Another major China manufacturer closes?

Trying to find an updated link of Model Train Mfrs from this 2009 Atlas forum post:http://forum.atlasrr.com/forum/topic.asp?ARCHIVE=true&TOPIC_ID=49906 led me to a recent post on this Blog: http://cprailmmsub.blogspot.com/2012/01/chinese-manufacturer-of-model-trains.html
that linked to this January 2012 post on Athearns Facebook page: http://www.facebook.com/AthearnModelTrains.

Did another 'major' manufacturer bite it? And, does someone have an updated manufacturing source list.
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For too long, cheap Chinese labor has allowed companies like Athearn and others to bring RTR items into the U.S. and make big $$$ on the markup. Sounds to me like kits may return in the future, and about time. I, for one, enjoy building them much more than I like paying high prices for RTR items that I may want to modify anyway.

 

Actually, Jeff, this is old news, details of which have been circulating on various websites for some time now. Indeed, one of the few larger Chinese producers did fail. Around the same time, China's biggest manufacturer (there are only a couple anyway) has made Bachmann an almost exclusive marketer of their product line. I am coming to strongly suspect that Bachmann will, in time, emerge as THE only large importer of model trains from China simply because of their association with the parent company. Perhaps a first step in Bachmann's monopolizing of the marketplace?

Addressing the possibility of any return of kits, I believe that would be simply a pipe dream. The profit margin of kits relative to today's RTR trains says to me that the remaining secondary manufacturers (i.e. those other than Bachmann) will move in one of three possible directions in the future: (1) they will find another technically advanced society to build the trains at much higher prices than currently (the Third World will definitely not be the source of future models), (2) they will all eventually close up shop, (3) or they will have to go to/through Bachmann for their products, making them the universal supplier of American model trains...also at much higher prices. Sadly, the volume buying element present within the hobby today is no longer the traditional craftsman model railroader who thrived on kits. Probably half the hobbyists today would vanish over night with any return to a kits-only hobby.

NYW&B

 

The Kader deal did not cut off everybody. Initially Kader bought and saved failing Sanda Kan, Atlas' primary manufacture. That brought Atlas under the Kader umbrella. Then a year or so later, Kader found out why Sanda Kan was failing, they were dealing with many small accounts instead of a couple large ones. Kader basically dumped all the small companies that were more of an accounting headache than a profit center. They were simply cutting costs like everybody else and decided to center on their largest customers. Atlas, Athearn, Lionel and a few others were retained in that initial move. Keep in mind, Kader does more than trains but much of the US toy market in general. Atlas struggled with Kader and has now found a new production facility. They are in the process of moving all tooling out of Kaders control which is causing a shortage of their track until closer to the end of the year. Most manufactures don't have their eggs all in one basket and Athearn was shifting their production out of Kader until that place closed. Atlas not only used Kader but also Ajin, and a few others. I'm not sure what this new company they have found is but as a result, pricing has come down a few items. Lionel is still using Kader and their catalog is bigger than ever this year.

The most recent issue is to come to light was Athearn. Athearn Standard line product is on permahold until they can find new production sources and retrieve thier tooling. Their Genisis line was being done by another source (I believe it is the company that does production and tooling to Tamiya) and is safe and continuing.

There are plenty of companies in China willing to take up the slack from Kader. The issue is, can they do the same quality work? Jason Shron of Rapido trains saw the writing on the wall years ago and worked to start his own production facility in China for his own products. He has comented that he would like to expand and may be the source of production that the companies are moving toward after parting ways with Kader.

The sky is not falling but by it is getting more expensive to to do business in China, although not nearly expensive enough to justify bringing things back to the US. A few manufactures have already run the numbers and pricing would have to increase by almost 50% to offset the cost of making items in the US. The primary issue is assembly. We can cut tooling, injection mold and print for a few percentage points more than the cost of China (may actually end up in a cost savings because of being able to communicate directly and quickly) but the assembly costs are 100%'s of percent more expensive in the US. The people that will work for minimum wage in the US are not detail oriented enough to do the job needed to assemble our small, delicate products.

There is actually a possibility of some kits coming back. Classic Metal Works is considering bringing tooling back to the US and selling their vehichles in kit form. Of course these would be very simple kits but by doing this they feel that they can keep the pricing the same as it is now and bring control of their stuff back to the US. I don't see freight car or loco kits coming back any time soon. Athearn quit the blue box kits due to the fact that they lost money on them after having to deal with lost/missing parts and customer service.

 

I believe, and don't quote me, that Atlas's new line is in Brazil or some other South American Country. And for the record, China is not a third world country.

Also, to address kits. Accurail has no problem manufacturing and selling kits in the United States. Their products are excellent and priced well. Kadee has no problem manufacturing RTR in the US and Kits as well.
Both of course have more limited models to choose from.

Also, just to clarify, Athearn had a number of problems that caused them both to move production to china and shut down blue box kits and they had little to do with a lack of interest in kits generally.

Athearn's number 1 problem was a glut of inventory at their distributors. I think anyone who was in the hobby in the 80s,90s,early 00s can attest that LHS had stacks and stacks of BB kits from 40 year old molds gathering dust. Many kits sold, but just as many didn't. And that's why you still find stacks of them at swap meets. There is decades worth of inventory to clear. Who is at fault for that is probably a mixed bag, but I'd say it lead directly to the limited run nature now permeating the hobby and certainly aided and abetted the downfall of many a LHS.
Athearn's second problem was with California environmental regs and their paint booths in Compton. SoCal Air Quality regulations are tight and it made it hard on Athearn at that location. Of course, had they wanted to stay in the US, there were 49 other states and outlying territories (Huh, I wonder why nobody has thought to set up a line in Saipan? Works for the clothing industry.) they could have moved to and many would have given them incentives to move. Not that I think California regs are as bad as many others do, they aren't, but it was an issue.

Once in China, the profit margins on minimal cost for an assembled kit were a no brainer so that's the way it went.

But again, simple kits made in the US can and do sell so don't ever believe that canard.

Also, when you think about it, 25-35 years ago, Atlas was having their locos made by Roco in Austria and I think Yugoslavia, then they moved on to Kato in Japan before they settled on Sanda Kan. So it's not like changing manufacturers is a new thing in this industry, I suggest everyone just take a deep breath and calm down.

 

But I was just starting my MORNING FREAK OUT!

 

Well, you can focus on no Portland National Train Day Celebration. That one is still upsetting me and I'm 800 miles away.

 

YoHo, I would be very hesitant about portray the current situation involving Kader/Sanda Kan and the U.S. "manufacturers" as nothing to be at all concerned about, as recent history has demonstrated with the transfer of hobby manufacturing from the U.S. to overseas.

Are there other facilities in China capable of taking on the ousted train companies? Perhaps, but this is unlikely to occur without considerable problems and headaches for hobbyists. I think many here will recall the various debacles that occurred when manufacturing initially re-located to China and QC was simply awful. Warped shells, missing and broken detail parts (still with us!), bad drive trains, poor packaging, etc., were all too common. But at least that situation occurred in a time in the hobby when there was an abundance of U.S. customers. Today, following a decade of limited runs, canceled models, endless delays and prices that have tripled in ten years, there are far fewer hobbyists actively purchasing new items. A single major glitch this time could bring a manufacturer to their knees. With the U.S. company half a world away from the actual manufacturers it can take years to get a new builder up to speed and with reasonable QC, time we may no longer be able to afford. We saw this play out in the country hopping brass did, which took it from a mainstream element in the marketplace in the 1960's to such a minor niche today that it hardly even seems existent any longer.

Further, beyond China, whose workers are rightly demanding ever more pay and are open to strikes and protests now, the work situation there is increasingly unstable. Yet there is little in the way of alternatives. I hear some say the next move should be to some Third World nation. But that honestly isn't viable because they are not sufficiently technologically based to handle the job and at the same time all the bugaboos mentioned above with shifting facility locations within China return...this time in spades!

From the tale of history, I can see a lot of problems over the next few years in the hobby's manufacturing sector, almost certainly further by-outs, together with dramatic price increases that would stretch the imaginations of folks today. I'm not nearly as complacent as yourself.


NYW&B

 

NYW&B, I'm sure people felt the same fears when Atlas went to Kato and then on to Sanda Kan in the first place. Boxcab rightly points out that moves have already been happening. Also, your interpretation of what killed brass is in my opinion wrong. Brass was killed by narrow bodied plastic diesels with quality, drives. Often superior to a Brass model's drive and then the move to high quality brass like Plastic shells.

Again, the primary cost increase in moving from China to say the US is in the assembly process.

 

NYW&B,

I think YoHO is right. You're not fully in touch with what is really happening. Manufacturing is already moving to Vietnam, India and the elsewhere. Horizon Hobby Distributing has already moved much of their RC airplane/helicopter production out of China and into Vietnam. As I mentioned there are plenty of places in China ready and willing to take on the production that Kader has turned away. I have a couple of contacts and friends that directly involved with MR production in China and they say there is no shortage of companies willing to take on your product. It is just a matter of being confident in their ability. With the ever increasing ability of CNC tooling, the worries are becoming less and less. If you can draw it in a computer, they can cut it and mold it.

Brass was killed by increasing better plastic product. In the 60's, if you wanted something accurate, you had to buy brass. As more and more unique models are made in plastic, there is no reason for the same brass models to be made at a higher premium. I've custom painted quite a few brass pieces for people and I'm sorry but current plastic offerings blow away the brass that cost 3-4 times more. The high end plastic is cheaper, runs better and often has better details than brass of the past. With manufactures making unique tooling and mold slides to create a multiple variations of the same loco, it's hard for the brass market to compete so they have concentrated even more on the esoteric and uniuqe projects that will probably never see the market demand to make them viable in plastic.

Kadee can make product in the US, at a 50% higher price premium than a similar model from the others. I respect that but it makes their market share much smaller than the other brands. I'm an N scaler and Microtrains is the parallel to Kadee in the scale. Yes they make some excellent product but we also sell other brands 10-1 over MT.

If you are going to bring US companies in the mix, don't forget Intermountain. They do molding and printing here in the US. They ship the parts over seas to be assembled. It is cheaper to pay shipping both ways across the ocean to have it done overseas than to pay US workers. If I remember correctly, they tried US assembly at one point and the quality was not good enough to compete. They had even more rejects than they get now.

RTR product is what sells. Athearn killed the blue box kits because of declining sales and the added cost to support them. They had to have more people in the office, just to package, handle problems (shortage, broken parts etc.) and had to maintain an inventory of parts to be able to service their customers. With RTR, the cars are fully assembled and should not be missing anything in the box. They saved money by killing the kits. The kits were costing them money once part production went to China.

 

Intermountain, like Accurail also still makes kits also still in the US also still at a solid price.
If you are buying prebuilt Accurail or Intermountain cars...in HO at least, you're paying to let someone else do the work for you.

I don't disagree that BB was costing Athearn money, but as I said, there was a glut of product not moving on LHS shelves and problems upgrading the compton facility. It wasn't as simple as" "Modelers don't want kits."

 

I think the kits may return but sadly the prices will not fall. It seems that once a company gets use to profits they seldom let go of them. L

 

Well then they will be pricing at a premium over accurail and Intermountain and those companies will flourish.

 

Why is it that people seem to think that these companies are raking in the profit? Price increases are so they can stay alive. As the market gets more diverse and product runs are more targeted to a specific audience, the batch size goes down considerably. Whey they used to be able to amortize costs over 10,000-50,000 piece runs, now they are trying to do that with 500 piece runs. I know some of Atlas' more obsure road name loco's were run in batches as small as 150 units. I don't think a lot of people realize just how small this market is and how close to the ragged edge some of these companies are treading. They are not financing thier yacht in the Bahama's by selling toy trains.

 

Well, it's "common knowledge" that when Athearn moved to China, they learned that the assembly of the kits cost almost nothing and they could upcharge significantly, so I think that's what people are thinking of. That for Athearn, the difference between a shake the box made in China and an assembled kit made in china is almost zero manufacturing cost and at least a $10 price increase.

That common knowledge could be wrong, but that's what people have heard and understand that Athearn chose to do ready to run, because it was almost a pure profit change.

 

Tony, let's just say that we'll have to just agree to disagree on the point. However, please revisit this thread a year from now and tell us how everything is still A-OK in the industry and the events that have unfolded have not drastically affected prices, the level of QC and product availability. I still vividly recall some of the nightmares brass went through initially as it shifted from Japan to Korean and elsewhere. I definitely think a lot of folks in the hobby are in for some rude awakenings and disappointments over the course of the next year.

As to the matter of the evolution and decline of brass, both yourself and YoHo are, I'm afraid, way off base as to its actual story. The increasing quality of HO plastic trains had absolutely nothing to do with the decline of brass. Speaking from personal experience as a longtime brass collector I can tell you that although brass was definitely a significant part of the HO hobby's mainstream from the late 50's (when many brass models were actually priced on a par with the day's diecast examples) until the mid to late 70's, thereafter the ever growing interest in collecting brass as a potential investment move saw prices spiral dramatically and interest in brass by the great majority of model railroaders decline. This was nearly two decades before there were any high quality plastic locomotives even available. By the end of 90's brass had become essentially a separate niche hobby unto itself, with only a tiny fraction of actual model railroaders participating. So dramatic was the decline that although some 1970's total production runs of certain brass locomotives had run into the thousands, by 2000 numerous "runs" were down to totals of 50, with these divided up into unit specific variations numbering as small as a dozen units. I know, because I made such purchases.


It is perhaps a widely popular notion among hobbyists outside the brass collecting field that the introduction of high quality plastic locomotives in the 2000's severely damaged interest in brass. While this may be true in some minute fashion, the fact is that the overwhelming majority of brass locomotives produced over the years has always been streamers and even to this day the best plastic steamers can not even hold a candle to the detail of latest quality brass examples (and they run great, too).


NYW&B

 

Actually, I specified narrow hood plastic which came in the 80s. I believe the Athearn flat can SD40-2 ended any interest in brass as part of the mainstream hobby.

 

Which is not to say the brass industry wasn't an active participant in their own demise, only that it's value to a modeler decreased. Especially for diesel brass.

 

Again, brass was popular and valuable when it was the only way to get an accurate detailed model. I'm in N scale, not HO so I have a different perspective but here goes.....

**Key, MORE and other verisions of the N scale BigBoy regulary sold for $1000+ before the Athearn Big Boy, now you can't give one away.

**Key GS-4's were going for $800-$1000, even with a Concor version available at around $250, then Kato released theirs which ran better and looked better and sold for under $200, both brass and Concor versions can be had for under $200 now.

**Most recent example - Cabforwards in all flavors were regularly going for $1000-1200 before Intermountain released thier loco at the $3-350 mark. Brass Cabforwards, if anybody is brave enough to put one up for auction, go for under $500 now.

I have a Key H-8 Allegheny, current going rate, around $1400. As soon as I have any inkling that a plastic version is going to be made, it goes up for sale. The plastic one will run better and look better and I will be able to buy 3-4 of them for what the brass loco will sell for before the market tanks.

As soon as a plastic version of a loco comes out, the brass becomes virturally worthless. How about all those people that pre-paid $700 each for the UP Heritage ACE's only to have the value of them crash when Kato released their plastic versions that run much better at the $100 pricepoint.