Demystifying the M-TAX - Carbon Fiber

[M.FriedmanFast]

Originally Posted by TheHouseWon

M.Friedman as in Milton Friedman? My favorite economist of them all...

I thoroughly enjoyed your original post. Keep in mind, the M-Tax is applied to irrational market participants. Not unlike investors in WebVan paying $1,000/share in 2000.

Indeed, my username is a nod to the greatest economist ever to live (although Fama is steadily making a case for Mt. Rushmore status). And you're absolutely correct regarding the irrationality of the market participants, hence the inefficiency of the said market, hence the absurdly priced components, hence the original post. I could have abbreviated the post to a simple question: How can a manufacturer surpass 70% gross profit margins on an offering that presents no intellectual property or barriers to entry of any kind? Irrational consumers, of which I am one!

[TheHouseWon]

You should do a similar analysis on intakes--you might find even more absurdity!

Cheers

[Mbdurham17]

Originally Posted by TheHouseWon

You should do a similar analysis on intakes--you might find even more absurdity!

Cheers

[TheHouseWon]

Originally Posted by M.FriedmanFast

Indeed, my username is a nod to the greatest economist ever to live (although Fama is steadily making a case for Mt. Rushmore status).

I'm a yyuuggeee fan of Fama

[mister2d]

Originally Posted by TheHouseWon

You should do a similar analysis on intakes--you might find even more absurdity!

Cheers

Especially on the one intake that costs $$$$ and doesn't filter out the particles that should not get ingested into your engine.

[M.FriedmanFast]

Originally Posted by TheHouseWon

I'm a yyuuggeee fan of Fama

I also have that book and have studied it for years. Professor Fama was one of my instructors at U. Chicago Booth and remains a central figure in how I approach the deconstruction of real world-phenomena through an empirical and neo-classical framework. His treatise on market efficiency is right up there with The Road to Serfdom, Capitalism and Freedom, Free to Chose in its revolutionary impact on not just econ, but applied finance, specifically how one is to allocate capital in stochastic markets. Great to know there is at least one other econ / finance geek on the forum!

[TheHouseWon]

Originally Posted by M.FriedmanFast

I also have that book and have studied it for years. Professor Fama was one of my instructors at U. Chicago Booth and remains a central figure in how I approach the deconstruction of real world-phenomena through an empirical and neo-classical framework. His treatise on market efficiency is right up there with The Road to Serfdom, Capitalism and Freedom, Free to Chose in its revolutionary impact on not just econ, but applied finance, specifically how one is to allocate capital in stochastic markets. Great to know there is at least one other econ / finance geek on the forum!

I wasn't privileged enough to got to B-School Univ of Chicago, but my appetite for knowledge of fin/econ led me to those same books still happy with my position in life, regardless.

State school finance FTL!

[M.FriedmanFast]

Originally Posted by TheHouseWon

You should do a similar analysis on intakes--you might find even more absurdity!

Cheers

I endeavor to make Demystifying the M-tax into a series, with carbon fiber being Part-I. Intakes are an interesting subject here given the marginal impact on performance less one is running one of the more extreme builds (e.g. catless dps, exhaust, tune, meth etc.). More intriguing is the brand battle between several manufacturers - RK and MSR msot notably - and the wealth of disinformation as to how precisely an intake operates. Despite this all, I can think of other market segments that are far more inefficient than intakes. The most compelling analysis should meet a few criteria: (1) market stratification with premium incumbents; (2) marginal performance enhancement and (3), extreme brand loyalty. The exhaust market comes to mind. Many years ago on a different forum, I tendered a post in which I replicated RPIs DP performance gains on the e60 M5 platform with a $300 modification to the OEM header. Actually, I had quite the engaging exchange with AllMotor on the subject. The purpose again was not to malign RPI as I am huge fan of their offerings and am currently running their F10 set-up, but rather to demonstrate the relative lack of proprietary design and therefore inexplicable pricing schemes. We shall see what segment I next analyze. Based on the number of views and comments, it would appear that the forum found the analysis to be of value therefore increasing my inclination to continue when time permits!

[Lerxst M4]

Originally Posted by mister2d

Especially on the one intake that costs $$$$ and doesn't filter out the particles that should not get ingested into your engine.

Shots fired!

[Dracon]

Originally Posted by Lerxst M6

Shots fired!

lol!

[M.FriedmanFast]

Originally Posted by Lerxst M6

Shots fired!

Ha. I attempted to steer clear of that specific debate given the carnage that ensued the last time it was formally litigated. For what it's worth, I have the RK intake and have been nothing but pleased with the product. More impressive was the actual engineering that went into the design and the designers ability to defend the product through a physics-based argument and accompanying modeling. This is actually the exception to the rule in the performance modification market where many manufacturers spew anecdotes that are loosely based on engineering principles that they perhaps gleaned from the motor sports magazine of choice. That was not a shot at George / MSR by the way. I think his design was novel and aesthetically appealing as evidenced by his relative market share.

[M.FriedmanFast]

Originally Posted by TheHouseWon

I wasn't privileged enough to got to B-School Univ of Chicago, but my appetite for knowledge of fin/econ led me to those same books still happy with my position in life, regardless.

State school finance FTL!

Indeed! The U. Chicago greats' legacy goes far beyond the streets of Hyde Park. Perhaps we'll have an opportunity to talk shop at some point in the future.

[supershaft]

So what you are saying is a bunch of M5 owners should get together and just make our own CF parts? I have a warehouse where I could store inventory for next to nothing.

I'm a huge fan of CF and would love to use it but even though I have absurd amounts of disposable income I simply loathe to pay that much for practically nothing.

And for what it's worth M cars look superb out of the factory. Great insight by the way. I would love to read more.

[M.FriedmanFast]

Originally Posted by supershaft

So what you are saying is a bunch of M5 owners should get together and just make our own CF parts? I have a warehouse where I could store inventory for next to nothing.

I'm a huge fan of CF and would love to use it but even though I have absurd amounts of disposable income I simply loathe to pay that much for practically nothing.

And for what it's worth M cars look superb out of the factory. Great insight by the way. I would love to read more.

That would be one approach, namely a collective or "funds of funds" per se. A modicum of purchasing power would force the premium incumbents into sane pricing schemes, and frankly, the capital invested would be di minimis at best. Invariably, we may arrive at the correct conclusion that there are better deployments of capital given the niche nature of the market. But, it may be worth a gander. Most of these companies lack bonafide engineering talent and employ disingenuous marketing communication schemes to obfuscate substance. Note the complete non-response from either the manufacturers themselves or their distributors. Crickets...

[Sales@RKautowerks]

-R

[ur20v]

I watched Matt on the Obessed Gargage youtube channel complaining about paying $450 bucks for his new GT350 CF airfilter kit-

a/ it looked very well made
b/ it looked well engineered
c/ included its own large 'cold air' (don't get me started) airbox

Matt did mention the 'M-Tax' from his M car experience!

Ford will probably sell less 350's than the M5 so any arguement on market sizes doesn't seem to hold true.

Also very few aftermarket manufactures sell just one product to need to recoupe all the 'R&D', moulds and various labour streams (marketing, sales, engineering etc), they will spread the cost over multiple part streams and over many models and makes so this doesn't hold water or any value to me.

[TheHouseWon]

I'd throw a little money at the ///M Lives ///Matter ///Movement if you guys imposed economic sanctions on vendors! I'm no engineer but can help on the $$$ and distribution side of things...

Lets do this for F90 M5

[M.FriedmanFast]

Originally Posted by TheHouseWon

I'd throw a little money at the ///M Lives ///Matter ///Movement if you guys imposed economic sanctions on vendors! I'm no engineer but can help on the $$$ and distribution side of things...

Lets do this for F90 M5

Ha! I nearly spat all over my monitor mid-drink, ///M-Lives ///Matter indeed. I have long-considered establishing a stream-lined boutique engineering practice to develop components for my toys, and perhaps for a select few additionally. By employing virtual manufacturing, the enterprise would need one properly heeled and practiced R&D engineer, who could work from his / her house, a beach or wherever.

Generally, the entire overhead argument baffles me, moreover that people continue to cite such as a means of justifying egregious pricing schemes. Sure, many small companies, particularly those who participate in markets where life style / status / image lend to the trading equation, have the fiscal discipline of Jimmy Carter, but austerity eventually corrects the issue. In the original analysis, I assumed an opportunity cost of capital of 15%, to reflect the lack of leverage throughout this industry given the retail distribution model and the inability to securitize any real assets of note. The premium manufacturers are using equity to fund their respective enterprises and therefore expect what they believe to be commensurate returns on said equity. Basically, they are short on dry powder and most likely establish absurd pay-back targets to de-risk a given investment. I mean come one, we're not talking about firms that are capitalized by KKR, CD&R or the like. Illiquid markets kill.

[M.FriedmanFast]

Originally Posted by ur20v

I watched Matt on the Obessed Gargage youtube channel complaining about paying $450 bucks for his new GT350 CF airfilter kit-

a/ it looked very well made
b/ it looked well engineered
c/ included its own large 'cold air' (don't get me started) airbox

Matt did mention the 'M-Tax' from his M car experience!

Ford will probably sell less 350's than the M5 so any arguement on market sizes doesn't seem to hold true.

Also very few aftermarket manufactures sell just one product to need to recoupe all the 'R&D', moulds and various labour streams (marketing, sales, engineering etc), they will spread the cost over multiple part streams and over many models and makes so this doesn't hold water or any value to me.

I am unsure as to what doesn't make any sense to you with respect to the apportioning of capitalized costs over a given demand forecast. Perhaps I am misinterpreting your comment. In the analysis, as you correctly posit, I established a manufacturing pool of costs and the marginal capital costs to develop the spoiler. I then apportioned said costs over the demand forecast; namely 400 units of the spoiler, and a theoretical 1500 units of other sales. Am I missing something here?

[mister2d]

Your example probably needed to be more practical or simpler to understand. His Ford GT350 example was easier for me to grasp right away. You two are probably saying the same thing. I just can't tell yet.

[ur20v]

lol... yes, Mr mister2d is correct- I said in simple terms the same as M.FriedmanFast using Matt form Obsessed Garage to frame support for his assertion.... i.e M-Tax is gauging/rip-off-greedy-over the top- extortion or other phrases to the same end.