LocostUSA.com

I don't think that a 5% royalty is out of line on this type of product, a chunk of which could be structured as a prepaid minimum royalty in order to give Stuart his chunk o' cash. In essence, this is what Stuart has offered, though not exactly in those terms. Assuming a $5,000 selling price, it will take 67 units for total licensing cost to be 5%, though ongoing cost after that would be only 2%.

However, the viability of a 5% royalty also presumes a 50% or so profit margin (the universal markup or better). I think this is achievable because building a chassis in a production setting would be very different from building a one-off. For example, you could have all your pieces pre-cut, marked, and stored in racks or bins that follow the build sequence. When tacking up, one guy could grab pieces and clamp them in place while the other guy welds nonstop. For finish welding, throw the chassis on a rotisserie and both guys weld. Re: wage rates, it would be easy to find people to do this for ~$9 per hour, for a variety of reasons (students, entry level workers, displaced workers, etc.) and be happy with it. Like Stuart says, the idea is to keep your heads down and stay on task. A hands-on manager will have done it himself and not accept a lot of excuses for less than X frames per week with no overtime.

So, I think that the deal is feasible, but I also think that Jack is being very fair in asking for drawings and technical and performance specs for the product.

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Dreaming the dream since 2003. Haynes chassis, Miata uprights, everything else from 1987 NA RX7 donor.

Universal mark-up? In which industry might I ask? Also, did you mean mark-up as in (cost x 150% = sell price) or profit margin which is (profit/sell price = profit margin)? If the former, you are actually presuming a 33.3% profit margin which is still astronomical in my opinion.

Really? Sounds like a sweatshop to me. How are you going to handle your high attrition rate and poor quality issues after the initial happiness wears off?

With all due respect Pete, I used to run a light plate shop with about 80 welders, machinists and electricians. It was probably the most stressful job I have ever had as I was constanty worrying about how to keep it fully utilized and how to keep it profitable. And it wasn't even my shop. I had a big coporation as a safety net in case I needed a temporary line of credit to pay payroll at the end of some months. In the end we had to wind it down. And that was in a third world country where we were paying our best welders a lot less than $9 per hour.

Just to keep since the offer is in fact off the table, I maintain my original conclusion that MEV's proposed licensing schemes were true dogs as far as business plans go...at least for the licensee!

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Steve

I'm thinking about a direct variable cost model which may well be equivalent to Jack's 20% depending on how he values his time and whether he includes such things as building costs, which I would not. Sorry, should have clarified; it's important to talk apples and apples.

50% gross margin on direct cost is a pretty sweet profit in my book, btw, depending on what it takes to sell it. In my experience, it's a good target for a new product. Pricing in a mature market or to utilize capacity are different matters.


I'm proposing semi-skilled labor here, not a job shop which would call for workers with much higher skills. I don't think anyone need be unhappy, but it's true that some workers might move on after a year or two, pretty much the pattern of McD's or Wal Mart.


I hear you. I've worked as an accountant from shop to corporate level as well as an independent accountant. Industries have been auto parts, industrial products, hardware, heavy machinery, construction, mining, and consumer products. I have been associated with many businesses from startup through death rattle. As the song goes, "It's a dog eat dog world, and that ain't no lie."

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Dreaming the dream since 2003. Haynes chassis, Miata uprights, everything else from 1987 NA RX7 donor.

True, but let's assume for a moment that the car's roughly as successful as the Stalker, which has proven that the real-world market is about 15 units per year. So that means it would take roughly six years just to make back that $10K (100 units / 15 per year)... that's a long time for a business just to break even.

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Midlana book: Build this mid-engine Locost!, http://midlana.com/stuff/book/
Kimini book: Designing mid-engine cars using FWD drivetrains
Both available from https://www.lulu.com/

I agree - for doing unskilled labor (like assembling hamburgers), but an unskilled 18-yr old welding a chassis is rather terrifying. He can certainly be trained, but on what, the product? Or does the owner send him to welding school? Of course as soon as he has proper welding skills, he's going to immediately leave for a job elsewhere paying 3-4 times as much... It's all absolutely doable, but I believe the business costs being discussed are very optimistic.

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Midlana book: Build this mid-engine Locost!, http://midlana.com/stuff/book/
Kimini book: Designing mid-engine cars using FWD drivetrains
Both available from https://www.lulu.com/

Stalker's not an apt comparison. The Exocet is simpler and cheaper. Your target would be people who are both poorer and less technically confident. A lot of would-be builders are scared that they would screw up something as critical as the suspension. The Exocet addresses that. They'll still be scared of the electrical and braking, but you aren't going to reach everyone.

I don't get your point? Maybe I didn't explain my plan well enough. One way or the other, the US mfgr pays the royalty. Just about all of us agree that $100 per kit is a fair amount. Under either my proposal or the latest MEV plan, this royalty is paid to MEV. In this respect, nothing has changed. But under my proposal and using your 30 kits sold, over that 2 year period, $3,000 is paid to MEV out of the escrow. Assuming everything else meets the milestones in the agreement, the remaining $7K of the escrow is returned to the US mfgr. At this point it is as though the US mfgr never paid that 10K up front. That is, if the US mfgr meets the agreed-upon milestones in building his business and promoting MEV Exocet in the US. Under the latest plan by MEV, the US mfgr would have to pay the 10K up front + the per-car royalty. The total fees paid to MEV under that plan is $13K. This is what we don't think is equitable and fair.

The escrow is acting to mitigate the risk on MEV's part while not creating an unreasonable breakeven timeframe for the US mfgr. There is risk on the US mfgr's part, only if he does not act to build the business. With regards to this $10K (only), there is no risk or penalty to either party if the market simply will not support the US sales estimates.

I think we can agree that there is no "break even calculation" on a 100 / kit royalty alone, no? The break even calculation is done on the other startup costs which has already been discussed.

Under my proposal, MEV gets some form of assurance they are "in bed" with the right guy(s). If the US mfgr does not meet their milestones in the agreement, the remainder of that escrow $7K goes to MEV at the end of that 2 year period, and the relationship is disolved. In this case, the US mfgr is out that $7K money. His risk is minimized by every kit sold. It would behoove the US mfgr to do everything they can to build the business to prevent this clause to being used. This is what Stuart said he wanted, no?

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Chuck.

“Any suspension will work if you don’t let it.” - Colin Chapman

Visit my ongoing MGB Rustoration log: over HERE

Or my Wankel powered Locost log : over HERE

And don't forget my Cushman Truckster resto Locostusa.com/forums/viewtopic.php?f=36&t=17766

Talk about banging your head against a wall I’ll try and be frank

A kit car manufacturer doesn’t just sell a physical product, but sells an ‘activity’ as well, and in the case of the ‘Exocet’s’ that also means LOCOST, EASY & FUN.

If I were Stuart, which I’m not, or for that matter any other kit car manufacturer, I would not entertain anyone as a business partner/licensee until they had themselves personally gone through the process of building one of my designs. (Full Stop)

I quite simply wouldn’t want somebody whose never built one, talking to customers, trying to sell one.

Announcing or claiming large profit margins on an open forum like this one, is not going to encourage investors, but is more likely to annoy potential customers by leading them to think that there not getting value for money.

Jack, I’m sure you’re an experienced, knowledgeable and very competent individual who’s views and opinions are obviously highly respected on this forum. Therefore I wonder if it’s the colonial differences of language, customs and or just accounting practices/terminology that are getting in the way.

I said earlier I’d be frank so her goes:-

I suggest that anyone serious about representing the MEV ‘Exocet’ in NA first Buy it, Build it and Drive it, (ie. do first what you expect your customers to do and like other Licences have done) and by doing this you might not only better appreciate what it is that your being asked to invest in but it should give Stuart a far better insight into your abilities and commitment.

Life’s too short to waste on people that talk a good game, but have got no intention or ability to play, and let me tell you this industry is full of them.

I hope you find a partner Jack, If I still lived in the US I’d probably step up and partner you 50/50 straight down the middle just to prove a point, that it can be made to work.

I’ve really enjoyed participating in this thread, but its now becoming a little bit, tit for tat/repetitive for my taste so I’m going wish everyone well, bow out gracefully and hope to catch you all on the flip side.

Best Wishes, Good Luck and Thank You

nigel

I described the job to my stepson (a 21 year old student who manages a game store for ~$9 per hour), and he told me there would be no lack of takers. We also discussed that teaching someone how to nail a couple of boards together properly does not make a carpenter.

Granted, though, that this hypothetical welding job is very narrow and structured, practically robotic. If you want the same person to lay up fiberglass, paint, pack orders, order supplies, deal with customers, work on unrelated projects, and so on, the job is now much larger and worth much more.

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Dreaming the dream since 2003. Haynes chassis, Miata uprights, everything else from 1987 NA RX7 donor.

Right you are. nether10 was the OP, he's the guy who wanted it. Stuart didn't chime in 'till page 3. If nether10 doesn't want it any more, then perhaps he should change the title, but it's his thread.Not a fair statement, nor (in my experience) an accurate one. He stuck to his guns on $15,000 down (which includes a sample Exocet) and $100 royalty per kit since he made the proposal. He said he would entertain offers, but I wouldn't accuse him of excessive flexibility. As far as wanting $40,000 down and $250 per Exocet, well, who wouldn't?Look, presuming he's telling us the truth on this forum and me the truth in private (and anyone intending to do business with him or buy a kit from him should be presuming that, right?) his ability to profit on UK-made Exocets is staggering compared to the ability to profit making Exocets in the US. When he told me what he makes on kits shipped to the US, I figured there must be some enormous UK government program to encourage exports by paying their manufacturers to send products overseas, but Stuart has since clarified it in a post here ("It's easy, we just..." top of page 9) and it seems to be more of a general difference in UK/US business environments

His in-house rate for production welders is £6 per hour ($9.60) for 10-12 hour shifts. I can't touch that in Oregon; our minimum wage is $8.40 and we have to pay time-and-a-half for overtime. The lowest paid busboy or gas pump jockey in Oregon gets $105 for an 11 hour shift, that's $9.55 an hour. I can't get a "make sure the quality is right" level journeyman welder for a nickel an hour more than an entry level busboy, it's just not possible; I pay double what Stuart pays for skilled labor. When you add in my overhead on the shop facilities alone (rent, power, insurance including FICA, equipment maintenance, supplies) it bumps the labor cost up to triple what Stuart pays, and if you bill the rest of the project support expenses against the labor (secretarial services including reception and bookkeeping, promotion and advertising, phone and internet, and in this case licensing fees and royalties) US manufacturing margin might peak out at 1/3 to 1/4 what Stuart has his up to in the UK. So the "right offer" is going to have to be pretty spectacular to match what Stuart has going on already.Okay, unless someone else has made Stuart an offer for a US Exocet license, then "we North Americans" may have had lots of reasons we didn't take him up on that. I don't think his proposal was unreasonable, but without his US Exocet earnings linked directly to US sales, it was just too risky for my tastes. I don't think he thought my proposal was unreasonable, but since it linked his US Exocet earnings directly to US sales, it was too risky for his tastes.He said "men from the boys" and that was one reason, but he didn't say it was his main reason. I suggested that putting up ten grand in marketing would sort me sufficiently, but that was my opinion, and I probably have higher confidence in me than Stuart does.I can't tell you why Stuart wouldn't be interested, but I wouldn't be interested because $10k would be better spent on promotion than on guaranteeing the designer a specific profit. Promotion would increase sales, and I believe increase profits, but if even with a full court press promotional plan, US Exocet sales never reached 100 cars, Stuart would be better off with the money up front. As it stands, Stuart can equal his 100 US-made kit profits with surprisingly few UK-made kits delivered to the US...so rx7locost, if that's going to be your offer to him, I think you'll need to sweeten the deal.Nobody was jumping at it in its present form, whether I was in the mix or not. At this point, a potential US Exocet licensee wouldn't even have the benefit of a head start--he'd have the same Exocet kit sample that anybody can buy from MEV, and a neat name with "exo" in it.

If the designer has no financial interest in keeping ahead of the competition in the US, then somebody else, who is willing to make a few design improvements for the US market, can offer a better product and have $10,000 left over to promote their Exolent or Expat or...gosh, it's too bad that Exige is taken. Or just make Exocet replicas and put--"If someone wishes to copy my concept the world is big enough." -Stuart Mills, October 6, 2010--on their letterhead. Either way, the licensee is going to have a hard time unless Stuart is motivated to stand up for their rights.

There's enough risk of a clean-slate competitor coming into the market (or as clean a slate as Stuart's--that is, make a Miata kit that looks like an A t o m) and if they're coming in with more money because they didn't pay Stuart for the opportunity, well, a licensee had better have Stuart's long term dedication to rely on or they're going to be in trouble.

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Locost builder and adventurer, and founder (but no longer owner) of Kinetic Vehicles

umm, wow a lot of discussion and a lot of concepts being discussed.
as to investors;
as i said before, i'd be interested in a investment vehicle, something that would pay a portion of leia's public college tuition 16 years from now for a $1k investment would be great for my desires but, i have little desire to be a prime mover trying to put a new product onto the market as thats a lot of work as i've said before. anyone else out there willing to invest after tax cash in a product not proven in the us care to join me? jack and i haven't discussed it but if a proper proposal were presented. .. something that never had a chance to come up things progressed. give me a 28% compounded (pretax) return on a note and i could in as soon as the contracts are dry. eggs in a basket, i'd rather take a lot of little chances than 1 big one.
sooooo, roughly $100-130k in total value(fixed overhead+2080 hours labor+$20k)over a year? thats a big chunk of outlay for a non exclusive license on an unproven product still needing modifications for the us market, you obviously feel that the product has possibilities or you wouldn't have made the offer.

i've seen similiar plans before and they do get accepted in the vc market. smaller by a factor of 20 than the average proposal but still a good format. frequently the "goalposts" are used as markers to release additional funds from the escrow account to the (u.s. in this case) business to reimburse for expenses already incurred such as payroll, marketing, etc.


exactly why i think its a larger potential market and more likely to sell kits than a stalker. .. but then far more manx kits have been sold over the years than have ever managed to get "on the road" which is why i think there exists a market potential for someone like eurokraft(who owns a body shop) to take on contracts as a boutique or "factory approved" assembler (distributor?) as well.

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"There are times when a broken tool is better than a sound one, or a twisted personality more useful than a whole one.
For instance, a whole beer bottle isn't half the weapon that half a beer bottle is ..." Randall Garrett

for those who don't know, oregon is very forward about wanting people to be employed. .. self serve gasoline stations do not exist, for example, as one way to create additional job openings despite them being at the lower end of the economic spectrum.
$300 for steel and bracketry, 4-6 hours of metal prep at semiskilled, 8-10 hours of welding at skilled labor rates then another 6 hours of semiskilled for finish prep and paint things get expensive fast and thats just the chassis. out of curiousity, does anyone know what the employer's share of payroll taxes is in the uk as compared to over here?

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"There are times when a broken tool is better than a sound one, or a twisted personality more useful than a whole one.
For instance, a whole beer bottle isn't half the weapon that half a beer bottle is ..." Randall Garrett

Good evening gentlemen.
Firstly may I say that I am a little embarrased at the continual mention of my massive profit margins. Comparisons with drug dealers, con man was mentioned, loon, anymore?
The fact is that a large margin on a low value product does not amount to a great deal.
That said you all seem to forget the investment that I have made that is not getting a return from the income, factor that in and the fact that we do not pay rent and you get a whole different picture.
So don't worry if you are thinking of buying a MEV, no one is going to retire on your money.
All I can say is that it has become completely apparent that manufacturing Exocets in the USA is not going to happen, at least not at anywhere near my prices. I am happy to sell a limited number of kits as I mentioned to USA customers, maybe they will copy them, who cares if they can't compete with my tight manufacturing costs, then they fail. They may be better off without paying out the $10k everyone keeps mentioning but that is such a small figure when you look at the true cost of developing a vehicle, even if compared to Fred the shed doing it in his spare time.
I would be grateful if the continual refs to me and my massive profits are dropped, it appears that potential customers may be put off buying a kit from me when they read this thread. Those not put off are sure to expect a huge discount, so unless the intention is to slow sales for me then please resist. Also please remember I was dragged into this. I just mentioned the possibility to a potential customer. Ever heard of a serious business man "hanging his washing out in public" or not "playing his cards close to his chest"?
Gosh I have even got you guys doing google earth checks on me, is that stalking?
I have nothing to hide BTW. I own a 2x4000sq ft factories in Mansfield, half of 2 others in Nottingham (Noddingham) and part of the old quarry. We have a small test facility that will have been identified on google earth at the side of MEV HQ, as I said from the start we are keen enthusiasts, that's all. We make an enviable profit (every £ of which is invested in to product develpoment) as we don't have high overheads and don't clock in or out. We draw a small wage and try to do it all in house. EVERY SINGLE ONE OF MY CUSTOMERS CAN CALL ME A FRIEND BTW. I work on sales after leaving the workshop until the small hours, (check my posting times). If anyone would like to compete then please go ahead, I will give you 6 months, gaunlet anyone?
So to conclude I have no doubt someone in another part of the world will at some point have a go at getting some of my sales, especially if you guys persist in making it look so attractive, they may even be in my town, fine, I will then rely on my reputation to win.
I am flattered that this idea has caused so much interest and as I have said b4 very grateful for everyones efforts. If I was serious about trying to find a USA partner I would have advertised for an investor in one of those business magazines, but I am only interested in doing business with like minded people like you guys.
I onced turned a customer away as I got sick of hearing his testosterone fueled stories about his BMW driving antics. Not proud of that but it did feel good at the time. Forgive me if I sound cocky or harsh, I like your forum, I am just not sure that it is appropriate to discuss business details so out in the open.
Anyway just 3 more Exocets to go, 2 ordered today, let me know if you need one, they are so cheap I would buy one myself if my income was not so poor!
On a lighter note I once heard about David Brown (Aston Martin) being asked by a friend for a car at cost, his reply was "no problem, but that is a higher price than list"
Keep up this great forum chaps, may your kit car scene continue to grow, kind regards Stuart

good, some customers are better served elsewhere, at least in my opinion!!
good heavens i hope not i pulled up google earth pics last year when we chatted just to have an idea of the scenery in your area.
i don't know, and don't need to know, how much went into design work, it seems to me that a goodly portion of the "profit" should be allocated toward roi and from your description the company also maintains its own test track and so on, expenses that would go into the fixed expense column and can be allocated out of the per unit gross. tracks don't produce income without renting it out for trackdays so thats a pretty big fixed research cost! (out of curiousity, do you rent out the quarry for motocross riding? a buddy of mine complains he has nowhere to ride. ..) so the net profit will be far lower than what it would appear to be on first glance. no rent means ownership buildings (and land taxes, another fixed expense), if you live onsite a portion of the land costs should assigned to payroll expenses for a more complete picture as well. the devil is in the details. .. i've been living off of the returns from my investments the last few months due to medical issues and, while i meet expenses, it takes a lot of investment capital (intellectual property in your case) to make a living wage having the investment do all the work. the devil's in the details... i hate doing my taxes!!

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"There are times when a broken tool is better than a sound one, or a twisted personality more useful than a whole one.
For instance, a whole beer bottle isn't half the weapon that half a beer bottle is ..." Randall Garrett

Thanks Stuart. You seem like a very good sort. Continuing with the ongoing orgy of speculation, I see this opportunity (or one like it) working best either as a sideline for someone with an ongoing concern - a Eurocraft, for instance. Or alternately for someone who had some money set aside and wanted to create a business from the ground up. I have skills in metal fab, painting, fiberglassing, self-promotion and such, and were I out of work right now, I could see doing everything myself, and taking on employees as future sales warranted. It'd be a hoot, and the very thought of such a thing makes me feel 10 years younger.

Well this has been great fun, regardless of the outcome. Since we're talking of something real, and not just a pie-in-the-sky, there's an excitement about the whole business.