The Maxilux car company's design for its new luxury model, the Max 100

The Maxilux car company's design for its new luxury model, the Max 100, included a special design for the tires that was intended to complement the model's image. The winning bid for supplying these tires was submitted by Rubco. Analysts concluded that the bid would only just cover Rubco's costs on the tires, but Rubco executives claim that winning the bid will actually make a profit for the company.

Which of the following, if true, most strongly justifies the claim made by Rubco's executives?

(A) In any Maxilux model, the spare tire is exactly the same make and model as the tires that are mounted on the wheels.
Talks about Make & model. States nothing about price, cost or profit

(B) Rubco holds exclusive contracts to supply Maxilux with the tires for a number of other models made by Maxilux.
Note: Other models---> although new info but OFS . No information about the cost/ price/profitability of the deal

(C) The production facilities for the Max 100 and those for the tires to be supplied by Rubco are located very near each other.
so what? It will only help in logistics & operations

(D) When people who have purchased a carefully designed luxury automobile need to replace a worn part of it, they almost invariably replace it with a part of exactly the same make and type.Correct. Strengthening in GMAT style i.e. just a slight push to strengthen the claim. It just hints that sales of wheels may increase due to replacement. why not B? - Note the scope here : same model --> same design ---> same tires. But in B it states about other models

(E) When Maxilux awarded the tire contract to Rubco, the only criterion on which Rubco's bid was clearly ahead of its competitors' bids was price.
This only tells about the criterion

Ok Let us put this down as points

1.Rubco won the bid.
2.Analysts conclude Rubco wont make any profit.
3.BUT, Rubco claims that it actually makes profit.

How is it possible?? There has to be a way out....

Option A -Out of scope. We need to show that Rubco will make profit in some way.
Option B- is close but it is not addressing the issue. We need to address how this bid will generate profits. Here it talks about the other products etc.
Option C- WE cannot conclusively say that there is profit if the plants are closer
Option D- This is a constraint on the customer. So there will be extra revenue generated and hence profits for Rubco.
Option E - Out of scope.

In real world , (D) would not work.Changing of worn out tire of luxury car require time (say a year;unlike sports cars which gets worn out in few minutes)and hence earning an upfront profit is not easy.Also , it is mentioned that just for the looks people will buy the matching company's tire compulsorily , again, it means that the sale of the stepney is a slow process.
(B) can be a good deal upfront, so that the tire manufacturer will be able to adjust profit margin through the tires for other models of car.

To answer this question, we need to justify the Rubco executives' claim that "winning the bid will actually make a profit for the company," despite the analysts' conclusion that "the bid would only just cover Rubco's costs on the tires."

Take another look at answer choice (C):

This answer choice seems to imply that the transportation costs for Rubco to get the tires to the Max 100 production facility would be low. The problem is, we don't know if the analysts already factored this into their conclusion. Without more information on what "costs" the analysts did or did not take into account when reaching their conclusion, we cannot assume that the distance between the two production facilities would change their analysis in any way. Thus, we cannot assume that Rubco would actually make a profit as claimed by the company executives. (C) is out.

In your analysis of answer choice (D), you say "even if there are people who purchase the worn out part, they may not be enough in numbers to cover the cost of the tyre." But we already know that the bid would "just cover Rubco's costs." We have no reason to believe that Rubco is losing money on this bid. The conclusion we're trying to explain is that Rubco will make a profit as a result of winning the bid.

Now look again at (D):

This choice implies that in addition to providing tires to Maxilux at the price in their bid, Rubco can expect to sell replacement tires to people who purchase the Max 100. These replacement tires are not part of the bid, so they can be sold at a different price. That's why Rubco could make a profit by winning the bid, even if analysts are correct that the company will only just cover their costs in supplying the tires to Maxilux. (D) is correct.

I hope that helps!

Based on the wording of choice (A) ("In any Maxilux model, the spare tire...), I think it's safe to infer that the model in question comes with a spare tire. It would be a stretch to assume that the bid did NOT include budget for a spare tire and that Rubco now has to go out and supply additional tires. In other words, if the model needed 5 tires (including a spare), the contract would have included 5 tires.

So choice (A) doesn't really impact the claim. We would have to make some big assumptions to conclude that this is a weakener.

I hope that helps!

analysts said that there will be no profit in this bid . .co says there will be profit due to this bid. the profit can come from some other sale than the sale to company

hence D ,

A was a strong contender but its not mentioned that spare tyre was part of bid or not (if not part of bid then can have different price than the bid price)

@rjacobsMGMAT , great explanation, I marked C thinking that Analysts are not aware of the distance related costs and Co executives are, and that these co executives are sure of saving some cost in transportation. However it would be assuming too much I think. Please shed some light

In my opinion the only reason to eliminate (B) is that, the exclusive contracts are already held by RUBCO , so the new bid will not change anything with that.
D is the only relevant option, but as for me still not clear as we're talking about profits and there is nowhere stated in this answer choice that the price will be greater than the price in the bid.... we could have more revenues but "0" Profit.

In this question you have to prove that even though company's bid just covers the Rubco's costs on the tyres, it will eventually lead to profits for the company. Certainly if there are long term profits, then its a good sign for the company.
On looking at the options, only D makes sense in that it explicity states that when people who purchased MAX 100 need to replace a worn part of it such as tyres, people will replace it with the same make and type, leading to huge profits for the company.
Hope that helps.
-s

But how good is that assumption? We would expect the spare tire to be part of the contract between Maxilux and Rubco. Also, the conclusion is about profits, not revenue.

Your reasoning for B is correct: option B doesn't show us how winning this bid will lead to a profit for Rubco. It just says that there are other contracts that the company has with Maxilux.

For an explanation of why (D) is the correct answer, please see this post and let me know you have further questions!

Take another look at the exact wording of (E):

(E) doesn't tell us that the bid only included price -- it just tells us that Rubco's bid was "ahead of its competitors' bids" on price, but not clearly ahead on other criteria. So we can't assume that Rubco can just change the specifications at will in order to make a profit.

(E) doesn't support the claim that Rubco will make a profit by winning the bid, so it is not the correct answer.

I hope that helps!

The Maxilux car company's design for its new luxury model, the Max 100, included a special design for the tires that was intended to complement the model's image. The winning bid for supplying these tires was submitted by Rubco. Analysts concluded that the bid would only just cover Rubco's costs on the tires, but Rubco executives claim that winning the bid will actually make a profit for the company.

Which of the following, if true, most strongly justifies the claim made by Rubco's executives?

(A) In any Maxilux model, the spare tire is exactly the same make and model as the tires that are mounted on the wheels.

(B) Rubco holds exclusive contracts to supply Maxilux with the tires for a number of other models made by Maxilux.

(C) The production facilities for the Max 100 and those for the tires to be supplied by Rubco are located very near each other.

(D) When people who have purchased a carefully designed luxury automobile need to replace a worn part of it, they almost invariably replace it with a part of exactly the same make and type.

(E) When Maxilux awarded the tire contract to Rubco, the only criterion on which Rubco's bid was clearly ahead of its competitors' bids was price.


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Can someone help me guide through the answer choices for this?

Many thanks.

"Analysts concluded that the bid would only just cover Rubco's costs on the tires, but Rubco executives claim that winning the bid will actually make a profit for the company"

I ruled out B because it does not address issue brought up in Rubco's executives' claim. The issue involves the profit that results from the bid directly, nothing else.

D is the only statement that directly addresses profit making from winning this particular bid.

Remember that the correct answer does not have to prove the argument. It simply has to be the choice that most strongly justifies the claim made by Rubco's executives.

If true, choice (D) tells us very explicitly that consumers of a car like the Max 100 will almost invariably replace a worn part with a part of the exact same make and type. This implies that Max 100 owners will replace worn Rubco Max 100 tires with new Rubco Max 100 tires. This effectively increases the expected number of tire sales per Max 100 beyond what is supplied to initially manufacture the car.

You ask whether customers could obtain these tires from Rubco or from Maxilux. But we already know that Rubco is the manufacturer of the tires. So in either instance, Rubco can expect to make a profit, almost invariably, whenever a tire on the Max 100 wears out and needs to be replaced. Either Rubco supplies to Maxilux and earns on that wholesale, or Rubco sells directly to consumers and earns on the retail sale.

Yes, there is some logical wiggle room here because we don't have 100% confirmation of how replacement tire sales fit into the bid and its long-term conditions. We also don't know the precise rate of replacement, and we don't know what Rubco considers to be a fantastic profit margin vs. a sufficient profit margin.

But we don't need any fo those confirmations, because we know from the prompt that Rubco sells the tires, and (D) confirms that people will almost invariably continue to buy them.

I hope this helps!

Hi Alpha420,

"Worn part" would include tires. That is, if owners of such luxury cars (almost) always replace a worn part of their luxury car with a part of the same make and type, we can expect them to do exactly the same thing with their tires. Also, we don't have to worry about whether this statement is an exaggeration or not, because the question stem clearly says "which of the following, if true...".

The problem with option A is that we don't expect the spare tire to be a separate purchase. So in "the winning bid for supplying these tires" that was submitted by Rubco, we can expect the cost of all the tires to be included. That is, the bid would most likely have been for the mounted tires and the spares, not just for the mounted tires.

Very common argument structure.

The facts show that the product being sold is not profitable. Nonetheless, the co.’s executives believe that selling this break-even product (in other cases the product may even lose money) will result in an increase in OVERALL profitability.

Invariably, the correct answer you are looking for will provide new info. about how the sale of the “break-even” product will result in some “SIDE BENEFIT.”

This additional benefit from selling the unprofitable item, which isn’t apparent at first, will result in an Increase in OVERALL Profitability.

Whenever a fact pattern like this appears, the first thing that should pop in your mind is:
how is selling this unprofitable item ——-> going to lead to an additional benefit ———> which will lead to an increase in overall profits

(A), the first choice BTW to catch test takers in a rush, could be seen as this type of benefit. However, the facts tell us that the co. submitted a bid to make the tires for this car. We have no way of knowing whether this bid includes producing the extra spare tires (in real life it probably does). Because (A) would require additional assumptions, we can eliminate it. (Or you may hold on to it to be safe)


(B) tells us that the co. holds exclusive contracts to make other tires. But these contracts are already in place. The co. doesn’t need to sell the break-even product to get this “side benefit.” The co. already has the exclusive contracts and will already earn revenue on them with or without selling the tires. Thus, this new info does not help bolster the claim that selling the tires at cost will lead to an increase in profits.

(C): Without making a ton of additional assumptions, there is nothing in the argument to suggest that the close proximity of the production facility will somehow help the co. achieve an increase in profits.

We can safely eliminate B and C.

(E) helps to explain WHY the co. won the bid in the first place. But explaining why the co. won the bid doesn’t give us any reason to believe the co. will see some kind of additional benefit from selling the tires at cost, leading to increased profits.

Answer (E) is a common wrong answer type that seems to show up quite a bit.

Generally, if an Answer Choice either tells us a little bit more about one of the facts or explains why one of the facts is the way it is, the answer usually will not impact the argument. The facts are already given to us. In most cases, an answer choice that elaborates on something we already known is true will not help.

We can eliminate E

(D) finally gives us one of the “side benefits” of the type disused at the beginning of the post. If it is true that most consumers will replace their tires with the “same make and model”, then the co.’s motivation doesn’t seem to be making money off the bid. Even though the co. will not earn profits on the bid, people will eventually have to replace their tires in many cases. If they choose the same brand, then the co. will see it’s increased profits at a later point.


The scenario reminded me of the recent video game craze occurring this past Christmas. Reports were that Sony had a difficult time obtaining the chips and other components at a cheap enough price to compete with Microsoft on price. The rumor is Sony sold the PS5 to break-even.

However, now that every person in America bought a PS5 (it seems that way), Sony intends to make money on the software sales (the “additional side benefit”).

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We cover (C) and (D) in more detail in this post and this post. But the important thing to remember is the precise wording of the argument.

The bid submitted by Rubco is to supply tires for the Max 100. The analysts claim that the revenue received from that bid will only cover Rubco’s cost for the tires on that bid. So, after the bid has been covered and the tires installed, Rubco will be at net zero profit.

However, according to (D), Rubco will sell more tires than what is covered in the bid as replacements are needed. So, as Rubco begins to sell additional tires, it will make a profit on those tires. In that way, winning the bid will profit the company.

I hope that helps!