I am as big a booster as anyone when it comes to anything Detroit, especially as it involves bicycles (I have 8 of them) and commerce. And I wouldn’t mind the Detroit Bikes “B-Type” bicycle for myself, perhaps someday. But I have an egg or two to throw at this article on the expansion plans for a local company, Detroit Bikes.
First, to backpedal. In 2010 I published an article, “Is Detroit a Bicyclist’s Paradise?,” and I wrote that article to piggyback on the New York Times piece about “biking among the ruins” in Detroit because I already knew that Detroit was going to quickly become one of the finest cycling cities on American land mass. And it is, and that’s because of its sheer size and space; lack of crowded roads; friendly folks welcoming bikers; glorious architecture; and endless eye candy. I’ve been riding the famed Minneapolis-St. Paul bicycling trails and lanes for 20+ years, and I think Detroit was got far better bling all-around.
I spent several years publishing commentary during the unsustainable bubble years, leading up to the very predictable economic and financial market bust. The over-expansion of commerce – especially in food & beverage and discretionary consumer goods – was one of the most visible casualties, as retailers and franchisers went hog wild, only to turn around and scale back operations and expansion significantly, or otherwise, go bankrupt.
The financial markets and oncoming economic “boom” the media keeps gushing over is built on the same rickety platform that led to the 2007-2008 collapse, including the most obvious – a federal funds rate of zero-ish, making credit cheap and easy and addicting. Household debt profile statistics show that, once again, consumers debt is holding steady as compared to the pre-bust years and most falling indebtedness has been heavily linked to default rather than repayment.
Corporate executives are hired to grow business and market share, not to be good economists. That said, some things from the article are worth pointing out for a reality check. I’ll start with this quote from the article:”There are 160 million American who don’t ride a bike but could,” Manthe says. “We want to build a bike for them.” Manthe is the newly-hired Sales Director who came from Electra Bicycle Company, which built a significant footprint in the bicycle world. Brands like Electra brought forth wonderful options for the non-lycra crowd that includes folks who just want to ride a quality bike – not from Dunham’s – that looks good and makes them feel good. I salute what that company has done for the bicycle consumer.
Whatever the number of potential cyclists, it’s worth noting that Detroit Bikes currently has only two models, both in the $600+ price range, with accessories such as baskets costing $50 & up. That doesn’t jibe with the other quote that states, “Detroit Bikes specializes in building accessible, quality bicycles for everyday cruising.”
Quality, yes – Detroit Bikes offers outstanding attention to detail, hence the price point. But what does “accessible” mean here? Bikes are “accessible” everywhere, especially the sub-par bikes found in big box retail stores. In fact, they are far more “accessible” than any Detroit Bike model. Accessible, as it is used here, refers to being economically attainable for the general populace.
I can afford a Detroit Bike, but as an objective economist my thought is that Detroit Bikes are too nichey for the broader expansion for which the company may be hashing out plans. The price point is currently too high for pedestrian bicycle riders; the quality can’t or won’t be appreciated by large numbers of potential bicycle purchasers; and the “Detroit” label may not have the broader appeal it has here for those of us who are enamored with our special home.
I hope this company does grow organically, and not because of the distorted market signals that arise due to the manipulation and intervention in the economic system. These misleading signals are latched onto by entrepreneurs and managers who don’t have the ability to foresee future market conditions. Product blitzes such as this are often a classic case of malinvestment as described by Ludwig von Mises. It’s important to quote the Mises Wiki for those folks who are not aware of the terminology:
Malinvestment is a mistaken investment in wrong lines of production, which inevitably lead to wasted capital and economic losses, subsequently requiring the reallocation of resources to more productive uses. “Wrong” in this sense means incorrect or mistaken from the point of view of the real long-term needs and demands of the economy, if those needs and demands were expressed with the correct price signals in the free market. Random, isolated entrepreneurial miscalculations and mistaken investments occur in any market (resulting in standard bankruptcies and business failures) but systematic, simultaneous and widespread investment mistakes can only occur through systematically distorted price signals, and these result in depressions or recessions. Austrians believe systemic malinvestments occur because of unnecessary and counterproductive intervention in the free market, distorting price signals and misleading investors and entrepreneurs. For Austrians, prices are an essential information channel through which market participants communicate their demands and cause resources to be allocated to satisfy those demands appropriately. If the government or banks distort, confuse or mislead investors and market participants by not permitting the price mechanism to work appropriately, unsustainable malinvestment will be the inevitable result.