Why I cannot afford a 1/18 anymore

I recently posted a reply to a Farcebook post on 1/18's, and why I could not afford them.

Felix who runs Daboxtoys Diecast Cars posted a link to the AutoArt website, and this fascinating article:

I have directly copy and pasted the article in this blog for ease - acknowledgment goes to the original author:

---

Why Are Model Cars Becoming Expensive


The long Chinese New Year Holidays are now over and the workers are gradually coming back to the factories from their home towns. By now, their wages have increased another 20% under the new minimum wages requirements announced by the Chinese Government in February.

A decade ago, the average basic worker would receive a lump sum salary of 400 ~ 500 RMB Yuan per month. The exchange rate at that time was around 8.9 Yuan to the US Dollar, so this was equivalent to $50 ~ 60 US Dollars per month. This salary was based on an average of 60 hours per week, Monday to Saturday, working about 10 hours per day. This was the norm for the industry in China.

Since then, the minimum wages, China’s development, and China’s living standards have been advancing at an enormous rate. The cost of living in China has become much more expensive compared to only ten years ago, particularly in the housing market. Because of this, the government needed to act accordingly in order to offset the ever increasing living cost. This is when the government enforced the Labor Law in 2007 which was largely ignored previously by the industry. Under the law, the national weekly hours worked is 40 hours per week. Any overtime hours would be paid at a rate of 1.5 times on weekdays and double on weekends. Also, all of the retirement and social benefits would need to be added on top of their income. When all of these changes are applied, the average income for the basic worker increased drastically to around 1200 RMB Yuan per month. These drastic changes forced thousands of factories making products at low profits and were labor intensive to close down.

The global financial crisis erupted in late 2008, but China was able to recover quickly. By the end of 2009, everything was pretty much back to pre-crisis levels and in 2010, China’s economy continued to progress at a very quick pace. Housing prices went up at a staggering rate and food became more and more expensive. Workers earning the basic salaries could hardly keep up with supporting their basic needs. So, the wages needed to be adjusted again and again or else the workers would leave the factories and look for work elsewhere for higher paying jobs. Workers now do not want to work at a factory that will not guarantee 60 hours per week. They need the all the possible extra income generated by the overtime pay. It is not easy for factories today to utilize all the workers for 60 hours per week, especially during weekends. But since they now have no choice, it is making the cost of production much higher for factories in China.

As of today, the basic worker earns a lump sum of about 2,000 RMB Yuan per month. With the RMB Yuan exchange rate under enormous pressure form the USA and Europe, it is forced to appreciate gradually from 8.3 to 6.6 against the US Dollar. The average minimum wage now stands at around $300US Dollars per month. This means that the basic salary in US Dollars has increased almost 500% in the last ten years.

A high end die cast model car brand like Autoart is particularly hard hit when the labor cost increases. The proportion between the material cost and the labor cost is approximately 1:4 due to the hundreds of workers needed to manufacture each and every model car on the production line.

The licensing fees for the model cars are also getting higher every year. Back in the 1990’s, no car makers really paid any attention to their intellectual property and only demanded a symbolic fee when a model maker was willing to produce a model to promote their brand. When the profits from car sales became slimmer due to competition, the car makers looked at other alternatives to yield extra income and the licensing of brands became a very good source of revenue for the car makers. Licensing has become such a money maker that race organizers, oil companies, tire companies, etc, are all jumping in to get their share. Today, if a model maker decides to make a race car using a special color such as the Gulf Oil’s blue and orange, they would have to pay a fee to Gulf because of their patented color combination. Some models today can have double, triple or even quadruple licenses and the combined licensing fees can be more then 20% the ex-work price. Because of this, there are much less racing model cars being launched by model makers. It has become too expensive to make and fewer buyers would be willing to pay that price.

It was more profitable for Autoart to sell the model cars back in the early 2000’s with models retailing at around $50US then it is today with model prices retailing at triple the price. Both the model makers and the buyers were happier ten years ago when the material and energy cost were much lower and the factory workers were quite happy with earning only a fraction of today’s wages because life was much simpler and also cheaper then. Even with an increase of almost 500% in the minimum wages in such a small amount of time, the factory workers are still unhappy and will quit their jobs easily to look for work elsewhere to find higher wages.

Despite increasing the selling prices over and over again, it is still impossible to catch up with the ever increasing production cost. When prices increase, the number of collectors buying the model decreases thus reducing the quantity of models sold. This directly affects the amortization of the investment made by the model makers and it drives up the cost of production even further. Most die cast model makers, especially the high-end model makers suffer badly due to the lack of sales and the ever increasing cost of production.

To lower the production cost, it may be possible to move the production facility to another country that still offers low labor cost. However, no other countries can match the quality of workmanship done by Chinese workers. The detailing work and precise manipulation of such small parts with their fingertips is unmatched in the world. It is very difficult for other developing countries to emulate China on anything related to arts and crafts.

Even though the labor cost in China has increased so much in only a decade, China is still considered to be a low cost labor country with a current hourly rate of around $1.20US per hour. Until the mid 2000’s when the hourly rate was around $0.30US per hour, collectors were mostly spoiled with the low price models and now with such a fast increase in production cost, many collectors do not understand why the models are now at such a price.

An average 1/18 scale Autoart model car is now retailing at around $120 ~ 150US. The price is still considered to be very reasonable considering the amount of time and investment put in each model that is released. Each model consists of hundreds of parts takes about one year to develop and the production of each and every model involves hundreds of workers in the production line. Many products such as watches which also have hundreds of parts and are as complex to make demand much higher selling prices.The price of a high end model car will continue to increase as the labor cost and living standards improve in China. There will be fewer people buying model cars as prices increase, but the collectors who understand what is involved in making a high end diecast model will continue to appreciate the reasonable prices and quality being offered. They will understand that there are no other countries able to offer the same in terms of price and quality and that these are not just model cars but a work of arts.

A view on the Matchbox 1-75 range for 2012........

I was looking for a logo for the "revised" logo for the 1-75 range to be launched next year, when I came across this article written by Brad Collins (who also follows this blog).

It was written in July just after the MCCH Shindig in US&A that seems to be only reserved for those in US&A (heaven forbid the thought of Mark Curtis et al trying to organise summat in Europe - that would mean leaving America and we can't have that can we....)

the article gives a good summary of the direction Mattel are choosing to take for 2012, and at the end Brad sums it up very nicely. It would be interesting to read any comments on the change of direction here - without the beady policing that is now incumbent on the MCCH, so feel free to post what you really feel about this topic.

Last weekend there was a diecast convention held in Albuquerque New Mexico (USA) and the attendees of this gathering were fortunate enough to hear directly from Mattel, Inc. about their plans for the future of the Matchbox brand of diecast vehicles. The main point of the presentation was regarding the positioning of the Matchbox brand between Mattels other two major vehicle brands, Hot Wheels and Cars or Cars 2. So from this point of view it was clear the team at Mattel needed to create a brand new marketing focus so that the Matchbox diecast toys brand would stand out from the Cars and Hot Wheels brands, they hope that by making the planned changes that Matchbox will be granted a much larger share of shelf space in the big box stores and to create an identity for Matchbox that will make it stand apart from their other brands and hopefully fulfil a niche that Hot Wheels and Cars are not currently filling.

The new marketing focus has changed from Real, Action and Adventure to Unstoppable vehicles for heroic adventure and this new focus is to be carried right through all products within the Matchbox brand it was said that Hot Wheels will focus on racing, edgy vehicles, hot rods, custom vehicles and the Cars brand will obviously concentrate on the character from the Disney Cars movie franchise, Matchbox will attempt to fill the void of heroic adventure vehicles.

The other change is an increase in the basic line, from 2012 the 1-75 line that had been increased to 1-100 will increase again to become a 1-120 line, although this will only be in the core USA releases, the ROW markets will most likely not see an increase, the 120 vehicles will then be split into 12 different sub categories each with 10 models in it, the sub categories will be:

• - Airport
• - Arctic
• - Beach
• - Big City
• - Construction
• - Desert
• - Highway
• - Island
• - Jungle
• - Mountain
• - National Parks
• - Old Town

The increase in models in the core line will see some models like the VW Caddy dropped from the core line as it doesn’t fit with the new marketing idea, although it may appear in 5 packs and the re-introduction of some older castings such as boats and motorcycles. There will be a large selection of fire and police vehicles as well as farm equipment and 4x4s such as those listed below:

• - 1952 Seagrave Fire Truck
• - 1956 Buick Century Police
• - 2011 Ford Explorer Interceptor
• - 2011 Dodge Charger Police Car (with roof lights!)
• - Ford F-350 Superlift Brush Fire Truck
• - 4x4 Ambulance (non licensed)
• - Oshkosh M-ATV (combat vehicle currently used by US forces)
• - BMW R1200 RT-8 Police Motorcycle
• - Treaded Tipper Truck (non licensed)
• - New Lift Truck (non licensed)
• - Vintage Tractor (non licensed)
• - Farm Spreader (non licensed)
• - Cab over Tow Truck (non licensed)
• - Garbage Truck (non licensed)
• - 4 Wheel ATV (non licensed)
• - Jeep Wrangler Superlift
• - 4 Treaded 4x4 (non licensed)
• - 2 Treaded Snow Vehicle (non licensed)
• - 4x4 Sports Car

The other major change to the brand is the Matchbox logo itself, after reverting back to the original logo some years ago, it will now be changed as shown in the picture to drop the lozenge look but it will retain the same font as before.

It has also been mentioned that we can expect to see some older casting, retooled into something new released in the new future, the example give was the old MB058 Faun Dump Truck that was retooled into a crane a few years back, will be retooled again into a construction water truck. There will also be new wheel designs added although there are no images at this point so we just have to wait to see what they look like.

Real Working Rigs will continue in 2012 and these also will fit the new look, there will be mining vehicles, 4x4 vehicles and more, mostly non licensed vehicles to help keep the costs down and the Skybusters range will be much the same, a lot of new castings but mainly generic non licensed aircraft.

So what does all this mean for the future of Matchbox, well I guess in reality only time will tell, but I certainly think that most of the changes are not a good thing, when you combine this information with that of the previous report or two from Mattel, then overall it seems that the future direction seems to be about generic castings, with hideous paint work and lots of plastic. I don’t think that bodes well for the future of Matchbox diecast, but then with the difficulty we all seem to be having in obtaining new models due to the distribution issues Mattel have, will we even notice.

This article was published on Tuesday, 26. July 2011.