Last week, valued long-term commenter baconator offered a comment/topic for discussion that, to my mind at least, warranted a more detailed and considerate answer than I might be inclined to give in the comments. Read on to see if you’re convinced by my answer.
Quoth the Bacon Man:
Also, I’m fascinated by your attempt to identify yourself with the blue-collar worker through the spectacularly elitist exercise of building yourself a $3000 kid’s bike, then telling everyone else that’s what we should be doing, too? That’s fully 5% of the U.S. median household income, on something that is maybe, what, $500-1000 if purchased in a store? It makes sense as a patriotic donation, but I’ll eat *my* fedora if you can successfully explain what policy choices we could make to bring that sort of supply chain within reach of the average US consumer budget.
Well, allow me to correct you on something: after my handlebars are done, this will be a $3,729 kid’s bike, not a $3,000 kid’s bike. That would be like calling someone’s Tesla P100D a P90 or something like that. And it’s worth every single penny, because I can ride it without much pain for up to two hours at a time, and that allows me to spend time with my son at skateparks and BMX tracks as an involved participant, not as a distant observer. I am now old enough to understand that the value of money decreases over over the course of an individual lifetime much faster than it could possibly increase via investments. When I was fourteen years old, an extra $150 worth of bike parts would have won a few races for me. When I was 22, an extra $1000 worth of bike parts would have made it possible for me to ride far more often than I did. Now I’m spending close to four grand so I can hobble around a skatepark.
This same idea of decreasing returns over time holds true for almost everything in life, whether it’s travel, liquor consumption, or personal relationships. The $1,600 I spent on my ’86 600 Ninja in 1994, properly invested in some index fund, would be $16,000 now. Would I enjoy a $16,000 motorcycle now as much as I enjoyed my $1,600 one back then?
Hint: I have a $16,000 motorcycle now, and I do not. You can have a lot more fun on a motorcycle at the age of twenty-two than you can at the age of forty-seven. It gets worse: Let’s say I don’t buy the $1600 bike in 1994 or the $16k bike in 2016. I could get a $50,000 motorcycle when I’m seventy. How much would I enjoy that? Hint: not as much as I enjoy the ZX-14R now. Something else that crosses my mind, as long as we are on this topic: a friend of my father built an absolute stunner of a home in South Carolina a few years ago. He’d saved his whole life for it, and this place was truly something to see. Like the Robie House, only bigger and grander and with a lot more light, facing the water. It was the kind of place you’d see in a movie about rich people. Utterly stunning, and a true demonstration of what you can accomplish if you are patient and thrifty in life. While he was specifying furniture for the place, Dad’s friend was diagnosed with Parkinson’s. A few months ago, he sold the home to pay his medical bills, having never seen the sunlit top floor of the place under his own power.
It’s life, not the Game Of Life. You don’t count up the money at the end, even if you’re Steve Jobs or Larry Ellison.
Just a thought.
Where was I? Oh, yes; the ridiculousness of spending used-car money on a goof-around bike. What good could this possibly do? Well, as I mentioned in my previous piece, about $2,700 of it went directly to American workers, most of whom work with their hands. So yeah, I’ll agree with Baconator when he says that it “makes sense as a patriotic donation.” The second part of the question is trickier. What kind of changes would bring that supply chain back to the USA? To answer that question, let’s look at another shot from Charlotte’s OSO Skatepark, also taken this past Saturday night.
No prizes for noticing that I’m being out-ridden by my ten-year-old son. He is on the Cult Juvenile 18, made in Taiwan at a street price of $369.99. It’s not his Supercross race bike, which weighs thirteen pounds and contains more pure titanium than a Russian submarine; it’s something I bought a month ago so he would stop beating-up his race bike at skateparks. The Juvenile 18 is a dammed good bike, particularly when you consider the cost. I could duplicate it here in the United States right now for a total cost of about $1,900. It wouldn’t be a precise duplicate, mind you; the American version would weigh a couple pounds less and last longer. There are no longer any American bike builders who will “build down” to the standard of the Cult bikes. Don’t laugh, but there’s something sad about that.The streets of my childhood were filled with lowest-common-denominator cycles by the likes of Huffy, Ross, and even Schwinn, $99 specials sold at department stores that required constant maintenance but which nonetheless were produced right here in this country. They were fixable. You could get parts from the same factories that built them originally.
What killed the American bicycle industry? In this case, the obvious answer is also the correct one: overseas production, racing to the proverbial bottom from Japan to Taiwan and finally to mainland China. The big American bike makers like Huffy had been weakened by thirty years of labor disputes and, more critically, fifteen years of M&A shenanigans that frequently saw them leveraged again and again in pursuit of poorly-defined financial targets. At the same time, our government was actively encouraging companies to switch from manufacturing (here) to importing (from elsewhere) through a barrage of environmental, labor, and banking regulations. Want an example? Nearly every BMX bike on the market in 1988 was offered with a plated-chrome finish. Chrome plate is very close to an ideal finish for bicycles; it is durable, it resists corrosion, it doesn’t add much weight. Unfortunately, it is also unpleasant from an environmental and workplace-safety perspective. So California made it all but illegal to chrome-plate bike frames.
I don’t know what the lawmakers expected to happen, but what did happen was simple: every BMX company and MTB company simply started sending their frames to Taiwan for chrome-plating. Eventually, most of them realized that it would be cheaper to have the frame made there as well. (It was a similar regulation regarding the vulcanizing process for rubber that put an end to skate-shoe manufacturing in the United States.) And if you’re having the frame made in Taiwan, why not have the forks made there as well? And the handlebars? And so on?
If we want bicycle manufacturing to return to the United States, we have to rebuild the infrastructure piece by piece. That means starting volume production of low-cost frames and forks, followed by “hardgoods” like handlebars and seatposts, then bearing assemblies and derailleurs, then rubber goods like tires and seats. With the exception of tires, all of this is already happening in the USA — but at elevated levels of quality and cost. Not to put a fine point on it, but someone has to be willing to make worse stuff.
To answer Baconator’s question — If we want mass production of bicycles to return to the USA, we need to remove some of the incentive companies currently have to keep the production overseas. That means rationalizing labor and environmental regulations to more closely resemble those of our competitors — or applying tariffs which take those overseas advantages into account. It costs money to chrome-plate safety and sanely rather than just dumping pollutants into the river. So either we have to make pollutant-dumping legal, or we have to tax imported products in a manner that offsets the advantages of being able to dump pollutants. The same is true for a wide variety of other industrial processes.
The good news is that we don’t need the costs of manufacturing in the United States to be equal to those of manufacturing in China, because there are compelling reasons to produce bicycles locally. I’ll use my son’s Cult 18 as an example. Cult orders these bikes half a year in advance. Their manufacturer makes the bikes whenever it’s convenient for them, which means that Cult often misses the Christmas season or the beginning of spring. There is always a chance that the bikes will have significant hidden shortcuts in materials or manufacturing, so there’s a substantial inspection step, which costs time and money. The Cult 18 has been in short supply for years because the Taiwanese factory never delivers the volumes that American shops want. There’s also the fact that American importers are absolutely at the mercy of their factories when it comes to quality issues or unexpected price changes, a process documented in terrifying detail by Paul Midler’s book, Poorly Made In China.
It’s reasonable to assume, therefore, that the $369.99 street price of a Cult 18 includes significant fudge factors. American production by a vendor who subscribed to traditional American business values would fix the volume, delivery, quality, and pricing issues. All of which would give Cult a significant advantage over its closest Taiwanese competitors, Sunday and Fit. Eventually both of those firms would have to move production back to America. If this happens often enough… poof! You have an American bicycle industry.
What’s really required here isn’t a policy change, or a regulatory change. We need a change in attitude, particularly among our MBA class. We need to start valuing manufacturing as much as we value financial manipulation or smartphone-app development. We need “angel investors” who would rather fund a well-run bicycle factory than spend their time digging through YCombinator’s trash looking for “hundred-bagger” tech fads. Most of all, we need a cultural change. We need to be as excited about making things as we currently are about social media or trash television. It’s not a change that will happen overnight. We might need a few more years of watching Amazon delivery drones and McDonald’s touchscreens as they eliminate the service gigs which were supposed to replace the manufacturing gigs. Maybe we need a small shooting war with China, perhaps over some useless islands or something, to point out how deeply dependent we have become on a country which has its own best interests at heart. I don’t know when the tipping point will come — but it will eventually come. It has to. The alternative is too unpleasant to seriously consider.
For Hagerty, I wrote about a chance to drive the Nurburgring with American advice.