Reborn in 1977

Chapter 564 "Not Expensive At All"

Pricing wasn't something that Chen Fan could decide, let alone the factory itself.

Even local authorities didn't have the power to set prices; it was all managed uniformly by ministries.

For example, the Hongqi sedan mentioned earlier was like this. Even though the production cost reached 80,000 yuan, the selling price could only be 40,000 yuan after the higher-ups determined the price.

However, FAW's situation was different from that of Yunhu Automobile Factory. They had a very high status and were directly managed by the First Ministry of Machinery Industry. The higher-ups would subsidize any losses. Unless the higher-ups canceled the subsidies and stopped assigning them production tasks, they wouldn't have to worry about survival.

Ahem, that's how the Hongqi was eventually discontinued. Without subsidies, ordinary models lacked competitiveness against imported cars, so there was no better option than to stop production.

But Yunhu Automobile Factory was different, meaning it was far inferior to FAW.

The Yunqi Factory's superior management unit was the Jiangnan Province Mechanical Industry Bureau (department level), and it was also involved with the Yunhu region where it was located.

The Provincial Mechanical Industry Bureau was originally the Provincial Department of Industry in the 1950s. During the Great Leap Forward, the Department of Industry was split into the Department of Mechanical Industry, the Department of Chemical Industry, the Department of Fuel Industry, the Department of Light Industry, and the Department of Metallurgical Industry.

After the Great Leap Forward ended, the three departments of metallurgy, machinery, and the later-established agricultural machinery were merged back into the Department of Industry.

In 1971, it was reorganized again into the Mechanical Industry Bureau and the three industrial bureaus of metallurgy and electronics. The three departments of chemical industry, fuel, and light industry didn't change much.

Then, the Mechanical Industry Bureau would coordinate and manage all mechanical-related units within the province, including new product development, equipment procurement and reserve, material allocation, and other functions.

Therefore, don't underestimate a simple pricing matter. Yunhu Automobile Factory needed to propose a plan and reasons, report it to the Provincial Mechanical Industry Bureau for approval, and send a copy to the Yunhu Regional Administrative Office. They would jointly report it to the First Ministry of Machinery Industry and the Ministry of Commerce, and finally, the Ministry of Commerce would finalize it.

If the reasons were not sufficient and reasonable, the Ministry of Commerce would reject it and require the Yunqi Factory to redo it, or they would directly set the price themselves based on the reported cost data.

Unless the products produced by the factory were only sold locally, and the product pricing was within the price range of similar products, then the local Bureau of Commerce could approve the listing, and the higher-ups would be too lazy to care.

This was the case with the miscellaneous products such as sewing machines and bicycles produced by Yunhu Machinery Factory in the past few years.

After listening to Director Yang's words, Chen Fan couldn't help but wipe his face, "So troublesome?"

Director Yang picked up his wine glass and drained it in one gulp, then poured wine himself while looking down and said, "It's troublesome if you say it's troublesome, but it's actually simple if you say it's simple."

He put down the wine bottle, turned to look at Chen Fan, and patiently explained, "The Ministry of Commerce has a price list of all products in the country. Under normal circumstances, regardless of your cost, they will set the price according to the product price on the list.

The difference lies in whether you can get more policy subsidies."

Chen Fan's eyes widened instantly, and he even forgot to eat the bear paw, "Then what's the point of us discussing here?"

He had been thinking that it wouldn't matter if the sedan cars lost a little money, and he could just use the profits from the minivans to subsidize them.

Now it seemed that sedans and jeeps could only be priced around 40,000, trucks couldn't exceed 20,000, and light trucks couldn't exceed 12,000... No wonder all car companies were suffering serious losses these days. At this price, it would be a miracle not to lose money!

Director Yang looked at him and said helplessly, "That's why I wanted to discuss it with you and ask you for some advice."

Chen Fan was even more helpless than him, "The cost is fixed here. Unless there are sufficient policy subsidies, it will be a loss no matter what. What advice can I give?"

Director Yang smiled and said, "You don't understand this. Not only automobiles, but almost all heavy industry units, including agricultural machinery, rely on policy subsidies to survive.

There is a reason why the higher-ups do this. The purpose is to drive the construction of people's livelihood and other aspects and improve people's living conditions through heavy industry equipment.

The loss part of heavy industry is borne by the collective, so as to speed up the development of the people's livelihood economy.

But the higher-ups will not fail to consider the actual situation of the production units, so the focus is on policy subsidies to see whether to directly subsidize the factory's losses or other methods."

Chen Fan wiped his face, feeling a headache, "But Uncle Yang, have you ever thought about it? Yunhu Automobile Factory is not the First Ministry of Machinery Industry's own son after all. Even FAW's situation is like this, let alone us?

Looking at Jiangnan Automobile Factory again, they were temporarily established because of light truck drawings, and later, without the support of the higher-ups, they could only be reduced to 'self-producing and self-selling' within the province.

The current situation of these two cars is similar to that of BAW's light trucks, which is also open to the entire industry. If we cannot get preferential treatment in terms of price, then what are we working so hard to make cars for?"

Director Yang smiled and patiently explained to him, "Of course, it is to enhance the strength and status of Yunhu Machinery Factory. Making cars is much more valued than making machinery. You just mentioned Jiangnan Automobile Factory, but look, although they only have an output of one or two hundred light trucks a year, they are still the 'own sons' of the Mechanical Industry Bureau. This is the key.

Moreover, what I just said was price control, but the price range is not completely unbreakable. The key is whether we can list these two cars as a new product in the commodity price list. This is where I hope you can give some advice."

Chen Fan's eyes rolled slightly, he blinked at Director Yang, paused for two seconds, and finally reacted, nodding lightly and saying, "I understand."

Declaring the price is not the key, the key is whether you can jump out of that catalog to declare!

As for how feasible it is? Chen Fan felt that there was still some room for maneuver.

This can be approached from the function and use positioning of the product.

For example, minivans are something that has never existed before. The rear cargo compartment is a truck, and the seats inside are a passenger car. To some extent, it can break through the scope of the original commodity catalog and be added in the name of a new product.

At this time, the price can be re-set, bypassing the control range.

Sedans are a bit more difficult, but it's not impossible. If Hongqi is a government car, is it okay to position this new sedan as a 'business car'?

With an idea in mind, Chen Fan said, "Uncle Yang, my idea is that there are mainly two elements in this."

Director Yang immediately put down his chopsticks and stared at him intently, "Tell me."

Chen Fan, "First, we must calculate all the production costs clearly so that the higher-ups can see the real production pressure."

Director Yang immediately laughed and said, "We have already calculated this. The cost of a micro truck is between 9,000 and 10,000 yuan. As long as the selling price exceeds 10,000, the factory will have a profit."

Then he frowned slightly, "It's just that the production cost of sedans remains high. According to your previous suggestion, we reorganized the original machinery factory. Now, except for tires and some rubber parts, all other parts, including axles, universal joints, and engines, are self-produced, but the cost is still more than 60,000 yuan."

If minivans were thatched huts, then their attitude towards sedans was to build villas. It can be said that they were striving for excellence. It was very rare to be able to control the cost at more than 60,000.

The Hongqi sedan costs 80,000 yuan, which is much less.

Chen Fan frowned tightly, pondered for two seconds, and asked, "Is the cost you calculated internal cost or commercial cost?"

Director Yang didn't understand and immediately asked, "What do you mean?"

Then he frowned, "I mean, what's the difference between these two costs?"

Chen Fan picked up a chestnut and a piece of rabbit meat, saying, "For example, this rabbit is worth 3 yuan. After the chef cooks it, including the chef's salary, bonuses, and expenses like rent and utilities, this plate of rabbit meat is worth at most 4 yuan.

This is the internal cost.

But when it's placed on the table, and the customer pays after eating, it costs 18 yuan a plate…"

He suddenly thought of the rabbits in the Northeast hunting park. Good heavens, they sell them to foreigners for 350 yuan each! That's even more ruthless than Little Fatty's family!

At this moment, Factory Director Yang finally reacted, "Oh, you mean we should calculate based on the ex-factory price?"

Chen Fan nodded and smiled, "Otherwise, what's the point of splitting the machinery factory to make auto parts?"

Factory Director Yang frowned slightly, "That makes sense."

He thought for a moment and said, "Then the cost of the micro-truck would be 10,000 to 11,000 yuan, and the selling price must reach at least 12,000 yuan. As for the sedan…"

He picked up his wine glass, took a sip, exhaled a mouthful of alcohol, and said with a wry smile, "The cost price would be almost the same as a Red Flag car, at least 80,000 yuan."

Chen Fan smiled and said, "80,000 is good! We want to increase the cost, even including transportation and warehousing."

He tapped his fingers on the table a few times, then looked up and said, "Forget about the micro-truck. With the light truck leading the way, the production cost is basically transparent. Reporting 12,000 yuan would be the limit.

But the sedan can be refined, and it's hard to see any padding. Why not report it at around 100,000 yuan."

Factory Director Yang turned to look at him, "Reporting higher prices makes it easier to bargain with the higher-ups. I understand that. But what's the other key?"

Chen Fan smiled, "Of course, it's about pulling in allies."

He looked at Factory Director Yang with a smile that wasn't quite a smile, "This model was developed by us, and we're the ones applying for the price. Now that we've released the blueprints, the peer companies that want the blueprints can't just sit back and do nothing, right? If the pricing is reasonable, they'll also benefit. Oh.

When the time comes, everyone can work together to emphasize the different functions of the two types of cars to the Ministry of Commerce, especially the micro-van, which is a brand new model that could potentially be listed separately, making price negotiations much easier.

As for the sedan, isn't there a push to invigorate the economy and expand exports? Why not position this car as a 'business-type sedan' specifically serving the economy and see if there's a chance to list it separately."

Factory Director Yang pursed his lips and nodded slightly. After a couple of seconds, he looked up and smiled, "I really didn't think of those two points you mentioned."

Then, he slapped the table, "Okay, I'll have someone take care of it right away."

After finishing the business, he let out a long breath and looked at Chen Fan with a smile, "Xiao Fan, what do you think is a suitable price for this car?"

This was purely idle chat, like people online discussing international affairs in later generations, just to satisfy their desire to talk.

Chen Fan smiled and said, "If I were to set the price, it would be at least 200,000!"

"200,000?"

Factory Director Yang didn't know whether to laugh or cry, "I'd like to sell it for 500,000, but who would buy it? The thing is only worth so much!"

Chen Fan shook his head, "Your idea must be based on the cost-based pricing approach, right?"

Factory Director Yang said, "Shouldn't it be like that?"

Chen Fan explained, "When foreign car companies set prices, they add the research and development costs in the form of 'intellectual property patent fees,' as well as brand premiums, etc. Therefore, product pricing should be calculated using comprehensive costs and referring to similar products on the market. This will result in higher prices than simple cost accounting."

Factory Director Yang frowned slightly, "But imported cars aren't expensive. They're about 30,000 yuan each, cheaper than the Red Flag."

Chen Fan was speechless. He looked at him and said softly, "Uncle Yang, are you joking with me? An imported sedan for 30,000 yuan is exchanged for foreign currency at the official exchange rate. Do you think we can really buy an imported car worth 5,000 US dollars with 30,000 yuan?"

Not to mention tariffs. It wasn't until January 1, 1980, that China restored the customs system of independently levying tariffs on import and export goods. In other words, there were no tariffs before. Whatever the foreign price was, it was brought back, sold at the official exchange rate, plus a little profit.

Actually, saying "sell" isn't quite right, because foreign trade is basically a national act now. The cars that are bought back are all arranged for various purposes. The so-called selling is just a clearing procedure.

For example, in 1973, we imported 200 Toyota Crown sedans and allocated them for use at the Guangzhou Trade Fair.

In addition, some Eastern European countries were also sources of our car imports. The Polonez, priced at 9,000 rubles, became the vehicle of choice for many local leaders.

Ignoring the exchange rate and looking at the surface, with no tariffs, these imported cars "aren't really expensive."

A high-end imported car only costs 20,000 to 30,000 yuan to buy back, or even less, while building a Red Flag car costs "ten times" as much.

How could the higher-ups choose?!

See, that's the charm of "financial exchange rates."

At this time, Factory Director Yang also reacted. He squinted his eyes and thought for a while, then leaned close to Chen Fan and said softly, "I heard that some units are willing to exchange US dollars at a 5x exchange rate. Then, is an imported car actually worth more than 150,000?"

Chen Fan hummed twice, glanced at the driver comrade who was pretending to be drunk, and said to Factory Director Yang, "I think the higher-ups intend to expand exchanges with foreign countries, and some foreign technologies and production lines will definitely be introduced in the future.

Think about it, everyone is scrambling for foreign exchange. Will some people be willing to offer higher prices? For example, eight times, ten times, or even higher?"

Factory Director Yang gasped when he heard this and muttered, "Good heavens, how expensive would foreign cars be sold for?"

Chen Fan smiled, "Foreign cars aren't really expensive. The key is foreign exchange. With foreign exchange, it's cheap, even at the official exchange rate, you can make a huge profit."

The car speculation in Taiwan in 1984 was like this.

As long as you get an import permit and can exchange the money in your hand for foreign exchange, and bring back a batch, even if the tariffs at this time are as high as 120%-150%, and an import adjustment tax of 80% is added on this basis, they still have a profit of 100%-200%.

At the most crazy time, there were more than 800 car companies on the entire island, from directly affiliated agencies to kindergartens, all using permits for arbitrage.

During this crazy "feast," billions of US dollars of foreign exchange were exhausted, almost preventing the "Beijing Jeep" project from starting.

Let's not mention the consequences, anyway, the money can't be recovered.

It was precisely because of this incident that the higher-ups saw how eager the whole society was for cars, so they accelerated the construction of joint venture car factories and opened up the import of Eastern European cars. A large number of Volgas came in at that time.

Chen Fan could fully foresee that as long as he could guarantee quality and control the price well, as long as it wasn't too much more expensive than those imported cars, after surviving the Taiwan feast, Yunhu Automobile Factory could completely get a share of the "car carnival" that followed.

However, he didn't know whether Yunhu Automobile Factory could apply for a suitable price. Otherwise, he would have to wait a few years until he could independently set the price before adjusting it.

At this time, Factory Director Yang was not thinking about foreign exchange, but whether his unit's car factory could really sell for 200,000 yuan.