Beam Us Up Pe...

[3wheelin]

I found this interesting article from the Nov. issue of Car and Driver, Hecho en Mexico- Your next German car may never cross the Atlantic, only border. by Jeff Sabatini. Here's some excerpts:
"Predictably, manufacturers have been drawn to Mexico for its low wages. Mexican automakers' compensation is only about 20% that of their U.S. counterparts. This means a Chevrolet Sonic manufactured at GM's Ramos Arizpe plant costs the corporation $674 less than it does to build the same car in Michigan, according to CAR. That advantage is greater than the typical profit margin on a subcompact." And here's another one:
"But Mexico's appeal goes beyond cheap labor. Carmakers say Mexican workers are CAPABLE of building vehicles to a standard that meets or exceeds that of their best plants elsewhere."
Ok so enough of that. My point after reading this disturbing (kind of) article is, how can PE and his EM sustain production that is if they ever get to that point with minuscule profit? Tesla has been operating at a loss but have money to burn. Could this be one of the reason why that ATVM or other angel investors are worrying about? $6,800 an almost impossible dream? Some in here including me are almost resigned to a higher basic price than what they are advertising and others wants to look somewhere else if EM don't meet it. In my head the numbers just don't add up anymore but I'm just being realistic but at the same time still very hopeful. EM have worked so hard to get to this point and it'll be heartbreaking to see them fail. The only real undeniable FACT right now is our ELIO is still the car of the FUTURE! How long it'll remain at that stage lies on the approval of ATVM loan AND the angel investors WILLING to take the risk as we all did when we made our reservations! Strictly my opinion only.

 

[Ty]

I found this interesting article from the Nov. issue of Car and Driver, Hecho en Mexico- Your next German car may never cross the Atlantic, only border. by Jeff Sabatini. Here's some excerpts:
"Predictably, manufacturers have been drawn to Mexico for its low wages. Mexican automakers' compensation is only about 20% that of their U.S. counterparts. This means a Chevrolet Sonic manufactured at GM's Ramos Arizpe plant costs the corporation $674 less than it does to build the same car in Michigan, according to CAR. That advantage is greater than the typical profit margin on a subcompact." And here's another one:
"But Mexico's appeal goes beyond cheap labor. Carmakers say Mexican workers are CAPABLE of building vehicles to a standard that meets or exceeds that of their best plants elsewhere."
Ok so enough of that. My point after reading this disturbing (kind of) article is, how can PE and his EM sustain production that is if they ever get to that point with minuscule profit? Tesla has been operating at a loss but have money to burn. Could this be one of the reason why that ATVM or other angel investors are worrying about? $6,800 an almost impossible dream? Some in here including me are almost resigned to a higher basic price than what they are advertising and others wants to look somewhere else if EM don't meet it. In my head the numbers just don't add up anymore but I'm just being realistic but at the same time still very hopeful. EM have worked so hard to get to this point and it'll be heartbreaking to see them fail. The only real undeniable FACT right now is our ELIO is still the car of the FUTURE! How long it'll remain at that stage lies on the approval of ATVM loan AND the angel investors WILLING to take the risk as we all did when we made our reservations! Strictly my opinion only.

In my industrial engineering classes, we talked about labor rates and tradeoffs... Labor (in the late 90's) was cheaper in Mexico but American workers are so much more productive as to make up the difference. There are reasons (other than importing regs/incentives) that so many manufactures are building here instead of in Mexico.

 

[ks6c]

In my industrial engineering classes, we talked about labor rates and tradeoffs... Labor (in the late 90's) was cheaper in Mexico but American workers are so much more productive as to make up the difference. There are reasons (other than importing regs/incentives) that so many manufactures are building here instead of in Mexico.

Before retiring, I worked internationally for the final 10 years and had the opportunity to visit factories and factory teams on every continent but Africa and Antarctica. It was eye-opening, and humbling.

This is not to diss American workers, but generally speaking American workers are more productive because American companies invest significantly more in technology and automation. American companies do this because American labor rates justify it. I visited a factory in Brazil and was speaking with a young lady who worked in our regional labs - she shared with me that she lived with 4 generations in her home, and that when she got the laboratory job with our company, her family's entire household income increased 17-fold. That is transformational, but it describes for me both the magnitude of the wage gap between developed and less-developed countries, and why folks in less-developed countries compete for these jobs and work hard when they get them.

What we have to keep in mind is that capital knows no borders and flows freely around the globe in search of the best return. Workers in other countries will be just as productive as American workers when they have the same technology and automation to work with.

In EM's case, they have purchased the technology and automation for pennies on the dollar. More importantly, they purchased an automotive factory with EPA permits in place for the functioning paint rooms - the value there is close to immeasurable, both in terms of money and perhaps even more importantly in terms of the time it would have otherwise taken with respect to schedule to secure new permits for a new location.

I don't think EM would be close to the $6,800 target if they had needed to build a US factory from scratch, or if they had increased the complexity of the project by trying to remotely run an international operation with their US-based team of 15. I do believe they are positioned in an incredible sweet spot of circumstances, and that's why they are in the US and will remain here, to great advantage.

 

[Chris F]

Since I began buying cars in the 1980's, I've had 2 made in Canada (a Dodge and a Chevy) and 2 made in Mexico (2 Mercury's). The rest were US made. The Fords from Mexico were both Mercury Tracers. From what I have read, because the profit margins on small cars are so thin, and the cars relatively simple to assemble, the lower labor costs actually made them profitable. I have no problem buying cars made in North America; I like to help my neighbors.

 

[Sethodine]

So what we're saying is... the $1000 built-in profit in the Elio cost is actually a greater profit margin than on most cars manufactured these days?

 

[ks6c]

Since I began buying cars in the 1980's, I've had 2 made in Canada (a Dodge and a Chevy) and 2 made in Mexico (2 Mercury's). The rest were US made. The Fords from Mexico were both Mercury Tracers. From what I have read, because the profit margins on small cars are so thin, and the cars relatively simple to assemble, the lower labor costs actually made them profitable. I have no problem buying cars made in North America; I like to help my neighbors.

Profit margins on small cars are so thin, not because of low selling prices, but because of all of the cost burdens the current industry model loads on them - several hundred engineers working on each design, contract legacies paying benefits on several generations of retirees, dealer networks that add another layer of costs and are more powerful than the mother companies themselves, and on, and on, and on.

The Big 3 choose to lower costs by attacking the least powerful constituency (labor), not by lowering non-value added activities.

EM is challenging the industry at its very core.

 

[Lil4X]

In 2004 I was in the market for a new car and visited a local Chrysler dealer. I drove in with a Lexus, and before the salesmen surrounded me, I made it clear I wasn't trading, I was looking for a car for my wife. For some reason that got their attention and their confidence. While waiting for a suitable vehicle to be brought around for a test drive, I spoke to the service manager who shared an odd confidence with me . . .

The Dodge Neon and the PT Cruiser were essentially the same car in different livery. The PT was so reliable they'd sell one and never see it again - except for free oil changes. The Neon on the other hand, was never far from their service bays. It seems that the car had all kinds of problems, especially for a platform that had been in production for 5 years and had become the basis for the PT that would overlap it for the next five. What happened?

Well unbelievably the Neon was assembled in Belvidere, Illinois - and the PT was assembled in Toluca, Mexico. According to the service manager, that seemed to make all the difference . . . the "Mexican" PT's may have been designed to incorporate the lessons learned from five years of Neon production, but the Neons continued to be a service headache for dealers until they were finally discontinued in 2005.

 

[skygazer6033]

I've heard all the arguments as to why it's so much more expensive to build vehicles in the USA. All sound perfectly rational to me. My question is if it really is so much more expensive why do we have BMW, Honda, Toyota, Nissan, kia, Hyundai, and others all operating manufacturing plants here?

 

[Sethodine]

I've heard all the arguments as to why it's so much more expensive to build vehicles in the USA. All sound perfectly rational to me. My question is if it really is so much more expensive why do we have BMW, Honda, Toyota, Nissan, kia, Hyundai, and others all operating manufacturing plants here?

American companies can locate their manufacturing in Mexico thanks to certain trade agreements, but non-American companies must have their manufacturing located within our borders if they want to avoid high imporation costs (or outright importation bans).

Because politics.

 

[Ekh]

Before retiring, I worked internationally for the final 10 years and had the opportunity to visit factories and factory teams on every continent but Africa and Antarctica. It was eye-opening, and humbling.

This is not to diss American workers, but generally speaking American workers are more productive because American companies invest significantly more in technology and automation. American companies do this because American labor rates justify it. I visited a factory in Brazil and was speaking with a young lady who worked in our regional labs - she shared with me that she lived with 4 generations in her home, and that when she got the laboratory job with our company, her family's entire household income increased 17-fold. That is transformational, but it describes for me both the magnitude of the wage gap between developed and less-developed countries, and why folks in less-developed countries compete for these jobs and work hard when they get them.

What we have to keep in mind is that capital knows no borders and flows freely around the globe in search of the best return. Workers in other countries will be just as productive as American workers when they have the same technology and automation to work with.

In EM's case, they have purchased the technology and automation for pennies on the dollar. More importantly, they purchased an automotive factory with EPA permits in place for the functioning paint rooms - the value there is close to immeasurable, both in terms of money and perhaps even more importantly in terms of the time it would have otherwise taken with respect to schedule to secure new permits for a new location.

I don't think EM would be close to the $6,800 target if they had needed to build a US factory from scratch, or if they had increased the complexity of the project by trying to remotely run an international operation with their US-based team of 15. I do believe they are positioned in an incredible sweet spot of circumstances, and that's why they are in the US and will remain here, to great advantage.

Good points. Well said.