InterMountain Railway Co., Atlas Model Railroad Co., Bowser and Fox Valley Models announced this week that some new locomotives and rolling stock will be delayed or canceled because of the unexpected closing of one of the industry’s top manufacturers. Creating their own manufacturing factory with the implementation of plant networks they could have possibly avoided this situation.The report here suggested that the companies hadn't planned adequately for this sort of contingency in 2018, and the situation this year with the tariff war simply confirms that nothing has changed. The bottom line is that all but a handful of hobby producers had surrendered control of their supply chain and production to factories in a country that wasn't aligned with US interests, and this led to a range of risks that none of these companies adequately addressed.None of the companies said what products will be delayed.
Other manufacturers, including Trainworx and ExactRail, also are affected.
At least one manufacturer confirmed that Hong Kong-based Affa Technologies, Ltd. closed. The company, founded in 1996, specializes in metal parts for toys, scale trains, scale cars and metal electronic products, according to the company’s website. The website made no mention of the closing.
The companies have been slow to recognize their problem publicly. The first seems to have been Walthers. Stacey Walthers Naffah, CEO, gave an interview to David Popp of Model Railroader on April 21. I want to stress that her public bio indicates that she is a graduate of Boston College as well as Northwestern's Kellogg Graduate School of Management, which means that she should have been far more aware of the risks to her business's continuity than she appears to have been. And for now, she still doesn't have much of a plan:
Stacey: . . . Many product categories are heavily reliant on China and Southeast Asia. They have the skill set, they have the supply chain, and they have the team members that they’ve developed in some cases over 30 years or more.Yes, it did take 25 or 30 years, and people like Ms Walthers Naffah with MBAs let it happen, even with the 2018 wake-up call. Ms Walthers Naffah is lucky she can't fire herself from the family business, because she'd be fired by the board of any other. But what's the plan now?David: I think a lot of people fail to pick up on the fact that the system that’s in place; these factories that make all of the specialized parts for locomotives and put all the little grab irons and everything else on we modelers love, they didn’t happen overnight. It’s taken that industry [model trains] a long time to spool up to make those products and get them to the level we see and enjoy them today.
Stacey: This has been a really interesting leadership and management challenge for me and for my team and for a lot of the businesses in the industry. We’ve been talking to each other to help advocate for our position and explain it. But, yes, everybody’s really trying to figure out what to do.So basically tbere's no plan. They're just going to have to figure it out. Manufacturers are slowly announcing that they can't guarantee prices on pre-orders, but that's not any sort of solution to the basic problem. Athearn announced this past week on Facebook:. . . So yes, there’s a lot of pausing, regrouping, figuring out what’s the right thing. Our suppliers have made this product. We need to pay them. We’re always going to be a good partner to them. They’ve been a good partner to us. And so, there’s a lot of decision making that has to happen to figure out how to get us from where we were three weeks ago to where we’re going to be.
Due to the China import tariff increasing to 145% and ongoing uncertainty about future rates, the Athearn team is currently unable to confirm pre-order pricing with confidence. As a result, we have made the difficult decision to postpone all new product announcements, including the May release originally scheduled for Friday, April 25th.Atlas basically announced rhe same thing in different words:We understand this may be disappointing, but believe this pause is the most prudent course of action under the circumstances.
Atlas Model Railroad Co. has announced the roll out of a new Price Lock program, effective through May 31, 2025, as a response to market uncertainty brought on by the rollout of U.S. tariffs.At this point, they're hoping the problem will go away in a matter of weeks, there'll be a tariff level they can live with for now, and life will go on. But this doesn't change the basic problem, that 25 years ago, the industry surrendered control of production to a few factories in China that are still subject to natural disaster, epidemic, economic collapse, regime change, or even war with the US, all of which could have a greater and longer-lasting impacrt than a tariff conflict.“We know our partners are navigating a rapidly changing market. This decision is about providing them time, clarity, and trust,” said Jarrett Haedrich, Executive Chairman of Atlas, in a press release shared with Model Railroader. “All of our in-stock inventory — plus our most recent container arrivals subject to the new 20% tariff — will remain at current pricing through the end of May.”
. . . This program applies to in-stock N, HO, O, and Z scale products. After May 31, 2025, Atlas plans to reassess market conditions and adjust their catalog accordingly.
From a consumer point of view, at my age, I've bought 99% of what I'm ever going to get, and my future plans have more to do with disposing of it all. But also, there's a huge supply of "new old stock" train equipment avaiIable on eBay, so hobbyists have that option. I think more of the small-business train stores that are threatened if they don't have products to sell. Somebody with more imagination and initiative than David Popp and Ms Walthers Naffah is going to have to step in.
The veiled threat that this (model making to a high degree of realism and detail) can't be done here without massive price hikes is hollow. Sure, what has been the de facto process can't just be plucked up from there and plunked down here. Fine. But I can guarantee you that someone right now is figuring out a way to build comparable models domestically for a reasonable price and grab that market share during this disruption. My prediction is that it will leverage the technologies that have disrupted the hobby this far - home-scale production methods that can be scaled up for a larger market such as 3d printing, laser cutting, even spin casting, circuit design, etc.
ReplyDeleteUp to a point, I agree, but I think the situation is more complex than you're suggesting. The simplistic take is that American companies should have kept manufacturing in America and all would be well. But there's no evidence at all that American companies wanted to do that, nor that American customers wanted to pay the prices necessary to keep production at their country.
ReplyDeleteAmerican consumers are used to low prices compared with European consumers. Just check out the prices on new Maerklin and Fleischmann locomotives and compare them with equivalent North American models. A DCC-ready six-axle Fleischmann diesel locomotive retails for just over 200 Euros, or about 230 US dollars. Compare that to a Bachmann GP40 at 145 US dollars, and likely less if you shop around.
Partly, that's the size of the market at play, allowing larger volumes of any given model to be sold. But there's also fierce competition between a relatively large number of manufacturers, each relying on efficient manufacturing in China to keep costs down.
Moving manufacturing to the US requires more than just pluck. Building the site and installing the equipment will cost tens of millions and take years to do. Recruiting workers is going to be another hurdle (a recent poll indicated that while 70-something percent of Americans wanted factories back in the US, only 20-something percent wanted to work in them). Building model trains is not easy work, a China manages it by having a large, highly skilled workforce prepared to work for relatively low (but increasing) salaries.
Of course, mechanisation might work and we see robots building the models instead of people -- but if that happens, what was point?
Finally, I do think you need to reflect on your thought that it was bad moving manufacturing to 'a country that wasn't aligned with US interests' is a meaningful statement. Why should any country align its interests with the US? If they happen to be, that's nice, but why should they? I'd argue all governments should align their interests with those of their citizens. If we accept Adam Smith's central argument on 'The Wealth of Nations', the point of cross-border trade is to make both countries better off. Not only do both countries make more money than they would have made with a mercantilist approach, but they're also much more likely to remain at peace with each other.