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The price of die cast model cars will become higher - 6 Dec, 2011

The price of die cast model cars will become higher

 Autoart die cast model was first launched in 1998.  At that time, the basic labor cost in China was around $1.60US per day for a ten hour working day.  The rate then, was almost double what it was a decade before.  There were plenty of workers waiting at the front gates of every factories looking for work.  These factories provided food and shelter for the workers.  These workers came from far away provinces in central China to live and work in the factories for a minimum of one year and they would return home only once a year.   

Provinces in central China are the most populous.  Sichuan province alone has almost 100 million people.  There were few developments before the mid 2000’s and the young people in the region were forced to look for jobs in the industrial zone around the coast lines.  Many of them were female workers as young as 18 years of age, the legal age of employment, and had finished eight to ten years of education.  They wanted to earn some money to help their families.  Despite the low wages, they were able to save most of their income and were able to buy a small place to live in their hometown after working for a couple of years.  Life was simple and the workers were happy just to work and willing to stay in the factory year after year.   

Until early 2000’s, an average 1:18 scale Autoart models with 100 ~ 120 components would retail for around $50US and mass market toy grade model cars would retail at only $19.99US.  The manufacturers, producers, importers, and retailers were all able to make their fair share of profits and the collectors were very active in collecting the models. 

Today, a regular Autoart 1:18 scale model retails for around $150US. The price has increased as much as three times over the course of 12 years but the people involved in the manufacturing and marketing of the products are not getting their fair share of the profit margin.  Many factories are now losing money and the main reason for this is that the labor cost has gone up almost ten times when calculated in US dollar.  The basic worker still earns $1.60US but it is now an hourly rate instead of daily rate.  Despite the higher wages, the workers are not happy with their jobs and always demand a higher pay.  They would quit as soon as another factory offers a higher pay.  Inflation in China has become a major issue in recent years.  Housing prices have gone up ten or even twenty times and workers can no longer buy a small place to live after working for a few years.  On the other hand, the standard of living has improved greatly over the last decade.  Televisions, smart phones and computers have become common household items in average families.  There are 500 million internet users and 600 millions mobile phone accounts in China, three times more than the USA.  There are also more Chinese learning English than the whole America.  People in China are quickly learning what the desirable things in the world are and they are no longer happy with a life that consist of having a shelter over your head and food on the table to feed the family.  There are more than 18 millions new cars filling the road of China every year, 50% more than America, every Chinese wants a car instead of paddling a bicycle.   

The cost of manufacturing a high quality 1:18 scale model has gone up tremendously due in big part to the cost of labor.  The retail prices may have tripled in the past decade but the people involved in the making and marketing of the products are much worst off. 

The mark up factor from production cost all the way to the final retail price is largely depended on the upfront investment and the estimated selling quantity.  For example, designer brand clothes itself may cost only $10US to produce, but the marketing cost such as fashion show, advertising, designing fee and packaging may cost tens or even hundreds of thousands of dollars.  If the clothes are sold in hundreds of pieces, the retail price will have to be $100US or over in order to breakeven the investment.  If it is mass-market clothing selling in tens of thousands of pieces, under the same production cost of the $10US, the retail price can be as low as only $30US.  For a die cast model car, the main upfront investment is the tooling cost (moulds).  The licensing fee can also represent a large sum of money for some hot subjects and upfront payment is to be paid to the car makers regardless if the model is selling or not.  The tooling cost for a 1:18 scale model is an investment of six figure amounts, if the selling quantity is in tens or hundreds of thousands, then the amortization of the tooling fee is only one or two dollars for each model.  But if the selling quantity is only in few thousands of pieces, then the amortization of the tooling is tens of dollars for each model.  The same applies to license fees; a hot subject license fee can be in the six figure amounts.  

Mass market toy grade die cast models can be sold in tens or even hundreds of thousands of pieces; the amortization of tooling fees and license fees is not a major cost factor in this case.  But for high quality collectable die cast models, only thousands of pieces will be sold, very seldom would it break into the five figures level.  Therefore, the amortization of tooling cost and licensing fees becomes a major cost factor. 

Until now, the mark up factor for all die cast model cars is set at around 2.5 ~ 3 times from production cost to retail price.  It may be workable for mass market products, but it is no longer viable for high quality models.  There are in fact much fewer high quality new die cast models being released into the market recently because there is no profit to be made for people involve in the business. 

The factories are being squeezed to keep the prices as low as possible and they are aware that if the prices become too high, very few people will buy model cars.  Even if the factories make no profit, it is still better than receiving no orders. If fewer orders come in, thousands of workers are still paid the same but with lower output.  Major OEM model car factories in China are minimizing their production capacity or changing their product line because manufacturing die cast models has become too expensive and too complicated when the labor cost is so high and the production involves hundreds of processes using thousands of workers. 

When the price of model cars continues to climb higher and higher, less and less people are collecting them.  When there are less collectors buying the model cars, retail shops have a much harder time to survive with the declining sales and the higher cost of operations.  The online shops are also taking away a big part of the retailing business because they have much lower overhead and they can sell with a lower profit margin.  We are seeing model car shops closing down one by one in recent years. 

Die cast model cars are classified as toys and the companies can only participate in toy related exhibitions and trade fairs where mostly toy related traders go to conduct their business.  As long as people regard these die cast models as a toy, it cannot be priced too high or else people will say it is too expansive and refuse to buy them no matter how nice and delicate the model may be. 

For example, a normal Swiss watch consists of less than a hundred components and can be priced for several hundred or even several thousands of dollars. Most of these so called Swiss watches are all having the cases and bands manufactured in China then shipped to Switzerland to have the movement fitted which will then qualify the watch to become Swiss made.  When it is Swiss made, it can be priced ten times more than watches made in developing countries.  This is the norm in the market and the general perception of consumers.  Most people accept that if the watch is made in Switzerland, it has to be expansive.  And if the product is made in China, it has to be cheap even though the quality is very good. 

The development time for a high quality 1:18 scale model that consist of more than a hundred components, is around one year.  If the component number is several hundreds of pieces, then the development time can be two years or even more.  Each process during the development period requires many experienced engineers to work on the project.  The whole development is far more complicated than regular watch making. 

For a high quality 1:18 die cast model car that is made in China, collectors are already complaining that the prices are too high when models are retailed at $100US or over.  Some collectors even commented that the workers are getting too little pay and the producers are making too much profit by raising the prices again and again.  The true fact is the opposite; the producers are not getting enough money to pay for the ever increasing worker salary.  If the model producers were to apply the norm of the other products as mentioned, the viable retail prices would have to be doubled or even tripled.  Unfortunately, the product is regarded as toy by the general public even though some will name it as collectable.  When it is a toy, it has to be cheap, especially when it is made in China.  There must be a change in the product perception by the general public and the price must be higher than what it is now, otherwise, the wages of the workers are going to increase year by year; more and more factories will stay out of the business when they can no longer afford to lose more money and very few collectable die cast models will be made in the future..