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The prospect of die-cast model cars in the near future - 8 Aug, 2012

The prospect of die-cast model cars in the near future: 


Until the 1980s, most children went through a stage where they assembled plastic hobby kits of airplanes, ships, tanks, or cars. Car kits were probably the most popular hobby items for young boys because they see all kinds of vehicles in the street when they leave their houses, and cars are an integral part of our everyday lives.


Back then, young kids would buy plastic kits of model cars and slowly assemble them with great patience.  The model could be made with great detail when it was assembled carefully.  At that time, die-cast models were mainly produced in Europe, the popular scale was 1/43, and the built quality was mediocre.


Towards the late 1980s, however, the interest in plastic kits slowly diminished.  Young kids bought fewer and fewer plastic model kits to assemble at home, and makers of famous brands faced difficulty keeping their businesses viable because of the shrinking market.  The home computer revolution changed youth behavior, as they increasingly became fully occupied with computer games when they returned home from school. Kids started to have little patience for assembling a hobby kit for hours or days at a time before the final result could be seen.  The electronic games gave them much greater and more instant satisfaction.


In the meantime, die-cast model cars were slowly taking over the position of plastic hobby kits. The quality of die-cast models rose considerably when more and more makers moved their production to China.  Built with the very low labor cost then in China, a die-cast model could be made delicately on a production line that consists of tens—or even hundreds—of workers, while still retailing at an affordable price.   Because die-casts used metal in their bodies, fine details that would not be possible in a plastic hobby kit were easily realized.  Opening doors and workable suspensions, which were not seen in plastic hobby kits, became common features in die-cast model cars.   Buyers from teenagers to grand parents all appreciated the fine quality along with the low selling prices. For any hot subjects, the models were sold in the quantity of hundreds of thousands of pieces.


But things have changed. The proliferation of low-priced electronic devices with great features started to invade the toy and hobby market in the early 2000s.  Young people slowly moved from traditional hobbies to electronic and internet-based activities that many adults found too difficult to learn. Adults remained loyal to traditional hobbies, but from that time on, the age group of die-cast model car buyers became increasingly narrowed to people in their thirties up to their sixties.  


In the global economy, a booming market in the mid 2000s saw a major increase in real-estate pricing around the world. While getting more expensive, average homes also became smaller. Nowadays they are generally designed with little space for any kind of display. Technology accelerated this trend. Photos and documents are stored in electronic formats requiring almost no space, while televisions adopted flat-screen technology to become thinner and lighter, allowing them to be hung on a wall to save space.  People who used to collect things at home such as model cars were forced to abandon the hobby because of the space crunch and the need to use it for other household necessities.   


At the same time, more and more people, including the elderly, have been learning computers.  When people started to enjoy browsing online for what they want to know or for social communication, they became so preoccupied that it left very little time to enjoy their traditional hobbies.


Furthermore, China began to enforce its labor law starting in 2006, and the average cost of basic labor suddenly exploded several fold.  Die-cast model cars could no longer be made for such a low cost, and retail prices have been increasing steeply since 2007. The average price of a good quality 1/18 scale model went from around US$60 to over $100.  When the selling prices surpassed the two-figure psychological price barrier, large number of collectors abandoned the hobby, and the volume decreased sharply towards the late 2000s.


Then came the global financial crisis of 2008, which devastated the hobby market.  The U.S. market was hit particularly hard and the die-cast model market shrank to its lowest level.  Consumers were much more careful about spending their money, and they spent less money on things such as model cars.


The year before the crisis also saw the revolution in smart phones with the introduction of the Apple iPhone.  The iPhone has literally changed the lifestyle of many people, and this time it’s not just the young.  The smart phones have become so user-friendly that even people who once hated computers have begun to live their lives plugged into electronic devices.  With all the apps that are available for free, one small electronic device in a pocket is enough to keep a person busy all of the time. Smart phones have not only sucked up a lot of disposable income from the consumer market, they have also taken away the leisure time of people in all age groups.  When people enjoy less leisure time, they have less time to enjoy their hobbies and they thus lose interest in buying hobby products. And now, it’s not just the young people who have abandoned traditional hobby collecting, it’s the middle-aged and elderly who are also leaving for other pursuits.  Only the diehard collectors remain to collect die-cast models.


China’s economy has recovered quickly after the financial crisis, but the labor cost in China keeps moving up at an alarming rate, and production costs must inevitably rise at an equal pace.  The impact is less on cheaper, mass market die-cast model cars because the labor content of their production costs is much lower than those of higher-priced collectable die-casts, which require hundreds of workers to produce.   A high quality collectable die-cast model car in 1/18 scale can now easily cost over US$200.  At this price level, even the diehard collectors are slowly abandoning the hobby because they simply cannot afford to collect anymore.


History shows us that labor costs only go up and never come down.  Workers in China, just like anywhere else, wish to improve their standard of living.  From the perspective of a model maker in China, the basic per-worker labor cost has gone from around US$50 per month in the late 1990s to around US$400 per month today. That hourly rate is still relatively low if we consider the average workers are working for 60 hours per week, but it has gone up dramatically. Moving the production to lower labor cost countries such a Vietnam, Bangladesh or Indonesia, whereby the basic labor cost is probably only half of China, is not possible. The Chinese are simply superior at jobs where the work requires their delicate fingers to maneuver expertly and without error to produce our highly detailed product.


Toy-quality die-cast model cars will remain in the market for years to come, as they can still be sold at an affordable price as gifts or playthings for children rather than as collectibles for adults.   


No doubt, the collectable models will become more expensive in the future, but the product will change. The model will become more intricate with even finer details than the last one. The production quantity will drop and the models will become more like museum artifacts rather than just collectibles. The market will focus on the limited number of people who can really appreciate the quality and who can afford the resulting price.


One can find an example in the watch market. Young people nowadays seldom wear watches as their mobile phones are their timekeepers.  Overall production of watches is shrinking, yet some famous watch brands in Switzerland are in fact faring nicely by making very expensive and sophisticated watches in limited numbers. They cater to people—particularly men—who collect them and wear them as the only kind of jewelry item most men will put on. And it’s those same men who will demand highly detailed and collectible die-cast models to decorate their homes.