Foreign Sales Poll

[WilliamH]

I agree with Ekh, the worst thing that could happen to EM early on is to begin getting massive orders from overseas where small cars already have a niche and fuel is far more expensive than it is here. You just can't gear up to fill those orders in a timely manner, and the untapped market demand will fall to someone else. Sometimes the worst thing that can happen to a business is to get a $50 million order.

Take a deep breath and pour yourself a cup of coffee . . . this'll take a while.

No matter how much we may wish for an "All-American" Elio, it's likely that only Americans (and probably Canadians) will be offered one. The realities of economics say that even if you are paying good workers over $25 per hour for assembly line work, there are plenty of places in the world where this kind of labor cost will simply price you out of the market. There are other considerations too . . . all of the baked-in safety equipment present in the Elio - VSC, ABS, roll cage, anti-penetration door beams, even safety glass is expensive. Look for these to be eliminated in a foreign-manufactured Elio in order to be locally competitive. Our laws won't let us build and license such a vehicle, but there are plenty of places where a board, a couple of nails, and an old roller skate qualifies as "transportation".

Then there are several places in the world, if memory serves, that still demand a high percentage of "local content" in order to sell. Brazil was once famous for this, demanding 26% or more local content (because they want to provide jobs for their people too). That essentially meant a locally-manufactured drivetrain - the heart of the Elio product - would have to go. OK, you're going to have to give away a lot of hard earned technology - or you're going to have to let local manufacturers "contaminate" your brand with locally-sourced engines and gearboxes. That might not be too difficult - there are plenty of small 3-cylinder engines produced in the third world, but while some might be OK, I think we can safely say none will meet the design criteria for economy and reliability established by EM.

IF EM wants to serve an overseas market, I believe their best bet is to establish two or three assembly plants that will take in finished parts and put the vehicle together on foreign soil. That's a compromise, but at least the product would still be All-American in that the parts are, for the most part, American-made. A European plant (possibly in the Benelux region - Belgium, Netherlands, Luxembourg - that shares central economic interests), and maybe one in Mexico and South America (Rio, Buenos Aires, or Santiago) could start after EM's suppliers have ramped up production to fill the needs of the Shreveport plant, and excess production could then go overseas.

What many manufacturers have done is provide "kits" - essentially all the major parts needed for the product, less a handful of fairly generic bits that won't be terribly critical to the product . . . nuts, bolts, hoses, etc. while allowing all of the assembly to take place in the foreign plant - under license. That works - to a point - but you are still putting your reputation in unknown hands. It's going to require tight management and QC if it's going to be successful. It's a little surprising just how effective this can be.

You don't just flip a switch and suddenly start producing vehicles all over the world. There has to be a period of "adjustment" within the company to allow for expansion. Look at VW's success with the Beetle - it was eventually manufactured all over to the world, to the same standard. They had dealer and service support practically everywhere. Then look at Renault, a very large French company that brought the Dauphine, and later the LeCar to our shores with catastrophic results. Not only was the product initially unsuited to our highways, but the service and support network was practically non-existent, resulting in a tidal wave of angry customers that washed Renault off our beaches and into obscurity.

It's like franchising. Say you have a really successful hot dog stand. You're making tons of money and your 'dogs are flying out of the kitchen. So you want to franchise . . . you build another store in a good location across town, but suddenly you're running in the red. You quickly discover you can't just open another store without diluting your primary location. You've got to staff a new store, moving key people to the new location to manage and train your new crews. Add to this the build-out costs, advertising your new location in the local community, and stumbling through those first few months, dividing your attention between two locations. Now you probably have to hire support staff - a bookkeeper, an inventory manager, as well as general managers for both of your locations. If you promote from within (as you should) you're going to be short of entry-level workers - and you'll need to train them.

Franchise experts say you make money on your first store, then you lose money on your next two, achieving profitability somewhere between your third and fourth store, depending on your type of business and your ability to run it. OK, a hot dog stand is a vast oversimplification, but the process is the same. Your second location largely cannibalizes your first, and so on as you open new locations. The late Ray Kroc, the man who built McDonald's from a single restaurant to a worldwide empire did so by establishing standards and procedures - all of his restaurants were identical - if you flipped burgers in Anaheim, you could flip burgers in Montreal . . . blindfolded. Every kitchen was identical, built to the company blueprint. Your hamburgers had five dots of ketchup and a pickle slice for a reason: Your delivery consisted of 10,000 frozen patties, 10,000 buns, 10,000 pickle slices and enough ketchup to make 50,000 dots. Your inventory was simple - it was automatic. So long as you didn't run off the rails and put TWO pickle slices on your burgers, you'd be ready for your next order just as it arrived at your back door.

We don't want EM to repeat the performance of too many automakers (and hamburger stands). You need to build to anticipate your market with minimal risk - slow and steady wins the race. It worked for the tortoise . . . and McDonald's. They didn't become a global market force overnight, but they had the business metrics down pat. They had a formula that drove them forward and allowed them to predict results well in advance. Given the production and marketing savvy currently being shown at headquarters, I don't believe EM's going to follow those thousands of start-up automakers that became too enamored of their profits and failed to plan for intelligent growth by serving their customers first.

Wow! Had me scared for a minute. I thought you might start singing the praises of John Kluge next.

 

[WilliamH]

I think a lot of foreign auto companies are manufacturing here as their home economic situation improves. Where in the '50's and '60's the joke was that Honda workers got a bowl of rice as payment for day's work, it's no longer true . . . if it ever was. Most Japanese, and now other Asian workers are being well compensated for their work - on a par with their US counterparts. Asia has become a vast consumer market, and following our example, are collecting more "toys". No wonder they are the world leader in consumer products . . . they have waiting lists of consumers.

These companies are opening plants in the US, not so much because we offer cheaper labor, but in response to shipping costs that have gone off the charts in recent years. It's far better to send us the parts and let us do the assembly. Better strategically, economically, and logistically to let us do the final assembly and sell an American-spec product. Then there are the tax benefits, plus the advantage of siting a plant in a right-to-work state that will blunt the impact of future unionization. That's what put the Rust Belt our of business, and there's a lesson to be learned from that.

While the hourly rate of a US worker is higher than in many countries, so is the level of output. There is, of course some tax incentives to manufacturing in the US. The cheaper labor elsewhere doesn't give you the quality or output of the American worker.

These guys think it's a good idea to manufacture here:

Toyota Motor Corporation - 4
Honda Motor Company - 4
Nissan Motor Company- 2
Fuji Heavy Industries (Subaru) - 1
Mitsubishi Motors Corporation - 1
Volkswagen Group - 1
Hyundai Motor Company - 1
Kia Motors - 1
BMW Group - 1
Daimler AG (Mercedes-Benz U.S.) - 2

Elio will probably build all the Elios in the US. I just don't see the American market consuming 250,000 Elios a year. I don't see a world market that high either. What I do see (my opinion, of course) is that Elio will build their 14 different models/colors here and ship them overseas where the local marshaling center will put the finishing touches on them just like here.

That's Ty's crystal ball talking right there.

I sometimes wonder if the reason for them building here is both the volume and the differing safety and emission standards here.
It may just get to be too much of a nuisance to build to two different standards on the same line

 

[Lil4X]

I think you have something there. Chrysler has been building cars, trucks, and SUV's in Mexico since the '60's, but in the last ten years or so our emissions controls, and other standards have raised the price of a Chrysler product in Mexico to something like 20-30% above the competition. Their response was to build products like the Neon, a popular sedan in Mexico, on separate lines from their export (US-bound) products. While the cars looked the same, the "de-contented" Mexican version was built to compete with other new cars in the showroom . . . so it lost the air bags, the ABS, the VSC, and nearly a dozen other safety and emissions devices. That car could sell for something like $14,000 - while its US counterpart went for nearly $18,000.

Of course friends in Mexico City complain about the smog . . . you pays your money and you takes your choice.

 

[WilliamH]

I think you have something there. Chrysler has been building cars, trucks, and SUV's in Mexico since the '60's, but in the last ten years or so our emissions controls, and other standards have raised the price of a Chrysler product in Mexico to something like 20-30% above the competition. Their response was to build products like the Neon, a popular sedan in Mexico, on separate lines from their export (US-bound) products. While the cars looked the same, the "de-contented" Mexican version was built to compete with other new cars in the showroom . . . so it lost the air bags, the ABS, the VSC, and nearly a dozen other safety and emissions devices. That car could sell for something like $14,000 - while its US counterpart went for nearly $18,000.

Of course friends in Mexico City complain about the smog . . . you pays your money and you takes your choice.

Especially when the smoke from their (Mexican) field fires is drifting up over Hill Country.

 

[Travelbuzz1]

Elio should accept reservations from overseas individuals, and especially, fleets!

 

[Ekh]

I agree with Ekh, the worst thing that could happen to EM early on is to begin getting massive orders from overseas where small cars already have a niche and fuel is far more expensive than it is here. You just can't gear up to fill those orders in a timely manner, and the untapped market demand will fall to someone else. Sometimes the worst thing that can happen to a business is to get a $50 million order.

Take a deep breath and pour yourself a cup of coffee . . . this'll take a while.

No matter how much we may wish for an "All-American" Elio, it's likely that only Americans (and probably Canadians) will be offered one. The realities of economics say that even if you are paying good workers over $25 per hour for assembly line work, there are plenty of places in the world where this kind of labor cost will simply price you out of the market. There are other considerations too . . . all of the baked-in safety equipment present in the Elio - VSC, ABS, roll cage, anti-penetration door beams, even safety glass is expensive. Look for these to be eliminated in a foreign-manufactured Elio in order to be locally competitive. Our laws won't let us build and license such a vehicle, but there are plenty of places where a board, a couple of nails, and an old roller skate qualifies as "transportation".

Then there are several places in the world, if memory serves, that still demand a high percentage of "local content" in order to sell. Brazil was once famous for this, demanding 26% or more local content (because they want to provide jobs for their people too). That essentially meant a locally-manufactured drivetrain - the heart of the Elio product - would have to go. OK, you're going to have to give away a lot of hard earned technology - or you're going to have to let local manufacturers "contaminate" your brand with locally-sourced engines and gearboxes. That might not be too difficult - there are plenty of small 3-cylinder engines produced in the third world, but while some might be OK, I think we can safely say none will meet the design criteria for economy and reliability established by EM.

IF EM wants to serve an overseas market, I believe their best bet is to establish two or three assembly plants that will take in finished parts and put the vehicle together on foreign soil. That's a compromise, but at least the product would still be All-American in that the parts are, for the most part, American-made. A European plant (possibly in the Benelux region - Belgium, Netherlands, Luxembourg - that shares central economic interests), and maybe one in Mexico and South America (Rio, Buenos Aires, or Santiago) could start after EM's suppliers have ramped up production to fill the needs of the Shreveport plant, and excess production could then go overseas.

What many manufacturers have done is provide "kits" - essentially all the major parts needed for the product, less a handful of fairly generic bits that won't be terribly critical to the product . . . nuts, bolts, hoses, etc. while allowing all of the assembly to take place in the foreign plant - under license. That works - to a point - but you are still putting your reputation in unknown hands. It's going to require tight management and QC if it's going to be successful. It's a little surprising just how effective this can be.

You don't just flip a switch and suddenly start producing vehicles all over the world. There has to be a period of "adjustment" within the company to allow for expansion. Look at VW's success with the Beetle - it was eventually manufactured all over to the world, to the same standard. They had dealer and service support practically everywhere. Then look at Renault, a very large French company that brought the Dauphine, and later the LeCar to our shores with catastrophic results. Not only was the product initially unsuited to our highways, but the service and support network was practically non-existent, resulting in a tidal wave of angry customers that washed Renault off our beaches and into obscurity.

It's like franchising. Say you have a really successful hot dog stand. You're making tons of money and your 'dogs are flying out of the kitchen. So you want to franchise . . . you build another store in a good location across town, but suddenly you're running in the red. You quickly discover you can't just open another store without diluting your primary location. You've got to staff a new store, moving key people to the new location to manage and train your new crews. Add to this the build-out costs, advertising your new location in the local community, and stumbling through those first few months, dividing your attention between two locations. Now you probably have to hire support staff - a bookkeeper, an inventory manager, as well as general managers for both of your locations. If you promote from within (as you should) you're going to be short of entry-level workers - and you'll need to train them.

Franchise experts say you make money on your first store, then you lose money on your next two, achieving profitability somewhere between your third and fourth store, depending on your type of business and your ability to run it. OK, a hot dog stand is a vast oversimplification, but the process is the same. Your second location largely cannibalizes your first, and so on as you open new locations. The late Ray Kroc, the man who built McDonald's from a single restaurant to a worldwide empire did so by establishing standards and procedures - all of his restaurants were identical - if you flipped burgers in Anaheim, you could flip burgers in Montreal . . . blindfolded. Every kitchen was identical, built to the company blueprint. Your hamburgers had five dots of ketchup and a pickle slice for a reason: Your delivery consisted of 10,000 frozen patties, 10,000 buns, 10,000 pickle slices and enough ketchup to make 50,000 dots. Your inventory was simple - it was automatic. So long as you didn't run off the rails and put TWO pickle slices on your burgers, you'd be ready for your next order just as it arrived at your back door.

We don't want EM to repeat the performance of too many automakers (and hamburger stands). You need to build to anticipate your market with minimal risk - slow and steady wins the race. It worked for the tortoise . . . and McDonald's. They didn't become a global market force overnight, but they had the business metrics down pat. They had a formula that drove them forward and allowed them to predict results well in advance. Given the production and marketing savvy currently being shown at headquarters, I don't believe EM's going to follow those thousands of start-up automakers that became too enamored of their profits and failed to plan for intelligent growth by serving their customers first.

Thanks for such a clear, helpful, and beautifully written post.