Re: A few questions: cams

[picot@cpcug.org (Chris Picot)]

At 04:29 PM 10/29/96 -0600, scirocco-l@privateI.com wrote:

>Not to drive this into the ground, but my point was that because there are
>fewer of these made, they are more expensive.  The labor is different
>between the two, by virtue of the fact that they produce, what, a tenth of
>the number?  Labor becomes very inexpensive when you produce 100,000 of
>something, but when you only produce 1,000, then it is more expenisve.

The general principal is correct in a broad sense but I don't think that in
itself explains the price difference.  The price of an item will reflect
development costs which will be amortized over a period of time.  The
development cost of say an entirely new car will be high because of the
complexity (ie number of parts, etc.) but the cost of developing an
individual part like a cam will be less.  The development cost will be
affected by the uniqueness of the item.  (For intance, the development of
the first Golf may have been high, but the development of the first Jetta
was probably not, as there are few differences.) If you have experience, ie
a knowledge base, then the use of prior knowledge can allow lower
development costs.  VW knew a thing or two about cams before the 16v was
developed.  Also the development costs for many products will be recovered
within the first couple of years.  If the product is sold over a long period
of time, the development cost will no longer be a factor in its price.  

My thoughts were that VW did not have high development costs for the 16v
cams and that they produced them in sufficiently large quantities so that
development costs would not be a major factor in the prices.  

It would be interesting to compare the number of 16v cams made to the number
of, say Crane high performance cams made for, perhaps a Ford V8 engine, and
compare their prices.  

>Trust me, I understand your frustration with the price, as it is a bit on
>the high side.  But if you understand it as they will defend this price, you
>might figure another alternative to the problem.  Testing is part of it, but
>not most.  It is the sheer number produced that causes the price to raise.

>Look as the prices for memory in computers.  Not too long ago, memory was
>very expensive.  Why?  Because there was not that much available, and there
>was not that much *demand*.  (that is the key, right there)  When Windows
>'95 came out, everyone was banging their computer stores counters for
>memory.  Prices went down because demand went up.  But now, the demand has
>subsided some, and memory is again going up a bit.  It's economics.  But let
>me know if you agree, disagree, or just plain don't get it.  :-)

Actually if the supply has been at level "X" for a period of time and the
demand increases, it tends to drive prices up.  For computer memory there
actually was a lot of demand but so many people tried to cash in on the
demand that the competition was fierce and most players dropped out due to
extremely low profit margins.  With fewer players, the survivors could raise
prices, somewhat.  For a long time former players or new players were not
willing to retool or tool-up to reenter/enter the market as it appeared too
risky.  When it appeared that there was going to be a huge demand for
memory, the supply increased dramatically , to a point of oversupply and it
exceeded demand.  Thus the drop in prices. Now that the oversupply has been
reduced, the prices are going up again.  (Part of the increase in supply may
have been due to speculation about very high prices due to the fact that the
only remaining major supplier of the adhesive that holds the memory chips
together had a fire at its main plant in Korea and a huge shortage was
anticipated.)
>
>David

Food for thought,.

Chris

--
To subscribe or unsubscribe, send email to scirocco-l-request@privateI.com,
with your request (subscribe, unsubscribe) in the BODY of the message.