Could Someone Please Explain The "Production Problem" in China?

There are no easy or simple answers to your questions for several reasons which I can think of and will list:

1. Most companies will not divulge production sources and/or delays due to the competitive natue of business and with such a small specialized market that we are in this is certainly one of intense competition.

2. Outsourcing to another country brings risks of trade secrets being stolen. lost, etc.

3. China is not a democracy, it is a socialist/communist country with different rules that they can enforce. Here there are certain entities that companies deal with and for the most part the laws are consistent. In China, the ruling party determines who gets to make what and where the resources are allocated. The Chinese government encourages and controls all export business and since it is their country they have every right to do so. When the Chinese government decides to change who can export what and when small commodity manfucturers are more like to be affected than larger ones.

4. Delays happen through various suppliers having issues also. Just in time manufacturing and specialized manufacturing requires that the raw materials and components be available in just the right amounts and if any variations or deviations occur then manufacturing stops until the materials and components are available.

5. New items are very different from postwar parts in the complexity, number of parts, and the constant design changes. A postwar pullmor motor really did not change all that much for 30 years whereas electronic boards for locomotives now can have multiple revisions within one year.

Now, this is not bashing anyone but simply where we are at today. The goodies are fun to have but there are costs that are incurred besides the direct monetary costs.

I work in a different hobby that has not had the impact model trains has....but you can add a few more items to the long list of issues.

 

Chinese holidays and work stoppages.  Chinese New Year is one week. But anyone that has items made in China knows it's really more like 3 weeks. Add a few other, odd to us holidays and it's lots of down time.

 

Change. No not that political stuff we had. China is going through massive changes. Wages up, demand for skilled manufacturing, tool & die and CAD / computer workers is  way up thus folks move around and you loose skilled workers. There are other skilled workers but those may have language issues that you have to work around.

 

Cost. Way up and not slowing down. So that creates a rush to manufacture stuff which then feeds the issues above and it's a giant circle.

 

China and Asia is still viable but is changing now and will for a while. I see more and more folks taking about returning tooling to North America only because they see cost  and delays making things more than equal here. (not a anti anybody statemant)

A few months ago (late January) over on the 3R scale forum there was a thread started by Scott Mann of 3rd Rail Sunset models explaining in depth the current model train manufacturing scene and the problems he's experienced with production. It's here: https://ogrforum.com/d...740#2415514336624740

and is a great insight into what's happening.

 

More recently, I got a circular from another supplier, Tom at CMT in Canada, explaining that Bachmann has cornered the largest single remaining Asian manufacturer and other model train companies have had to scramble to get suppliers lined up. There are undoubtedly other problems as well, not the least of which is labor shortages, practices and the impact of recession. Frankly, I'm amazed when new products are announced by Lionel and actually delivered given the problems that there are with bringing projects to fruition.

Production in China is difficult. We have our own factory there, and the company principal oversees everything on the spot in China. We recently had some parts made in Taiwan, they filled a container and that container has now sat in China for 6 weeks while Chinese officials ask for more and more paperwork, (and Bribes, no doubt). Costs are increasing and soon, China will not be viable. Then the move en masse will be to a cheaper country, such as Vietnam or Burma.

Although the situation differs a bit depending on the manufacturer, perhaps the best overview presented to date is detailed by Scott Mann, CEO of 3rd Rail, in the link Hancock52 provided above.

 

ALL of the manufacturers are dealing with difficulties of one type or another in dealing with their China-based suppliers.  As Dave Allen noted, it's probably just a matter of time before many or most of these firms seek alternatives in other nations.

Or American train manufacturers decide there's no place like home, ie USA!!

Made in China is like the old Made in Japan.  Vast quantities of cheap knockoffs of very low quality.  Made in Korea is like the new Made in Japan, but cheaper.

 

If impossible for Lionel to be competitive with Made in America, I'd just as soon they go back to Korea.

I ordered from the current RTR catalog the Long Island Railroad passenger set, the 2 car add on, and a LIRR gondola. All were delivered on time if not early.

One more important variable here. This is an election year. Policies may change. Companies tend to put the brakes on overhead expenditures. Our company is holding their breath until after November. Any added cost budget will stall a project if not end it. Those of you who got what they ordered,  be thankful. My prediction, demand is going to jump a bit and the product is not going to be there. Expect  much higher prices!

As I've indicated before:  Never gonna happen.  We have priced ourselves out of the manufacturing segment (labor, materials, benefits, regulations, taxes, etc.) and the American consumer is far too "bargain conscious" to pay what the products would necessarily have to sell for.  End of story.

I'm not trying to get up on any kind of soapbox here but we frequently talk about how risky business is in a socialist or communist country.  I'm not a big advocate of socialism but that system isn't inherently fatal to business.  Look at Sweden.  There are plenty of successful businesses there and I would be willing to bet that there aren't a lot of problems with the government moving in and stealing tooling or giving a wink and a nod to theft of copyrighted material or other trade secrets.

 

The real danger to business is a government that does not enforce laws or doesn't have laws that protect property.

While I feel a bit sorry for the manufacturers having to deal with the turmoil part of me is not so sorry. Each of them made a calculated decision to move production to China, and to turn over most, if not all of their tooling and intellectual properties.  In spite of all the political correctness, China is a communist country. Their legal system is heavily tainted towards the government.   Unfortunatley, a number of companies are now trying to extract themselves from Chinese production only to find it extremely difficult, sometimes impossible, to get their tooling assets back.  In most cases there are absurd "fees, penalties and/or flat out bribes" that have to be paid.  Lastly China has long been know as the intellectual piracy capital of the world.  It is only a matter of time before we see total knock-offs appearing on eBay from China.  

 

So while I feel sorry for the disruptions I just hope the companies being forced to scramble are looking out of China for a more stable and friendly business environment.  That will be a win-win for everyone associated with hobby.

 

Ed

"What is the 'problem' that all the manufacturers are having with 'far east' production?"

 

It is really all about the dynamics of old school capitalism, worldwide demand for Chinese product (largely because of pricing) vs ability to supply that demand. Then there is the matter of intentional currency imbalances. There was the delusion that Kader buying  Sanda Kan (50% of world wide toy production) from a J.P.Morgan hedge fund would make the importers (using SK production) rich. Unfortunately fleshing out too many details would bore too many readers...

_______________________________________________________________________

 

Want hand made in America? One of a kind? Collector grade? From a recognized guild craftsman or artist? For the price of an imported Premier or Vision? Then buy a knife (http://www.knifemakersguild.com/index.shtml) or legitimate work of art ie: ( www.sergekovalchuk.com or http://www.quillergallery.com/ ) ... not a toy train.

Can't argue with you on that point, Ed!  The manufacturers must bear a lot of the blame themselves, AND we consumers--who continually demand more for less--also have to share the blame.  There's enough blame to go around!

In response to the claim that those jobs aren't coming back because the US has priced itself out of the market.  Well I would offer this quote from a Reagan appointee discussing Apple's move to the east

 "What about those jobs that “aren’t coming back”? We’re not talking about simple assembly that costs a bundle per unit in America and mere cents in China. In the mid-’90s, at the Apple plant in Elk Grove, California, the cost of building a computer was $22 a machine, compared with as little as $5 at a factory in Taiwan. This is not a dominant factor when the machine sells for $1,500 and you have costs like transport to figure in."

 

Now add to that China's copyright issues, quality issues and delays and the fact since the late 90's wages in the US have not been increasing and well.  Unlike the recent iPhone issue I don't think Lionel, MTH or any of the others would call at 2 AM and demand the workers all be awaken because of changes to the new S2 they thought up over night.  

I'm a "hands off" sort of guy.  But the US Government should have placed a "New York Dock Lite" agreement on those companies which outsourced jobs.  Not pay full wages,  but paid unemployment for a set period of time.  I don't think the taxpayers should have to pay that cost.

 

Weaver makes most of their stuff here.  They identify what is US and not US built.  Now, how is Weaver making it with mostly US made product, and the others are not?

They made, and kept, most of their investment in tooling and other manufacturing-related costs here years ago when others were moving offshore.  That left Weaver with a distinct advantage in regard to their U.S.-made products because they didn't have to deal with major start-up costs for those items.

I think the idea that any sort of job loss ought to be compensated by the government (i.e. the taxpayer) comes from an idea that a job is a right or entitlement and that providing that job to the employee is an obligation of the company.  Once the worker loses that paycheck, then we all need to chip in to support them until some other company steps up to the plate to take on the "obligation" of hiring that person.  If you look at it that way, then it does make a lot of sense to penalize a company for dumping their "obligation" on the taxpayer.  Personally, I don't want things to work that way.

 

To address the Weaver question, you'd have to know things about Weaver that I bet they keep pretty confidential.  One thing that jumps out at me though is that Weaver seems to be going for a different part of the market.  I think they have chosen a niche where they think they can compete and are leaving other market segments alone.  Seems like a good business model to me.

... actually I'm willing to speculate that a merger between Weaver & Atlas is the next shotgun marriage come the recession of 2013-2014. .

quote:

As I've indicated before:  Never gonna happen.  We have priced ourselves out of the manufacturing segment (labor, materials, benefits, regulations, taxes, etc.) and the American consumer is far too "bargain conscious" to pay what the products would necessarily have to sell for.  End of story.

 

 

Allan Miller, Editor-In-Chief O Gauge Railroading magazine

 

I must respectfully disagree Allan. Everytime I have seen a company shift their production to China the price never went down. For instance take Vice Grips. When they closed their production facility in Iowa, they made their products in China. Result: Same price and lower quality but more profit for the owners. Compare the prices of Lionel products before they went to China in the early 90's and adjust for inflation. The price is now higher or at best the same.

I would say that production of non labor intensive products will return to the USA. As the dollar continues to devaluate,energy costs go up (shipping) as wages and the Chinese standard of living continue to rise it will create a climate for more manufacturing to be done here. It is also the only way that our economy can ever thrive again.  If corporate America doesn't act to put our people back to work they won't be able to sell their products to anyone. Unemployed people can't afford to buy much if anything.

Weaver never engaged in the "arms race" that Lionel and MTH are involved in.

 

Rusty

Lionel product of the 1990's was far less sophisticated than it is today.  Plus, the US made Railsounds Pere Marquette 736-based Berkshire (I forget when it was released, but around the time MTH started making locomotives) had an MSRP of $999.00.  MTH was touting their RailKing NKP Berk with Proto-sounds for under $500.00.

 

Rusty

Well, the prices don't go down, but who, realistically, would have expected them to?  After all, even though production itself may be less costly when done offshore (and that is a very considerable cost when one includes taxes, benefits, etc.), there are other costs that offset a part of that "savings."  And, as we all must know, these firms are in business to make money.

 

For years I've heard people proclaim how they expected prices to fall--perhaps even dramatically--once these firms moved to overseas production.  That's something I never really expected to see happen, so I guess I can honestly say I'm not the least bit surprised or disappointed.

 

In light of the prices we pay for some of this stuff today, what I really would like to see is (1) realistic delivery times and (2) enhanced quality control.

I am not nor to I claim to be an economics major, but you guys keep complaining about the price, it has very little to do with how much something cost today and has much more to do with the devaluation of the dollar. In 1937 a Lionel 700E cost about two weeks wages for the average worker. Take a modern Lionel Big Boy and guess want it cost around three weeks salary for the average worker. When you factor that maybe the extra weeks worth of money is in the fancy electronics it is really not that bad. It is more a question of we have less and less disposable income today even though a persons salary may be some what stable (I am not factoring the current economy into the equation and am speaking in general numbers).

The other factor in this large and complicated equation that I have brought up in other similar threads is the fact that labor is only a part of it, a IMO a greater factor is the EPA. The EPA is a non-elected group of government bureaucrats that dictate what can be made and who can make it in this country. I put them on a equal level with the IRS. Some of you have mentioned the bribes and back door deals that go on in this other countries, you think the EPA is any different, you pay their "fee" or "fine" and you can do what you want. For proof look at California, the local EPA and other state organisations have driven out virtually all manufacturing and look at their economy now (I know there are other factors, but this is a major one). The simple fact is it is cheaper to go over and pay a Chinese company to soil their own bed then it is to pay the "fees" here to keep manufacturing going.

 

I would say that production of non labor intensive products will return to the USA.

---------------------------------------------------------------------------------------------------------

Model trains are very labor intensive...everything is basically hand assembled/ painted. No robot or worker put all 2 dozens grab irons or any other separatly applied parts in 1 shot. Would not be surprised if the assembly of one well detailed freight cars (Atlas) take longer than to slap a laptop/Ipad together.

 

Painting and decoration is a  multiple step of spraying, stamping, hand painting...probably take longer to paint/ stamp/ decorate a single engine than to paint a car.

 

And even before the production start, design and engineering is a long process.

 

An another point is that the know-how to build (craft) model trains in North America has been forgotten, yes there is few left (Weaver and a couple in HO) but for the main part everything has been lost or never existed (since so many company never actually manufactured anything themselve and were just outsourcing from day 1, like Atlas) and that can't be brought back overnight or even a couple of years. (how long Lionel needed to figure out a way to manufacture their simple 64 series boxcar in the USA ?...can just imagine the nightmare if they even decide to made their next Vision Line engine here...!!!!)

 

One possible solution (very little chance, but I would give it a try)..should consider a joint venture with one of the European manufacturer who has their own factories and since none of them have 0 scale models at the moment would not even be competition. But I guess the Made in Asia is now so incrusted in the head of the NA trains business, this would never happen.

 

Same debate...different day.

I know everything there is to know about Chinese production problems.  Yes, there are!

 

Pete

 

 

 

I wonder how a Marklin-Lionel merger might work out.  But, only if Lionel became more Marklin-like in terms of quality control.  Imagine if the workers in Hungary and the Czech Republic produced all the tinplate.  Of course, delivery time would likely be even worse, but one quickly forgets how long one waited if the wait was indeed worth it.

True, and those laws should protect all forms of property - public and private, material and intellectual.

 

The problem with communist countries is that in those countries, all property that is not owned by the rulers and their friends is considered to be property of the state and is used and sometimes abused at the whim of the bureaucrats in charge of that property.

 

Andy

Yes Allan you are correct on that. However with three viable & credible candidates on the ballot in each of our 50 States, this is the first time in memory there there will be actual choices in November that correspond to the classic positions being articulated here.

 

If you are not registered you can't vote, and if you don't vote you can't complain!

Listen to Allan Miller, production is not coming back to the USA no matter how much you wish it would. If it does move from China it will be to another 3rd world country. Dreaming don't make it happen.

It is called Inventory readjustment

Folks there is excess inventory sitting out there and no sell through.  We simply stop production until we have an inventory correction.  Why produce more when no one is buying let alone moving the "dead" inventory.

 

The pipeline is full thus we use the excuse of Production problems until the correction is made.  Have to turn Inventory into AR and AR into CASH.

 

You have to look at the "Big Picture" as there will be no new products until the Balance Sheet is cleaned up.  No one is even buying the "dumps."

 

Containers are sitting at the docks and will sit there until we release them for shipment.  

 

This has been done before especially in Consumer Electronics and Toys.

Cash is talking while BS is walking is the basic tenet of Economics 101.

 

I had a dream the other night about something that's never going to happen. Lionel made a few boxcars in the US. Yeah, must have been a dream.

No dream, but there's a whole lot of difference between making a simple boxcar and a very complex locomotive, among other things.

Maybe my hobby business is so different it's like comparing apples and oranges. But some of our competitors are moving production from China back to the USA. And our next few projects look like they will happen here too. I am not a pro-USA or Anti-China person as much as keeping the hobby going and profitable (even if very small) I can see where cost of production in China may pass the cost of same in USA when you look at labor, materials and the biggy....Transportation.

Yes, this topic has been beaten to death many times on this forum.  But it keeps popping up like crabgrass because it is important to people.  Even me.  But I am a cynic as well as a historian and as such, I like to put in my two cents...

 

US industry was built under the wing of PROTECTION (ie: Protective Tariffs).  These tariffs were removed by FDR.  Once the other industrial nations of the world were able to rebuild from the destruction of their industrial base in WW II (1960s), it took just one generation to destroy US industry.  We CANNOT compete with cheap foreign labor for labor-intensive goods (like model trains) in a large market.  Sure a few limited niche-type products can be made, but that's about all.  So unless we are willing to slap a 40% or more tariff on imported manufactured goods, we aren't going to see our trains "Made in USA".  So stop dreaming, its a fool's game.

 

Allan is right.  NOT GOING TO HAPPEN.

 

WE are the problem.  We demand ever greater detail, ever greater features and WE DONT WANT TO PAY FOR THEM!

 

When you add the above to the fact that our government is destroying the value of our money, you should be able to see that price rises are inevitable.

 

When I ask my classes (college!) why a nickel is larger than a dime, no one, and I mean NO ONE knows the answer.  But the melt value of a silver dime is $2.33.  So the real price of gasoline is actually around $0.17 per gallon.  But with our worthless paper money instead it is just south of $4.  A $1000 locomotive really only costs $50 in silver quarters.

 

So get used to foreign-made trains - its pretty much all there is with just a few exceptions.  And get used to higher and higher prices as they print more and more worthless paper.  You voted for these guys.  You deserve the government you get. 

 

 

 

You voted for these guys.  You deserve the government you get.

Danger Will Robinson!!! You are dangerously close to politics on a model train bb.!!!!

Danger Will Robinson!!! You are dangerously close to politics on a model train bb.!!!!

Strictly Non-Partisan!