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Your expensive guitar and its actual low value

Discussion in 'Sidewinders Bar & Grille' started by axis69, Mar 8, 2018.

  1. Sangetsu

    Sangetsu Strat-Talker

    Age:
    50
    106
    Oct 6, 2017
    Tokyo
    I do ecommerce, and usually sell for 500% over cost. Don’t be shocked, out of increase I have to pay platform fees, credit card fees, overhead, pay for my few workers, and taxes. Minus all that, what is left over for me is not all that much.

    Top expense is tax, next is payroll, next is rent and utilities, then platform and bank fees, then there are miscellaneous costs. The big difference between cost and retail feeds more than a few people.
     
    RJ Squirrel and circles like this.

  2. Musekatcher

    Musekatcher Strat-Talker

    Age:
    53
    396
    Jun 30, 2016
    Heart O' Dixie
    Ok, and noble, I feel similarly. At its peak, skilled labor in China runs about 1/6th the US. India runs about 1/4th of the US. So lets do a quick comparison and relate the costs.

    Assume materials cost the same
    Assume Chinese labor is 1/6th of US labor
    Assume Indian labor is 1/4th of US labor
    Assume shipping is twice as high coming from Asia


    upload_2018-3-8_20-39-22.png

    So yes, labor is very low, but its diluted by the fixed costs. Assuming Mexico labor is somewhere between US and Asian labor for mass production, you can see the net cost is low no matter what labor costs. I'm swapping the US cost with Mexican cost, because that's the only data I have, and I know Mexico is cheaper, so my US data bounds the difference between high labor, and cheap Asian labor.

    I may be off on material costs, but the sum adding to $35 supports a retai (adding some profit)l of $40 delivered is real, as you can buy that today from Asia. It illustrates that labor is important, but not proportional to the retail price, and it illustrates just how many folks and middlemen layers are adding to US retail costs.

    We have a skewed perception of what it costs to mass produce a guitar, because we relate it to the retail price, assuming profit is a percentage, not a large FACTOR of the cost, lol.
     
    axis69 likes this.

  3. RJ Squirrel

    RJ Squirrel Strat-Talker

    Age:
    64
    258
    Jan 28, 2018
    Frostbite Falls
    There's a lot more than labor and material expense that goes into production cost; employee benefit expense, plant and equipment expense, regulatory compliance expense, property tax expense, and utility expense. All of these expenses are greater in the US than in Mexico, China, India, Indonesia, etc.
     

  4. Stratoskater

    Stratoskater Senior Stratmaster

    Age:
    42
    Feb 8, 2011
    Raleigh NC
    Good example and kudos for the chart but assembly line building of a mass produced CNC milled guitar is most definitely not skilled labor. Custom Shop guitars are skilled labor and as such sell for higher costs due to increased cost to make. This is why there are no CS Chinese guitars.

    Also as @RJ Squirrel said you must factor in employee benefits which are non existent in China, epa and other regulations that don’t exist there either, property taxes that China does not have since the government owns the land, factory, forests for trees and everything else under the sun plus the many other socially conscious factors that China ignores but add to costs in the rest of the civilized world. The material costs are where they really save If the difference was truly that small apple would make phones in CA and not China.
     
    Last edited: Mar 8, 2018
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  5. Musekatcher

    Musekatcher Strat-Talker

    Age:
    53
    396
    Jun 30, 2016
    Heart O' Dixie
    We know all costs including overhead are higher in the US. The analogy was for Mexico, which is probably not too different than China for overhead costs. I still suggest, the basic cost to Fender to have guitars made in Mexico is well under $100 each. There's a split for distribution, a split with the retailer, and then there's overhead, and finally net profit. It all adds up to $500. The folks in China are bypassing most of that, shipped to your door for $40.

    And yes a hand built custom costs more - but we are talking about mass produced guitars in Mexico. Custom Shop guitars are about more labor hours, not just more expensive labor hours. If it mattered, you could setup a Custom Shop in Mexico or China. But as you mentioned, that doesn't work, because folks aren't paying 2k for more better labor - they are paying for US Made.
     

  6. RJ Squirrel

    RJ Squirrel Strat-Talker

    Age:
    64
    258
    Jan 28, 2018
    Frostbite Falls
    There is a lot more that goes into determining production costs than your model. I would be interested in seeing the data that supports your cost assumptions. Ultimately the guitars are built to a price point at a demand level that the market will support. If Fender can't produce guitars in the US to meet the pricing criteria, the US plant will close. What's the cost if the plant closes?
     
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  7. Cerb

    Cerb Senior Stratmaster

    Age:
    38
    Jan 22, 2016
    Sweden
    I think that's somewhat wrong @Musekatcher. While Americans may pay extra for MIA, there's all the rest of us that couldn' care less wehere it's made. Today MIA is somewhat synonymous to "good quality" but the day you can get the same quality from elsewhere at lower prices, the value of the "Made in" label goes out the window.

    A note on China. There is a workers movement in China and the cost of labour increases by the day. They know this and and they know that they won't be able to compete in the "cheap crap" business forever. They've seen it before, they are foolowing in the footsteps of Japan and South Korea. There's a good sized Chinese presence in many African countries today, in 2015 China offered $60bn in loans and support to Africa to help develop the continent. Guess why?
     

  8. Dadocaster

    Dadocaster Dr. Stratster Strat-Talk Supporter

    Back in the day, the guitars that retailed for 1000.00 cost us roughly 500.00 and we sold them for 800.00 to 900.00 bucks. That used to be the regular markup on things in that price range. We made more on accessories and stuff but that math was pretty standard for everything else.
     

  9. RobZ69

    RobZ69 Strat-Talker

    Age:
    48
    380
    Apr 22, 2017
    The Netherlands
    I never said you were. I just noted a sales tactic.
     

  10. Musekatcher

    Musekatcher Strat-Talker

    Age:
    53
    396
    Jun 30, 2016
    Heart O' Dixie

    One more time: retail cost to your door from china, <$40. All of all costs are in that number. The sum of all costs can't exceed the retail price, lol. Same for Fender/Mexico, all of all cost are in the retail number of $500. Now step 2.

    $40 retail from China, versus $500 retail from Mexico. We know the one most important component in the production cost is labor. What you are focusing on is the overhead and the retail pricing. Even if Fender is miserably worse than any other 500M+ company in the world and has a 50% overhead rate, that's still no more than $150 per guitar delivered to its retailers. But look: that's FOUR times the retail price from China. So the math supports what you and others are suggesting, and it still doesn't come close to even half of the retail pricing of $500!

    There's no doubt about it: Fender's production cost can't be any more than $75-$100 per guitar out of the Mexican factory. If it is, its due to some non-economic factor like laundering, subsidizing, hidden Mex Gov bribe money, Mexican widows and orphans funds, etc.
     

  11. Cerb

    Cerb Senior Stratmaster

    Age:
    38
    Jan 22, 2016
    Sweden
    The cist of labour is only half the truth, the other half is how many hours the worker spend on each guitar, i.e. cost of labour x hours spent + materials = production cost, roughly.

    Now go tell the US Fender factory that from now on they can only spend half the time building each guitar compared to what they're used to, then see what happens to prices.
     

  12. Thrup'ny Bit

    Thrup'ny Bit Grand Master Curmudgeon Strat-Talk Supporter

    Age:
    59
    May 21, 2010
    Sheffield, UK
    Tell them that as from Monday, wages will be the same as those in China.
     
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  13. Cerb

    Cerb Senior Stratmaster

    Age:
    38
    Jan 22, 2016
    Sweden
    You tell them!
     
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  14. Thrup'ny Bit

    Thrup'ny Bit Grand Master Curmudgeon Strat-Talk Supporter

    Age:
    59
    May 21, 2010
    Sheffield, UK
    I'm not as green as I'm cabbage looking... :D

    Dump them by e-mail? :p
     

  15. Ebidis

    Ebidis Providing the world with flat bends since 1985 Strat-Talk Supporter

    Age:
    51
    Nov 14, 2013
    Alabama
    Most Americans seem to overlook, or forget, that most of the people on this planet are not living in the U.S.

    That would be today.
     
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  16. Thrup'ny Bit

    Thrup'ny Bit Grand Master Curmudgeon Strat-Talk Supporter

    Age:
    59
    May 21, 2010
    Sheffield, UK
    Yes, they do have a tendency to do that.
    That would have been the 1980s and ever since.
     
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  17. RJ Squirrel

    RJ Squirrel Strat-Talker

    Age:
    64
    258
    Jan 28, 2018
    Frostbite Falls
    One more time. There's a lot more to it than making up numbers and putting them in a chart.

    Now step 2. Where are you getting your data that supports this $40 guitar from China or $500 guitar from Mexico? I've actually done costing analyses for manufacturing clients and know what goes into preparing manufacturing budgets and production schedules.
     
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  18. Ebidis

    Ebidis Providing the world with flat bends since 1985 Strat-Talk Supporter

    Age:
    51
    Nov 14, 2013
    Alabama
    Where are you getting your math from? Do you have actual data on this, or are you just hypothesizing with arbitrary numbers?

    I'm not saying you're wrong, so don't take it as that, I'm just asking if you have actually researched this, or if you are just guessing with your numbers.

    BTW, retail price on a MIM Standard is $600, not $500.

    And what decent guitar can I get shipped to my door from China for $40?
     
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  19. southsidesmoka

    southsidesmoka Strat-Talk Member Silver Member

    Age:
    38
    29
    Feb 3, 2018
    Columbia, SC USA
    Agreed. The REAL money is in manufacturing. Good money can be made in retail. And who pays for it ALL? The consumer. The good ol' financial chain of life... But, what can we do about it? Nothin', except, play the blues. :D
     

  20. Cerb

    Cerb Senior Stratmaster

    Age:
    38
    Jan 22, 2016
    Sweden
    Yes, I guess the trick is knowing which is which. You see "Made in USA" on the label aand you know it's up to a certain standard, the same goes for Made in Japan and also Made in Mexico, at least with regards to our beloved Fenders. With China it could be whatever, superb quality or superb caca but without being familiar with the product it's a guessing game. That will change over time I think.