of Chrysler data for 2003-2004, which produced factors of 1.96-1.97. Since these markup factors apply to direct manufacturing costs, they are consistent with the estimates shown in Table F.4. Lyons (2008) used a markup factor of approximately 2.0 but was not specific about the cost components included in the estimate to which this factor was applied.

Information supplied to the committee in the presentation by Duleep on January 25, 2008, implies higher markup factors (Duleep, 2008). Assuming a reference cost of 1.00 for the variable factors used to produce a component (material, labor, energy, factory overhead), EEA calculates the Tier 1 supplier cost by applying multiplicative markups for supplier overhead and profit and an additive factor of 0.1 to 0.2 for tooling, facilities, and engineering (Table F.5). The range is intended to reflect the complexity of the component and the engineering effort required of the supplier to ensure its integration into the full vehicle system. Representing the variable costs by X, the total supplier price markup is given by equation 1:

(1)

In the EEA method, OEM costs include amortization of tooling, facilities and engineering, and overhead, profit and selling costs, which include marketing, distribution, and dealer costs. EEA assumes an average manufacturer profit of 8 percent, somewhat higher than the 5 percent assumed by ANL and the 6 percent assumed by Borroni-Bird. Amortized costs vary from 5 percent to 15 percent, again depending on the complexity of the part and the costs of integrating it into the vehicle system. Marketing, distribution, and dealer costs are multiplicative and add 25 percent to the OEM costs (Figure F.1).

(2)

The resulting markup ranges are 2.22 to 2.51 for the markup over variable costs (corresponding to the ANL “ vehicle manufacturing” costs) and 1.65 to 1.73 for the markup over Tier 1 supplier costs (corresponding to the ANL cost of outsourced components). The full breakdown of EEA markup estimates is shown in Table F.5. The markups are comparable to those proposed by Vyas et al. (2000) but higher by a meaningful amount, as shown in Figure F.2. In a note, EEA-ICF, Inc., argues that higher supplier amortized costs are generally associated with lower OEM amortized costs for any give™n part. However, this assertion was not applied here to develop the range of markup factors based on EEA data.

Average RPE factors can be inferred by costing out all the components of a vehicle, summing them to estimate OEM Tier 1 costs or fully burdened in-house manufacturing costs, and then dividing the sum into the selling price of the vehicle. The committee contracted with IBIS Associates (2008) to conduct such an analysis for two popular vehicles: (1) the Honda Accord sedan and (2) the Ford F-150 pickup truck. Current model year (2009) designs and base model trim levels (no nonstandard options) were chosen. Base models

TABLE F.5 Fuel Economy Technology Cost Markup Factors

Item

Cost Low

Cost High

Share Low %

Share High %

Supplier costs

Factors (materials, labor, energy, factory overhead)

1.00

1.00

45

40

Supplier overhead

0.20

0.20

9

8

Supplier profit

0.05

0.05

2

2

Amortization of tooling + facilities + engineering

0.10

0.20

4

8

Supplier subtotal

1.35

1.45

61

58

Supplier markup

1.35

1.45

 

 

OEM costs

OEM overhead

0.20

0.20

12

12

OEM profit

0.08

0.08

5

5

Tooling + facilities + engineering amortization

0.05

0.15

2

6

OEM subtotal

1.78

2.01

80

80

OEM markup

1.32

1.38

Marketing, transport, dealer markup

0.25

0.25

20

20

Total

2.22

2.51

100

100

RPE markup (over factors)

2.22

2.51

 

 

RPE markup (over supplier price)

1.65

1.73

 

 

SOURCE: EEA-ICF, Inc., as reported by Duleep in his presentation to the committee on January 25, 2008.



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