riogrande5761 ATLANTIC CENTRAL .......but we are no longer willing to pay the prices that funded standing inventories......... Sheldon Willing, or in the cases of many, able to pay the prices. Don't forget we are slowly coming out of a 6 year recession and wages have stagenated while hobby products have sharply risen. A recent report stated the 46% of the US population would struggle to take a 400 dollar unexpected hit to their monthly expenses. I'll just leave it at that.
ATLANTIC CENTRAL .......but we are no longer willing to pay the prices that funded standing inventories......... Sheldon
.......but we are no longer willing to pay the prices that funded standing inventories.........
Sheldon
Willing, or in the cases of many, able to pay the prices. Don't forget we are slowly coming out of a 6 year recession and wages have stagenated while hobby products have sharply risen. A recent report stated the 46% of the US population would struggle to take a 400 dollar unexpected hit to their monthly expenses. I'll just leave it at that.
Yes, respectfully lets leave it at that, the condition of the economy, and the buying power of the working and middle class are topics that have in the past, and will now come to no good end on here.
Those facts, which I do not dispute, have little to do with the fact that margins, business models, and consumer habits in this hobby have changed and that is why there are few standing inventories and why brick and mortar stores are disappearing.
In the old days, a shelf full of Athearn kits would have been seen as money in the bank, no one would have considered a "clearance sale" on products still in regular production or that had been producted in the last 5-8 years.
Even those discounting back then would have held on to products at their "regular discount price" rather than "clear them out" like today.
The numbers I layed out above are simple facts from the past, and the loss of that business model for whatever reasons, is responsable for many of the changes in the chain of supply in this hobby.
gregc ATLANTIC CENTRAL Pricing is always based on the cost to produce plus necessary investment return/profit. $220K price is based on willingness to pay, not cost. Of course there's no point in making a product if there is insufficient profit.
ATLANTIC CENTRAL Pricing is always based on the cost to produce plus necessary investment return/profit.
$220K
price is based on willingness to pay, not cost. Of course there's no point in making a product if there is insufficient profit.
Respectfully, demand is based on willingness to pay, price is based on need or desire to sell.
ATLANTIC CENTRALPricing is always based on the cost to produce plus necessary investment return/profit.
greg - Philadelphia & Reading / Reading
Thanks for joining the conversation.
A new Genesis level diesel can have 500 separate parts. Yes tooling costs can exceed $200,000.
John
But what do I know, I just worked in this business, have ran several other retail businesses, have been a manufacturer of custom products, and have been self employed most of my life........
Why ask that retorical question "what do I know?" Obviously from your earlier post, you know a lot. Say what you know and let it stand and leave out the question. It detracts and puts an, otherwise good, post unneccessarily on a defensive footing. Too many people say "what do I know" - not good.
Rio Grande. The Action Road - Focus 1977-1983
gregc am I reading this right that the tooling is around 200,000 pounds? How is a limited edition model made and why would a manufacturer charge less than what people have been, are willing to pay?
am I reading this right that the tooling is around 200,000 pounds?
How is a limited edition model made
and why would a manufacturer charge less than what people have been, are willing to pay?
What is that in dollars?
What price are how many people willing to pay? Some will pay more, some will not.
Pricing is always based on the cost to produce plus necessary investment return/profit.
Hopefully the selling price is low enough to prompt enough buyers to meet minimum profitable production run sizes.
Otherwise the product does not stay on the market.
If you price a product too high just to make more money, and if more demand is there at a lower price level, eventually a competitor will make the product and sell it at the lower price..........It happens every time.
Trainman440 Okay, then if it costs that much to make the tooling/molds, then why would certian companies do limited production runs, like BLI's C&O L-1? Charles
Okay, then if it costs that much to make the tooling/molds, then why would certian companies do limited production runs, like BLI's C&O L-1?
Charles
They do limited production runs to modivate buyers to buy now. The idea is make the minimum profitable production run, sell them all, pay for the tooling and make some money.
Then, if interest is high enough, wait a while to build up a new "pent-up" demand, make another run - tooling is paid for, second run sells out quickly - no inventory carring costs.
And so on......with the third run.......
But we suffer by not having products "on the shelf"........but we are no longer willing to pay the prices that funded standing inventories.........
Paul3 Without getting into specifics: 6 or 7 years ago, the Chinese would have charged about $50 each for a high end loco that retailed for about $400. Lately, that charge went up to around $150 ea., pushing that retail price to around $600. There was an additional ~$150 in fixed costs per loco, which I presume means tooling, shipping, advertising, salaries...the typical overhead for business. So the price, per unit, for a high end engine to the manufacturer is roughly 50% of the retail price, which they then add to that for their profit. They are then sold to a distributer, which adds on a percentage, then the final retailer, who may get it for as little as 20% of the retail.
Without getting into specifics: 6 or 7 years ago, the Chinese would have charged about $50 each for a high end loco that retailed for about $400. Lately, that charge went up to around $150 ea., pushing that retail price to around $600. There was an additional ~$150 in fixed costs per loco, which I presume means tooling, shipping, advertising, salaries...the typical overhead for business. So the price, per unit, for a high end engine to the manufacturer is roughly 50% of the retail price, which they then add to that for their profit. They are then sold to a distributer, which adds on a percentage, then the final retailer, who may get it for as little as 20% of the retail.
Paul is right on with this.
$400 MSRP loco - typical street price 25-30% off - $280-$300
$280 divided by 5 = $56
Even with the factory being in China, the US manufaturer still has similar overhead above the cost of production. So his price from China is similar to that $4 number I referred to in my other post regarding the Athearn F7.
If the cost of production has risen to $150, manufacturers are paniced, and likely cutting margins to all customers to hold the line on MSRP numbers at least to some degree.
And I have heard that this is happening from some of my sources inside the industry.
It never fails, all of you who think that the manufacturers are getting rich on the backs of the workers in China, fail to realize that such "windfall profit" situations never last long in any industry. It never takes real long for things to balance out.
There is always someone who will sell at the minimum profitable level, driving prices to the lowest profitable level for all players - or putting players out of business........
OK, is there anyone in this conversation other than John (PRR8259), and now me, who has actually worked in manufacturing, distribution or retail management in this business?
A few simple facts that do not require an MBA.
A retail store selling model trains needs an average gross margin of about 35% to have any chance at all. That means if they sell an item for $100 (regardless of MSRP), they need to buy that item for $65.
A mailorder/internet operation can probably do OK on 25-30%.
A wholesale distributor, like back in the day (they are almost gone now) needs to make 20-25% gross margin.
So before we try to figure out what it costs to make a loco today, lets go back in time - to 1980, when there were still lots of hobby shops, distributors, most people paid MSRP and most trains were made in the USA.
The Athearn gear drive F7 was $20 MSRP, in round numbers, and its cost breakdown in the distribution chain was like this:
MSRP - $20
Typical dealer cost from regional distributor - $12 - 40% off the MSRP.
Typical cost from Athearn to distributor - $7-$8 depending on distributor volume.
Athearn's cost to produce before overhead and tooling amoritizaton - $4
That represents typical manufacturing markups of that time - cost to produce X 5 = MSRP.
Today, the discounting has taken away the percentage typically given to the distributor. Big retailers buy direct from the manufacturer and pass that 20-30% on to the customer.
But there are other factors with China production, as has been debated here.
Tooling costs, adjusted for inflation tooling costs are much lower today than back in the 80's or before, largely a result of CNC machine work. But tooling costs are still high. The big gain here is the detail, for a similar investment that it took to make a plain jane model in 1980, we can tool up for a Genesis level model today.
Back then, Athearn knew they could crank out those F7's year after year, they had little competition and their costs were low because there whole facility had been largely amoritized for decades.
Today, the market has changed, the chain of supply has changed, and the hobby has changed.
But I suspect, todays street prices still reflect the same, or similar, basic margins - less the dieing distributors, and the lack of distributor price levels is what is killing the small shops as manufaturers only want to sell larger volumes to fewer dealers/distributors/outlets - to whom or how, or at what price, they then sell the product is their business...
Next topic - higher volume will not dramaticly reduce cost. There is a bottom cost, and there is no economy of scale that is going to make a hand assembled HO loco much cheaper to build than it is right now.
And yes, Life Like did get "caught" in that trap a little - but they had a big bank roll in their parent company and I suspect they did just fine in the long run - even if the MBA's did not like it some of the time. They made way more locos than there was demand for, they sat on a lot of them for a long time, right here in Baltimore. Then they started lowering prices some to free up some of that cash.
As soon as they did that, there is always the guy who will sell to the customer for less rather than wait for the bigger profit - the rest is history.
So all those $100 Bachmann Spectrum steamers I bought in the 90's and early 2000's, likely cost about $20 a piece to manufacture. And today they are costing $50, $70, or more.
And those $100 MSRP Proto diesels that Trainworld was selling for $65 likely only cost $13 to make.
But once again, adjusted for inflation, most of this stuff is the same or cheaper than it has ever been - even with the current tide of rising prices.
PS - nobody in manufacturing uses the concept of "markup", as in 100% markup. Costs are always looked at from market price, or selling price down in terms of what will it sell for? Can I make it at a low enough cost to make it worth while?
Or, in the case of a dealer, what will it sell for? Can I buy it cheap enough to make it worth while to sell it? If I can't buy it for roughly 2/3rds of what I can sell it for, I'm wasting my time and capital.
I think cost of 33% of MSRP is about right. I originally said 50%, but that doesn't leave enough margin considering that the items don't typically sell for MSRP.
Also, as far as economies of scale, it depends upon the time line we're talking about. Mass production over how many decades, how many production runs? Molds last a long time, which can spread out the cost of the dies and tooling.
Atlas ran many runs, maybe dozens, of the KATO/China GP7 over several decades.
Walthers is still running runs of the old Cox GP9,AFAIK.
I would think that 1000 or 2000 copies of a loco can be done easily and profitably, but it can't be done in a year.
- Douglas
PRR8259 Sir Madog-- I don't know costs of manufacturing in Europe but have had this very conversation face to face with an American HO manufacturer. My figures are based on trying to build something here. Sorry, HO trains are not about economies of scale--not in the U.S. for most (ie non-Bachmann or non-Trainman level) locomotives. The sales quantities, in America (not in Europe where trains arguably have more of a following, and model trains arguably have better sales according to certain American brass importers, not me) are just not there to the point where economies of scale can lower the price point. Anything not pre-ordered and not sold within about 2 weeks of arrival in the U.S. is considered to be dead inventory that does not sell. So building an extra 1000 locomotives on a 2000 unit run to reduce the price point per locomotive slightly will result in nearly 1000 locomotives of unsold inventory. When manufacturers build a few extra to cover future ie non-pre-ordered sales, it literally is a few units extra, as in maybe a dozen or two per roadname. That's it. Those few take awhile to sell (unless you luck out and get a really hot item). If it's a slow seller, the extra units never sell and get stripped for spare parts. Today, a new locomotive (never offered in HO plastic previously) will only sell a couple thousand units, maybe less. After a couple runs, some manufacturers are down to selling foobie paint schemes that never existed to generate a few more sales. Some locomotives released just only a couple years ago are already to the point where they have made all that will be reasonably made and sold. The tooling is being shelved and will not be re-used again for many years, if ever. I am not at liberty to discuss which diesels, so please don't ask me. John
Sir Madog--
I don't know costs of manufacturing in Europe but have had this very conversation face to face with an American HO manufacturer. My figures are based on trying to build something here.
Sorry, HO trains are not about economies of scale--not in the U.S. for most (ie non-Bachmann or non-Trainman level) locomotives.
The sales quantities, in America (not in Europe where trains arguably have more of a following, and model trains arguably have better sales according to certain American brass importers, not me) are just not there to the point where economies of scale can lower the price point.
Anything not pre-ordered and not sold within about 2 weeks of arrival in the U.S. is considered to be dead inventory that does not sell. So building an extra 1000 locomotives on a 2000 unit run to reduce the price point per locomotive slightly will result in nearly 1000 locomotives of unsold inventory.
When manufacturers build a few extra to cover future ie non-pre-ordered sales, it literally is a few units extra, as in maybe a dozen or two per roadname. That's it. Those few take awhile to sell (unless you luck out and get a really hot item). If it's a slow seller, the extra units never sell and get stripped for spare parts.
Today, a new locomotive (never offered in HO plastic previously) will only sell a couple thousand units, maybe less. After a couple runs, some manufacturers are down to selling foobie paint schemes that never existed to generate a few more sales. Some locomotives released just only a couple years ago are already to the point where they have made all that will be reasonably made and sold. The tooling is being shelved and will not be re-used again for many years, if ever. I am not at liberty to discuss which diesels, so please don't ask me.
On the Up Side, did like the price on the chopped nose GP-18 in N.
But unless the price structure changed recently, I've been told in the past the actual cost of making the item is closer to 1/3 of the MSRP. Some distributors then buy it from the manufacturer/importer for 55% off the MSRP, or 45% of the MSRP
RioGrande--
Two answers. You choose which one you think is best:
1. Manufacturer/importers decided to "hold the line" on cost by reducing the discount percentage so that they can hold the MSRP down to some level. This was publicly stated by at least one manufacturer. Maybe they did or did not accept less profit for themselves. I do not know.
2. Certain manufacturer/importers may have decided to "get greedy" and shaft the few brick and mortar train stores that remain by reducing the profit margin to a level that will not be sustainable and will drive the little guys out of business so that only the big sellers remain.
Already it is true, as Howard Zane has said on here that there is wholesale, really wholesale, and really really wholesale pricing for those who wish to buy and sell large quantities. To a certain extent the game may be rigged to drive away the small dealers, sooner or later.
The dealer looks at it as "I have to make xx percent just to pay the utility bills". The importer looks at it as: If it's a big ticket item the end dealer can accept a smaller percentage of profit.
Who is "right"?
richhotrain PRR8259 If completely made and assembled in the U.S. with all-American labor, a new from the ground up Genesis-level diesel would have an MSRP of about $1000, as agreed to by one manufacturer. That is why it is not done here. That is why it is done "over there". If that is the case, then I assume it is because there is too little demand. If a "Genesis-level diesel" were made in larger quantities, the cost to the consumer would logically come down to a more affordable level. I also question how important it is to most model railroaders to have the level of detail that you describe on something as insignificant as handrails. I wouldn't even notice the difference. I am not trying to make a case for Made in the USA, nor am I knocking the rivet counters among us, but for goodness sakes, why do manufacturers of such low demand products strive for such a high level of perfection when it comes to detail? Rich
PRR8259 If completely made and assembled in the U.S. with all-American labor, a new from the ground up Genesis-level diesel would have an MSRP of about $1000, as agreed to by one manufacturer. That is why it is not done here. That is why it is done "over there".
If completely made and assembled in the U.S. with all-American labor, a new from the ground up Genesis-level diesel would have an MSRP of about $1000, as agreed to by one manufacturer. That is why it is not done here. That is why it is done "over there".
If that is the case, then I assume it is because there is too little demand. If a "Genesis-level diesel" were made in larger quantities, the cost to the consumer would logically come down to a more affordable level.
I also question how important it is to most model railroaders to have the level of detail that you describe on something as insignificant as handrails. I wouldn't even notice the difference.
I am not trying to make a case for Made in the USA, nor am I knocking the rivet counters among us, but for goodness sakes, why do manufacturers of such low demand products strive for such a high level of perfection when it comes to detail?
Rich
I'm not trying to be argumentative. You are asking good questions.
This is exactly what I was referring to when I stated on another topic there are train store employees, working for manufacturers here in America, who have stated that the small but vocal minority, the "1%" or so of modelers are ruining the hobby for the rest of us by demanding unsustainable or unaffordable levels of rtr detailing.
I don't hate the 1%, in fact I prefer highly detailed, correct as possible steam models myself. However, Rich is correct in stating that the other 90% doesn't care that much and could live with less than Genesis details.
This is why we have Atlas and Walthers Trainman series offerings...
PRR8259 The manufacturer has to get a little profit before the distributor gets any at all. Some distributors acquire the items at 45% of the MSRP, so have 55% to work with. End dealer gets the shaft when the distributor takes more of the percentage, as now happens on high end brass hybrid locomotives where dealer net cost is up to 75% of MSRP, thus leaving them little room to discount. John
The manufacturer has to get a little profit before the distributor gets any at all. Some distributors acquire the items at 45% of the MSRP, so have 55% to work with. End dealer gets the shaft when the distributor takes more of the percentage, as now happens on high end brass hybrid locomotives where dealer net cost is up to 75% of MSRP, thus leaving them little room to discount.
I have noticed recently with the SD39 at MBK, the MRSP is listed at $134.98 and the MAP price is $114.73. Just a few short weeks ago, other RTR Athearn engines priced at MRSP $134.98 were priced at $99.98. Who is pocketing that extra $14.75 that the "street" price suddenly took a jump too? Some items are still showing a non-MAP price. What's it all aboot (as the northern Englanders would put it).
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Modeling the PRR & NYC in HO
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Actually, it is all about economy of scale!
Tooling and design cost are the by far most expensive items on the calculation sheet of a locomotive. These cost easily run into the 6 digit figures on the lower end for a Diesel and the upper end for a steam engine. Figures of $200k are quite normal. A production run of only 1,000 locos would bring the amortization up to $200. Add to that the material value and purchased parts like motor etc. you are at $230 for a loco - without labor cost, which are an estimated $40 in China and about 2.5 times that amount in the US. Total cost before any mark-up would in that case be between $270, if made in China, or $330 if made in the US. With a mark-up of 100%, this would bring the sales price up to $540 and $660 - nobody is going to pay that for a "mass"-produced loco. Production batches must be significantly higher to allow for market pricing. I don´t think a manufacturer would produce a locomotive that sells less than 2,000 or even 5,000 pieces.
Now to the myth of production in the US would bring the price up into astronomical regions. Yes, it would be more expensive to produce a loco in the US, but it´s not the labor cost driving that. Overhead costs are much higher in the western world, as EPA and Hazmat rules do cost a significant amount of money - money a Chinese manufacturer can (still) save due to the more relaxed attitude towards environmental and safety issues.
Would you agree that labor costs and environmental & safety cost in Germany are higher than in the US? Official statistics will confirm this. If that´s correct, how come a small German business called Bemo is producing their highly detailed Swiss narrow gauge locos in Germany and are able to sell them at prices between $300 (DCC ready) and $400 (DCC & sound), including 19% VAT. The answer is economy of scales - their production batches run are much higher than just 2k pieces.
Quantity does matter when it comes to amortizing the cost of r&d and making the dies. If as was suggested above that cost is $100,000+ thats $100+ for 1000 locomotives, but $50+ for 2000, and $25+ for 4000.
I like what Scale Trains is doing with their new diesel with 2 levels of detail and 2 levels of pricing. But I am sure that only works with popular models that will sell in the 1000's.
Paul
No, economies of scale argument doesn't work with trains. Production quantities are far too low. Labor costs what it costs in the U.S. and we have the most regressive regulations in which to do business of any country. Selling and making an extra thousand of a two thousand unit run is not going to lower the cost much at all. If they make those extra thousand units that have no pre-orders, they may never sell them, either.
A very small but very vocal minority of people demand near perfection in detailing, or else the manufacturers can receive poor online reviews.
If you read some other forums (I won't single them out here), some of the people are very picky on prototype detail, to the nth degree, and simply demand all that detail, nowadays, or they won't buy and will be loud about it.
I don't have a dog in the fight, as I'm into brass steam power now. I'm attempting to explain how we are where we are, that's it. Don't take me as caring one way or the other.
Alton Junction
Tooling costs for a new HO engine are not in the high tens of thousands as reported above. That is low. You also cannot compare the model train industry to other industries like electronics because they don't have to pay for prototype research and drawings and 3D modeling and checking of all that work.
Hundreds of thousands is more accurate, depending upon the level of accuracy of the model and the road specific versions to be produced.
I was told by one HO manufacturer that just re-doing the handrails on an HO diesel, to update them to be more "finescale", and to stay on the model better than previous editions, was $16,000 a couple years ago. That's just a new set of handrails, period. Also, said manufacturer had actually identified slightly different versions of handrails that could not all be offered on the same HO model (that no one else had ever found or commented upon). One would have to change the body shell to do so, so it could not be done. There are actually more prototype variations than the commonly accepted "phasing" that many of us go by.
If completely made and assembled in the U.S. with all-American labor, in accordance with our environmental laws and hazardous waste disposal (waste from some train manufacturing operations is defined as hazardous in the U.S.) a new from the ground up Genesis-level diesel would have an MSRP of about $1000, as agreed to by one manufacturer. That is why it is not done here. That is why it is done "over there".
Also, with current wholesale-distributor price structure in the U.S., the final markup of a locomotive may easily be more than 100%. Cost to produce the model might be closer to 33% to 40% of the MSRP, depending upon manufacturer. The manufacturer has to get a little profit before the distributor gets any at all. Some distributors acquire the items at 45% of the MSRP, so have 55% to work with. End dealer gets the shaft when the distributor takes more of the percentage, as now happens on high end brass hybrid locomotives where dealer net cost is up to 75% of MSRP, thus leaving them little room to discount.
I would assume that MSRP is set at 100% mark up. Twice the cost of production.
The general rule in electronics is that the cost of the parts is about 10% of the total cost of a finished product.
But, before you get excited, that is a pile of parts. They have to be assembled into something useful, and therein lies the costs.
Typically the final cost of a manufactured product is the sum of the cost of materials times a "number" which results in the final, packaged and on the shipping dock cost of the item.
The distributer does the same to cover his costs and freight charges, as does the dealer.
So the choice of plastic pellets, paints, and metals used has a definite and noticeable effect on the final cost. The obvious one is if it has a DCC decoder or not.
Jason Shron has stated the cost of a motor and gear train is such that deleting them has very little impact on his final cost. Which makes producing an unpowered locomotive a waste of time because the final retail price will not be significantly different between the two versions, and most would just opt for a powered one and pay the small premuium for it.
The dies are the major cost.
This would be in the high tens of thousands of dollars for a model locomotive or car.
The cost per moulding from these dies would be in cents.
However, the painting and assembly has to be done by hand, and this would account for most of the cost of the model after making allowance for the cost of the dies.
For a locomotive, the chassis and motor would be the main additional expense. The actual drive axles and gears would not vary much between models of diesel locomotives and might be shared between different manufacturers using a given factory.
M636C
"One difference between pessimists and optimists is that while pessimists are more often right, optimists have far more fun."
I believe the major cost that needs to be absorbed is the design and construction of the dies. That, plus all the fixed and variable overhead costs would be added to the actual construction costs (material/labor), and of course a profit factor would go on top.
I'm reminded of how in the late '40s Lionel went in with the Santa Fe and New York Central for the cost of the dies to produce their runs of F3 units - in of course ATSF and NYC livery.
ENJOY !
Mobilman44
Living in southeast Texas, formerly modeling the "postwar" Santa Fe and Illinois Central
That question is like my "How many cars and locomotives do they get out of a ton of material?" That will drive the cost down per car/locomotive as well.
We will never know.
Larry
Conductor.
Summerset Ry.
"Stay Alert, Don't get hurt Safety First!"