The Infantry Squad Vehicle shares 90% of its components with a Chevy Colorado. The top Trim Colorado costs $30K usd or so, but the the ISV costs $330k. What makes up the 10% difference between the Colorado and the ISV?

Question

Not trying to hate. Maybe it’s armour, maybe it’s guns, but that is a big difference.

In: Economics

Answer 1

It’s not only the cost of the components. There is a lot of fine print put into a military contract. For instance, it says you have to maintain enough spare parts to repair X number of vehicles for 10, 20, 30 years into the future, no matter what their damage may be.
You also have to pay for expensive testing to make sure that the vehicle can survive wartime conditions, everything from deserts to swamps. You have to make dozens or hundreds that can be shot up with every type of bullet and tank round imaginable to find out whether the occupants would survive. And on and on.

Plus, these fixed startup costs remain in place regardless of whether the military buys one or a hundred or a thousand or 50,000. If you sign a contract with the government for 100,000 at 100K each, and then a year or two down the line, they change their mind and decide the Army only needs 30,000 instead of 100,000 vehicles, then the cost per unit just spiked from 100K to 330K. So there’s a lot more to it than meets the eye.