Originally Posted by thstone
What you're really offering in an IMS update is "insurance" against an IMS failure causing a $10K engine loss.
But at a cost of $2,500-$4,000 to do the IMS update (and everything else that you might as well get done at the same time), the numbers just don't work out because it just doesn't make sense to buy $2,000-4,000 of insurance to insure a $10,000 engine with a 1% loss rate.
Furthermore, it doesn't even make sense to buy this same insurance on a $30,000 car. Why? Because the engine replacement price is constant ($10K) so the insurance company never pays out more than that whether the car is worth $5,000 or $50,000, i.e., the value of the car is irrelevant.
Let's look at some numbers - how much money would an insurance company make insuring a car (regardless of value) with a payout of $10,000 for an engine failure at a premium of $2,000 if they only had to pay out 1% of the time?
Let's do the math for 1,000 cars:
Income: 1,000 cars x $2,000 insurance per car = $2,000,000
Payouts: 1% failure x 1,000 cars = 10 cars; 10 cars x $10,000 payout per failed car = $100,000
Net Profit: $2,000,000 - $100,000 = $1,900,000
If you work the math further, you'll find that the IMS fix is never worth doing. The Achilles Heel of the IMS update is the 1% failure rate. With a failure rate that low, it never pays to have it fixed because the cost is high compared to the payout and so few people will ever need it.
|