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How Much Would a "Made In The U.S.A" iPad2 Cost?
This is from Stone Street Advisors
Currently, Apple has contracted with Foxconn to make their iPad 2's in China, where employees are reportedly paid
(after receiving a 30% raise) a king's ransom of 1,200 Yuan/month, or
about $185 at current exchange rates (y/$ = 0.154), or, if we assume an
average 8-hour/day, 250-day/year (probably unrealistic assumptions),
$1.11/hour. But what if Apple decided to do the "patriotic" thing, and
hire U.S. workers in the U.S. to make its heralded tablet? How much
more would it cost to make the iPad 2 in the U.S. versus in China?
Let's run some back-of-the-envelope numbers and see/
Average U.S. manufacturing/mining/construction compensation is $32.53/hour as of December, according to the BLS. Research firm iSuppli estimates the iPad 2 costs $10 to manufacture,
which - using the $1.11/hour rate - works out to about 9 hours each to
complete. If assembly and manufacture took the same amount of time in
the U.S. as it does in China (another possibly unrealistic assumption),
the cost of making each iPad 2 comes out to $292.77!
Again, according to iSupply, the material cost for the 32gb iPad 2 WiFi + 3g - which sells for $729
- is about $325, or $335 including labor, which puts Apple's gross
margin (ex shipping/handling) at 54%. Just using the simple math above,
if the iPad 2 was made in the U.S it would cost $617.77, bringing
Apple's gross margin down to 15.25%! Of course, Apple is not in the
business of self-immolation, and given their relatively substantial
pricing power, they could just make the iPad 2 more expensive, let's
say, increasing the price to the point where their gross margins stayed
intact, from $729 to $1,144.02!
Is the demand curve for iPad 2's normal, i.e. is it downward-sloping (with a negative price elasticity of demand), or is it a Veblen good,
i.e. as the price increases, the quantity demanded actually increases?
Will consumers still keep lining-up to shell-out their (presumably)
hard-earned money for a product that won't make it into their hands for
weeks, that will likely be rendered obsolete (in the "cool" sense) with
the iPad3 a year or so down the road if the price rises 57%?
Even
if Apple found that the demand curve was in-fact downward sloping, and
that their revenue maximization point (price/unit * # of units sold)
involved absorbing higher manufacturing and assembly costs, buyers would
still be asked to pay significantly more for a "Made in The U.S.A."
iPad 2 than the comparitively cheaper "Made in China" version. This
brings us to the quasi-ultimate question (short of the larger
macro-economic one, for another time): How much more are U.S. consumers
willing to pay for the "Made in The U.S.A" stamp, if anything?
I don't have an answer, at least not anything even remotely approaching a definitive one.
How much more would you pay? $100? 5%? Zero? Let us know in the comments!
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Many of you guys have missed the fact that all this is rolled into the author's figure $32+/hr pay rate for manufacturing in the USA. Hello?
Alarmist;
I wish for you a long life so that you can see the affects of China's industrialization and consumer behavior in the next 50 years. They will will be swimming in smog and soup before too long. Are you suggesting that we should follow their example and repeal our safety and environmental laws so that we can knock off $100/$200 of a product price point in order to become competitive?
+
The limit being tested is labor. We are checking to see what happens when the value of labor goes to zero. $0.00 per hour [Which brings to mind the question: Why does Chinese prison labor cost even $1.00 per hour?]
Wouldn't buy one of these POSs anyway.
If it was given to me for free, I still wouldn't take it.
How much more would you pay? $100? 5%? Zero? Let us know in the comments!
----
If wages had kept pace the way they should have over the past 3 decades, we could afford Made in the USA.
We must decide what is better for this country. To pay higher wages and support these wages by buying America goods or continue to depress wages and be forced to shop from the cheapest source of labor on the planet, making our trade deficits worse?
The Powers seem to have made their choice long ago. They do what's best for themselves.
What was the average profit margin of US corporations way back when Americans actually made products they purchased?
Thirty years ago the railroad industry was happy to get 3 percent, 5 was fantastic.
They also employed many employees. Now days it's 20+ percent with considerably reduced manpower. Ah, corporate america, go on and bash the unions.
It's the corporate profit margins that have become addictive not the so called "cheap prices".
And I don't bash unions. I grew up wearing t-shirts that still said "made in the USA" and watching a TV set made in the USA while my father dove a car that was Made in the USA and every other day that car would take me to the park to play baseball with a glove and bat that was also...made in the USA. And my father was able to buy those with a very blue collar job...and raise three kids...and buy a home...and feed us...without my mother having to work.
Show me a blue collar home that can pull that off today?
And no...this did not happen in the 1950's...it was the 70's.
Interestingly enough, the fact that it is made in China has prevented me from buying an iPad. I've been attempting to reduce my purchases of Chinese-made goods. If it were made in America, I would be more likely to buy one, even at $1,150.
Are you currently using a computer that is made in the USA? And if so...what is it?
I should also mention that this is not just an anti-Chinese stance. I am trying to reduce my purchases of goods made outside the USA in general. And it's not a "patriotism" or "anti-foreign" thing. It's intended to reduce my overall footprint and consumption of natural resources. I've reduced my consumption of out of season fruit (blueberries from Chile, for example), expanded my garden at home and started composting my waste as well.
No, I am not, but I haven't bought a new computer in 3-4 years. Notice I said "reduce". I understand that it's not possible with all items. Since an iPad is conspicuous consumption in my case, I have chosen not to buy one.
"Conspicuous consumption" isn't quite the phrase there. I guess the best term would be "not necessary" or "optional".
I was merely making the point that we don't manufacture the things we use any longer. I don't disagree with you about your points on buying locally and buying less. I'm very much the same.
In the last few years I've limited my purchase3s to what I need rather than what I "want". The choice is not a financial one really...it's just my way of objecting to a level of consumerism that I think has reached a point of being dangerous. I just do not want to contribute to it.
I no longer finance anything nor do I buy anything on credit. Th two credit cards I do have both have a zero balance due and are currently sitting in a mug of ice in my freezer.
There are computers made in the US?
The only ones that I know of that MIGHT still be made in the USA are some "boutique" brands like Alienware. Although, most of the components are made in China and the like and also, since they were bought out by Dell, their local manufacturing might be a thing of the past...but I'm not 100% certain of that.
Cars now = Ipads in the discussion on consumer utility and Unit cost. I do remember when countless very young foreign workers to supply demand "micronesia theator" were exposed to toxic conditions beyond description and my current willing ability "reports" for actual reality's. We documented countless instances of cruel conditions and when we pressed enough they moved to another friendly government. We gave it a whirl and our audit team indicated conditions unaceptable. Many have to be very carefull these days. I got a reply from a very loved and dear friend from China who I had the privledge to meet in the States and cared for his wife "my wife that is" when he had to go europe for some specifics. Later he went back to China since he was needed there to perist in his field. What I an trying to say we could not converse since a fey key words indicate the condition he is under. Him, like me care for our people no matter what spot on the planet there from. The point I wish to leave is the aftermath of militant ideologues who posited reprisal from rogue capital you may or may not represent and advocate. You represent a interest, not reality and ZH will call you to task if you have the wisdom to see it or not. I am trying to keep this brief but young man you have a nack for missing the point. Utility is defined at what puts you at ease. The issue to rogue captial and sticky wages today which is a moral relavance and cost you truly miss.
100% more! US Political Parties have been whores to the finance and technology oligarchs who led offshore manufacturing since Jimmy Carter layed waste to the auto, natural gas, steel industry and housing.
So here how the game is played. Apple offshores production, so they can make their stuff cheap and reap a 54% margin. The U.S. consumer benefits greately in the short term as they are able to buy cheaper Apple Products. 45,000 factories each employing 500 people or more disappear from the U.S. economic base that would have producted products like the iPad in the past. U.S. consumers continue to become unemployed. Government takes in less and less revenue. Government is all to eager to dish out payments to these unemployed people to get their votes. Apple and companies like it are unwilling to pay higher taxes to support these people. Apple and other companies pay say 2% of that 54% margin to hire lobbyist to visit republicans and more quietly democrats to bribe them for their continue to support "free trade" and to provide tax breaks under the table so Apple and others can keep their 50% margins. Politicians still want votes, so rather than raise taxes to bribe the public they borrow money. The relative value of the dollar begins to decline. The industrial economic base that supported the US as a super power disappears. The U.S. consumer's purchasing power declines to the point where cool products like the iPad produced over seas slowly start rising to go above the average reach of the U.S. consumer. The U.S. ceases being the world omni power and begins to withdraw from the world as it can no longer afford its commitments. New powers jockey for position, creating numerous conflicts, some of them risking the use of nuclear, biological, and chemical weapon use. Those who advocated the benefits of the cheap Chinese iPad leave the wreck of the United States behind to seek new frontiers to suck wealth off of. Steve Jobs dies.
So, factoring the above in, how much really is that cheap Chinese iPad worth?
Worse than that. Old but good teaching story here: Schwinn was once the USA's leading bicycle manufacturer. They then offshored production to Taiwan. Taiwan not only learned all the technology, but used it to gain local dominance and hence production scale. They then sold bikes in the USA and destroyed Schwinn. In the end The Taiwan manufacturer bought what was left of Schwinn.
The Japanese have it right. They let China manufacture the lowest of the low production value stuff, and keep all proprietary technology locally. In the USA, the CEOs outsource everything to make the year's bonus.
We need a national will to stop this madness. We are selling out our future
Oh yeah, a few other things. China starts creating it's own knock off iPads in the same factories or sister factories that make the Apple iPads. Apple and other companies like it begin to notice that it is becoming harder to sell iPads in China as well as in America. The U.S. threatens to default on its debt. The Chinese, owed over 3 trillion dollars, threaten to nationalize all U.S. flagged corporate holdings in China. Steve Jobs still dies.
Forget the IPad. How much for a new POTUS and new Congress? Who gives a phuck about iPAD2 or iPAD3 when the content will be controlled by the twisted sick liars?
the politicians are much cheaper to be "made" than an ipad
It is no secret that American Labor/Benefits is out of line with what other countries are able to provide. Business has been chasing the "lowest cost labor" all over the globe in the pursuit of profits. You can't have parity in labor costs unless you have parity in business expenses (rules/regs/environmental/taxes) etc.
Having said that, Don't own and Ipad or an Ipad2 and don't plan to purchase an Ipad3.
My access to computers is satisfactory at the moment, thank you. JAFC (Just another Freaking Computer)
What about American C-level pay/benefits? Talk about out of line...
In the immortal words of Cee-lo: Fuck You!
Zero. But I'm not buying one now.
well, i'd use either prison or child labor to cut down on costs.
Just wait till Apple develops products based on bio-technology, the Chineese prisons will empty in weeks
Awesome article.
You forgot to put <sarc>
Well, how about if there were some kind of actual productive economy to back up the US toilet paper dollar, or if people's purchasing power wasn't robbed from them on a constant basis? Perhaps higher priced goods wouldn't really matter.
I wouldn't assume an apple Ipad takes 9 "manhours" to manufacture,
most likely the $10 Ipad manufacturer cost is $9 in materials and $1 in assembly costs, I'm guessing most of the Ipad is assembled by robots with the primary cost difference being not labor but govt taxation and energy costs.
That was my initial assumption but iSuppli breaks out the bill of materials and manufacturing cost separately. I'm a bit skeptical that solder and other relatively inexpensive materials account for anything relative to labor, however cheap the latter is. I suppose there could be some accounting leeway in that number, but that's a road I'm not sure we can go down without much, much more information.
And yet your whole argument is based on this lumped number.
The line item says "Manufacturing Costs", not "Labor Costs". Does that number include electricity, rents, sundries, etc.
On average labor is about 20-25% of Manufacturing costs if we're going to use guesstimates. That puts $2.5/Unit Labor or about 2.5 hrs of assembly/testing.(And that's being generous).
So we're looking at around $77 dollars more per unit @ $32/hr(80 - 2.70). So using your numbers it's $402 per unit which makes Apple's 'margin' at about 44%.
This doesn't take into account the "soft margin" items like tax incentives to move jobs offshore, subsidized energy, export loan guarantees, all which end up on the taxpayers balance sheet one way or another. Not to mention the nice currency uplift due to a pegged dollar. Net margin has all these little goodies courtesy of the US taxpayer baked in.
Your analysis is amateur at best.
i don't like the idea of producing amerikan ipads in a manufacturing vacuum.
Let's take a page from the brilliance of Chinese capitalism...
"unless you manufacture in the u.s. you will be locked out of u.s. markets...bitches"
+47
I like my iPad with bearnaise sauce. Crunchy. mmmm
I prefer malaise sauce.
p.s. don't own an ipad, no plan to buy one.
OK, but what if you cut that labor figure in half? Many unemployed would be delighted to have an $11/hour job - with bennies call it $16/hr - $144 labor + $325 material = $469. On a retail of $729, that's a fairly healthy profit margin...
This assumes that they don't unionize, which I think might be unrealistic.
North of the Mason Dixon line, it may be. Just site the facility in a right-to-work state. The facts contradict the fundamental assumption in this analysis. Dell assembled most of their desktops in the US until the end of 2008 because it was cheaper than the freight costs to ship the cheaper version up from Mexico. Their direct labor costs were around half of SSA's premise.
Granted, but I'm not sure how Apple's customer base would respond to obvious attempts at side-stepping organized labor. It might be tougher to ignore than their current setup. An interesting hypothetical regardless.
Compared to the mother of all side steps to Chinese labor?
Wow, real cognitive dissonance!
Out of sight/headlines, out of mind.
It's much easier for the customer base to dismiss the tales of faraway, un/under reported sweatshops than it is for them to brush aside heavily reported union protests, law suits, and open condemnation from the messiah here in the US.
the age of adversarial unions is over, or its the breadlines. can't spin that any better. i remember people got on nike's case about sweatshops and made some difference.
boycott crap on credit
Ahhh...don't they already sidestep union labor (as well as all and every environmental law you can think of)? I don't see the customer base revolting over this.
Bingo. If you look at unionized workers at the Big 3 automakers, we're tlaking $70+/hour all-in. Even if you half that since making computers and computer parts is generally less risky than making autos and working with big, powerful machines, its still higher labor costs than the # used here.
This is also potentially a question of the slope of the labor supply curve here in the U.S; there are many unemployed, but would they really jump at the chance to have a job and benefits for minimum wage, $10, or $15/hour? I don't know, although I imagine many people would just for the benefits, but I can't qualify that with any degree of certainty.
please stop being idiotic.. that $70 number makes headlines but hardly means anything real. How many got rich? They get paid half that and the other side is bloated since 30 years of dollar destruction that made their benefits rise with inflation.
So if all your investments from 30 years ago went up we should take those away as well correct?
Just say it for what it is, the divide in rich/poor has raised real items well past what they were relative 30 years ago. Perhaps UAW should of just got their benefits paid in a standard measure of Gold or Oil instead they wouldn't be hated? But their Healthcare (which is the same or worse care than 30 years ago) or Pensions (which is shitty fed dollars worth way less in real terms) put them in the high life right?
but go back to your $70 headline.. sleep well and stupid