One of the things that Mike and I bat around but never actually get to is figuring out how to make info in the blog archive more accessible. It's a regular thing that someone will ask a direct question or post something on a forum, and there's already been a post with a complete answer to the question. A freakish amount of the time, we'll actually remember the post right off, and have some touchstone to be able to find it. Today's Throwback Thursday is not one of those. Though it addresses a forum thread where I wasted time that I'll never get back, I didn't remember this relevant post at all.
Originally posted 9/7/2010
Now that I'm a big fancy pants bicycle company executive, I follow the trade coverage more closely than I did before. One item that stuck out among the write-ups about the recently completed EuroBike show was the news that the major carbon suppliers were passing along a pretty striking price increase for the coming year; something on the order of 60%. Time to buy your new bike right now and beat that price increase, right? Maybe.
Have you ever noticed how immediately gas prices go up when oil prices climb, and then they settle back down more slowly, to a level above what was considered "par" before? I'm not accusing bike brands of profiteering in the way that oil companies do (Congress doesn't seem to have the same proclivity for rhetoric about "windfall taxes" when they talk about the bike industry), but there's a similar dynamic that goes on with news like this.
The price of raw materials is but one component of the price you pay for a fancy new carbon toy. Take a pretty standard frame, and let's say that it weighs 1100g. In that weight, you have aluminum dropouts, BB shell, maybe some stops riveted on, etc. Let's say that there are 150g of aluminum in the frame. That brings the net weight down to 950g for the actual carbon bits of the frame. Now, the "carbon bits" are really "carbon and epoxy matrix bits," of which somewhere around 60% to 70% by volume is carbon. But while epoxy is sold by volume, carbon is sold by weight. Epoxy's way heavier than carbon. So by weight (and keep in mind this is a well educated guesstimation designed to make advance a point, not to provide laser accuracy), your 1100g frame has maybe a half pound of carbon in it. When you're talking about something as expensive as carbon, it certainly makes a difference, but in the context of a $3,000 frame, it's not that big a deal.
THINGS THAT ARE DEFINITELY A BIGGER COMPONENT OF THE PRICE YOU PAY FOR A FRAME THAN CARBON:
5. Supply chain markups
6. Floor plan financing
THINGS THAT ARE PRETTY SIMILAR TO THE COST OF CARBON AS COMPONENTS OF THE PRICE YOU PAY:
1. Manufacturing overhead
2. Graphics and paint
3. Boxing and shipping
So, yes, any time raw material input costs rise, it puts upward pressure on the price of finished products. Don't, however, be fooled into equating a price increase in raw materials with a corresponsing increase in finished goods pricing. Yes, everything adds up. When I wear my product manager hat, I see that in as clear a light as you can imagine. Every penny saved is a good thing. We've stripped as many of the Big 6 costs down to zero as we can, so we're actually less insulated from raw material increases than others are. I'm far more concerned about the state of global shipping than I am about the cost of carbon.
Prices do rise over time, we know this. Central bankers call 2% inflation "price stability." But if there's a story that the price of carbon bikes and wheels is going up 5% this year because the price of carbon went up, it's BS. There, I said it.