.

PS - Please merge if one already exists

Similar thread : New car development; an insider's perspective

Last edited by GTO : 29th October 2011 at 14:24. Reason: Adding link to similar thread, check it out
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Old 27th October 2011, 17:54   #2
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Default Re: What Constitutes the Development Cost and time of a Car?

1. Design of the car
2. Building prototypes
3. Commissioning the production
4. Installing a sales and service network
5. Running a marketing campaign

Broadly these would be the phases for any new model being designed. Each phase is like a mammoth project. For e.g.

Designing a car:
You need to have a concept for the new model to be launched. There will be boardroom debates, brainstorming sessions, independent market studies to gauge the market needs and so on.
Once a concept has been finalized, you would hire designers and engineers (or use them from the existing staff) and commission them to draw up various designs to bring the concept into something tangible.
Once there are a few tangible models to look at, you may want to manufacture a few prototypes to test the effectiveness of the model in real life.
After the prototypes have been tested you would finalize on a particular model for mass production.

For each activity, you are looking at several people at various levels working several hundred hours, so the salaries, perquisites, allowances, expenses of all those people have to be added to the project cost.

Then there are materials required. For modelling if you are using any software tools (I guess everyone uses it), the cost of the IT infrastructure goes into the project. Cost of the design (in case the design is outsourced) goes into the project.

Cost of building the prototypes and testing the same goes into the project. This includes all the parts of the car which have to be manufactured fresh.

There are R&D teams working on innovation all the time. In today's market this is a never ending activity. These teams have to be paid for their time. These teams may use specialized equipment (take wind tunnell testing for example) which costs a few bombs. The teams may go through several trial and error phases where if a course of action fails, all the material used in it may have to be scrapped. This too goes into the cost of the project. In fact I think there are many ideas discarded before a single idea is taken into production.

Last edited by honeybee : 27th October 2011 at 17:55.
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Old 27th October 2011, 18:20   #3
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Default Re: What Constitutes the Development Cost and time of a Car?

Bluevolt -- it depends on the nature of Project (level of newness). For a completely new product with a completely new manufacturing set up, costs & time increase significantly. Generally, bulk of the amount is used for setting up Manufacturing area / assembly lines etc, followed by Product Development costs for Tooling , Dies, fixtures etc. These 2 are among the major contributors.

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Old 27th October 2011, 20:28   #4
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Default Re: What Constitutes the Development Cost and time of a Car?

Take a look at the Annual Report of Companies like MSIL, M&M etc which is freely available on the net. They provide a real insight on these numbers.

According to MSIL's Annual Report 2011, following are major the R&D expenditure
  • Vehicle Planning, Layout and Styling
  • Power train design and development
  • Vehicle structure design and development
  • Suspension and brake design and development
  • Prototype development
  • Experimental Projects

Please go thru' the link to get some information that may interest you.


Last edited by Warwithwheels : 27th October 2011 at 20:44.
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Old 27th October 2011, 20:49   #5
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Default Re: What Constitutes the Development Cost and time of a Car?

Even the design software is expensive, as there are all sorts of esoteric modules to ensure very little surprise is left at prototype stage
- FEM modules capable or real time analysis of millions of elements
- Thermal design modules
- Pressure design and analysis
- Suspension design modules
- Sub assembly alignment and fitting, incorporating assembly and maintenance features
the list goes on. At one time the whole suit would cost hundreds of millions of dollars. With all the help from computers it still takes at least one year to design a body from scratch. With at least a team of twenty.

Add to this design of bought out items and vendor development. Most major manufacturers hand hold their vendors and help design the sub assemblies.

Finally as Spike has said, a whole new body shop, welding robots and other tools are required to be designed and commissioned.

All these costs are added up when you calculate the "development costs" as rest is manufacturing costs.
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Old 29th October 2011, 14:25   #6
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Default Re: What Constitutes the Development Cost and time of a Car?


I cannot recommend this thread enough : New car development; an insider's perspective
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Old 30th October 2011, 10:50   #7
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Default Re: What Constitutes the Development Cost and time of a Car?

A simple part like the headlamp for a prototype can cost up to many lakhs of rupees, say 30 lakhs or so. Multiply that by the number of prototypes, add to that there are many stages of prototype before production, and off course same goes for the entire car.

This is just a sample to highlight the extreme cost of building a prototype, designing it, spending man-hours, testing it, all add up to the development cost.
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