Pricing ourselves out of a hobby

SPsteam May 25, 2016

  1. mtntrainman

    mtntrainman TrainBoard Supporter

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    We all enjoy trains in our own way. :cool:

    Many model railroaders like watching the 1:1 trains also. :D

    There is no right way or wrong way to enjoy them. (y)(y)(y)(y)(y)
     
  2. Joe D'Amato

    Joe D'Amato TrainBoard Member

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    I have a dog in this fight, but I can tell you the cost of manufacturing in China has gone, way, way, way up and there is no sign of it changing. Also, if you look at the worth of a product current pricing isn't as out of wack as we might think. I checked with a indexing calculator and a boxcar that cost $6.00 in 1975 would cost, with inflation, increased cost of materials and labor... between $21.00 and $64.00. I'm not defending high prices, trust me, I have to buy this stuff too. But we tend to have rose colored glasses when looking backwards. Also, the cost of plastic doesn't seem to change with the cost of oil...at least not down. We pay more for plastic now with a barrel of oil about $50.00 as we did when it was close to $120.00 and don't get me started on Zinc. LOL One also has to consider the peculiar aspect of N scale. Most want Ready to Run and very few are willing to accept less quality...those cost...simple math. I know MTL gets a rap from time to time for pricing but we do manufacture here, everyone gets a living wage with benefits and are full time. I'm pretty proud of the fact that we can be competitive with companies who source out their product to China :)

    Joe
     
  3. Inkaneer

    Inkaneer TrainBoard Member

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    You missed the point completely. Market forces are secondary. It doesn't matter if we have a free market system or a monopolistic system. The facts are that there are costs involved in production in any system. Some of these costs are variable. An example is raw materials. It might take $1 of plastic pellets to make a hopper. That cost will remain the same at $1 per hopper whether you make 1 hopper or two thousand. Obviously the more you make the more the total cost will be. Other costs are fixed. It doesn't depend on how many are made the cost remains the same. So the rent on a factory may be $10,000/month. It will remain $10,000/month whether you make 1 hopper or 1,000 hoppers. So to make just one hopper will cost you $1 in variable cost and $10,000 in fixed cost. The total cost for the hopper is then $10,001. If you make 1,000 hoppers the variable cost is $1 per hopper or $1,000 plus $10,000 in fixed costs for a total of $11,000 or $11 per hopper. Big difference! So reducing the number of hopper cars produced raises the price because the fixed costs are not scalable. That is why they are termed fixed. Now it matters not one iota if the Chinese limit production or the American company does it. The fixed costs really don't care.
     
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  4. Inkaneer

    Inkaneer TrainBoard Member

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    Joe, then explain to us why the huge difference between the percentage of price increases of rolling stock and that of locomotives. By the way Joe, I consulted an online inflation index that I found here:

    http://www.bls.gov/data/inflation_calculator.htm

    Between 1991 and 2016 (25 years) the index says that what cost $1.00 in 1991 will now cost (in 2016) $1.76. So that $7.95 hopper car should only cost $14.00 not $20.00. How do we account for the extra $6.00? And why in that same 25 period a Kato U30C was initially priced at $79.00 and 25 years later is $110 which is well under the above inflation rate pricing which would have been $140.00. There has got to be something else at work here.

    I used only the last 25 years in my calculations. The seventies and eighties were a period of high inflation and high interest rates whereas the nineties were more economically stable. In 1971 what you could buy for $1.00 would cost you $3.36 in 1991. That is 336%. Whereas the inflation rate for the period 1991-2011 was only 65%
     
  5. mtntrainman

    mtntrainman TrainBoard Supporter

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    Joe...thnxs for stopping in and explaining from a manufactures side. However, I beieve Inkaneer has some valid points that should be addressed. Personally....I still believe the 'preorder system' has a lot to do with higher pricing. JMO
     
  6. glennac

    glennac TrainBoard Member

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    (y) +1

    Yeah, nigh impossible to railfan AT&SF any longer. :LOL:
     
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  7. DCESharkman

    DCESharkman TrainBoard Member

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    Need to stop this thread because it is about to get out of hand with the reluctance of one individual to understand

    You have had multiple responses from people who understand manufacturing a great deal better, but you seem to choose not to listen or try to understand. Your examples are juvenile and not well based in reality.

    While the factory floor may be a fixed cost, the utilities and the wages are not. Neither are the costs of materials. Basing an argument about a fixed cost is just plain silly again.
     
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  8. BoxcabE50

    BoxcabE50 HOn30 & N Scales Staff Member TrainBoard Supporter

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    We're certainly to a point of going around and around, with nothing being gained. When discussions get to this stage, they have in the past, (reluctantly), been closed.
     
  9. Joe D'Amato

    Joe D'Amato TrainBoard Member

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    Pre orders work just the opposite for us. If I know exactly what to produce, then I don't have to over charge to take into account inventory that will be sitting on the shelf beyond 90 days. This way I can lock down my ROI and look at margin options that help me maintain/expand. I can't without pre orders. We do both by the way so I have to deal with this issue daily. I don't want to pass the cost of inventory I have to toss on to my customers and with pre orders I don't.
     
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  10. Joe D'Amato

    Joe D'Amato TrainBoard Member

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    I think that only gives you inflation numbers and not increased manufacturing goods costs. I can't speak to locomotive pricing because we haven't been in that game long enough frankly. All I can say is we have a set margin "target" but generally are not there, meaning lower. Given the actual cost to make a loco, in our case the SW 1500...margins are pretty skinny to make them available. You never sell as many locos as box cars so there could be some lost leader mentality in all that. Who knows.
     
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  11. glennac

    glennac TrainBoard Member

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    It's definitely been an interesting discussion to follow. (y) And I've appreciated all of the coolheaded responses. Anywhere else and this could have deteriorated rapidly.
     
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  12. Rich_S

    Rich_S TrainBoard Member

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    Having seen several of these threads, the one thing they all have in common in my opinion is we are trying to compare today's prices to those of 20, 30 or 40 years ago. Back when I started in the hobby the minimum wage was $1.45 / hour. now the federal minimum wage is $7.25 / hour. Another example, my father paid $10,500 for a 3 bedroom two story farm house on 3 acres of property when I was a kid. That same house today would sell for $130,000. We tend to get sticker shock because we remember the $1.25 Athearn (shake the box) Blue Box freight cars and the $15.00 locomotives. This is nothing new, I remember as a kid hearing the old timers at the local hobby shop saying the same thing about prices going through the roof. Also at that time, slot cars were going to be the end of the model railroad hobby. From what I can tell, we are living in the greatest era of the hobby. We have DCC sound equipped steam locomotives that look better than some brass steam locomotives I've seen. The hobby is not dying and remember back in the day it took me 25 hours of flippin burgers to purchase a train of shake the box freight cars :LOL: :D
     
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  13. tracktoo

    tracktoo TrainBoard Member

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    I think I would enjoy a conversation with Joe about the trials and tribulations of manufacturing and also the fallacy of wages and taxes being the begin and end all of profitability and the path to success. The answers to success in manufacturing are way more dependent on productivity with surprisingly (but shouldn't be) little dependence on lower wages and certainly not dependent on income taxes. It's the narrow thinking manufacturing businessmen (not very good) who seek their answer to profitability in the simplistic answer of costs, narrowly interpreted as lower wages and running tired, inadequate equipment while THINKING they're beating the help out of a dollar, or two, or three, an hour, but then continually retraining new employees due to the turnover (something that IS actually costly) often with questionable training quality because... they're really not that good. And all the while blaming the lousy help for things not the fault of inexperienced, inadequately trained people, running crap equipment. Then, when that's failing as it always does, seek even more from those sources not solving the problem but actually compounding it. I shake my head and feel sorry for the workers who tied their wagon to that flawed thought process. Meanwhile the smart guy has steady reliable help, well trained, appropriately equipped, and over time quite experienced due to low turnover (key elements to productivity) producing at 10%, 20%, and more the rate of the inexperienced, not to mention at a quality level that has little rejects, little warranty service, etc. And that 10% and much more additional productivity is at the full rate, including overhead, so is 10% plus of $60, $75, or whatever number way greater than the wages, their nut actually is. The additional step to prove out which is the smarter money can be done in your head or penciled out on the back of an old envelope. That approach served me well (and my employees) for thirty some years, continues to serve a brother well (and HIS employees) in a similar business, and has served those who approached it that way so that their hard work (also not always as hard working as some would have their audience believe) was productive and not spent putting out the eternal flame that is the result of the small thinking approach.

    That's part of what makes it so disturbing to have sat and listened to the litany of crap business pontification that was fed to and gobbled up wholesale by folks while the really good ones carried on making it right here in the USA in spite of all of the hocus pocus. And I'll stop now but by no means is that the whole story. I just strongly suspect that Joe and company get that at some level and is one of the reasons among many that we have nicely made, competitively priced USA made products. And I've admired how totally clever that operation must be as I have an idea what that takes and sight unseen can admire what I know they are doing right at some level. It's admirable and is what SHOULD be the common business wisdom but isn't. Thanks Joe and all of your employees who make it happen. Congratulations Micro-Trains.

    When it comes to manufacturing conversations that's the way I see it and the way I approached it in my own business for thirty some years and feel compelled to say it after all we've been told/sold from some business quarters. What might not be evident is the restraint I exercise in these conversations until finally.... this very light and abbreviated version comes out. I just couldn't help it. ;):)
     
  14. YoHo

    YoHo TrainBoard Supporter

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    Volatility on the price of Zinc not withstanding, I wonder if the difference I locomotive costs is related to the mechanism being relatively unchanged from a manufacturing costs perspective. Imagine that that theoretical $75 Kato was $20 for the shell and $50 for the mech and the price jump was entirely related to the shell, the mechanics still costs $50. That would potentially explain the difference.
     
  15. rogergperkins

    rogergperkins TrainBoard Member

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    Joe, Thank you for sharing this information.
    I continue to believe that not having the well-developed technology and manufacturing equipment in the USA for such products has long term and far reaching consequences. I am not talking model railroading per se, but the ability to mass produce items in miniature; one of the valuable contributions of the space age is the achievement of making small "things".
     
  16. YoHo

    YoHo TrainBoard Supporter

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    I'm still waiting to see what 3d printing can do to change this. HP has released their new printers which look revolutionary in some ways.
     
  17. BoxcabE50

    BoxcabE50 HOn30 & N Scales Staff Member TrainBoard Supporter

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    And Shapeways also recently introduced a new material.
     
  18. BoxcabE50

    BoxcabE50 HOn30 & N Scales Staff Member TrainBoard Supporter

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    I want to believe that part of their success has been to build and invest for the long term. Avoiding the modern era quick buck as fast as you can mentality, which has been a good part of the reason some companies have opted to choose overseas manufacturing.
     
  19. glennac

    glennac TrainBoard Member

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    I imagine the lure of Asian manufacturing has been tempting for Micro-Trains over the years.

    It would be fascinating to hear Joe talk about whether there has ever been talk about going that route, why they chose not to, and what sacrifices / benefits they have experienced because of that decision.
     
  20. SPsteam

    SPsteam TrainBoard Member

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    I didn't think this thread would go this far.

    Prices on everything are going up these days, specifically hobby related items. It seems the quality of most steam locomotives continues to rise along with their price. There is a big difference between one of today's steamers and one from 20 years ago. One disappointment with this is the lack and variety of steamers available. In the past, brass manufacturers such as OMI, Hallmark, and Key would introduce new steam locomotives on the market about every couple of years, there was a constant flow of new models. Sure they took some tweeking, but that's what this hobby is about. With the loss of most brass manufacturers in the N market and most everything in plastic, we see one or two new steamers every couple of years. It would be great if we would see the level of locomotive introduction in N scale that we see in HO scale (i.e. Athearn make an MT class 4-8-2 in N).

    As far as MT, I doubt you'll ever see them go overseas. That is one of the selling attributes, being made in the USA.
     

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