Washington Post reports on decline of US bike industry
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  1. #1
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    Washington Post reports on decline of US bike industry

    The Washington Post has a good article today on the decline of the US bike industry. www.washingtonpost.com/wp-dyn/articles/A29737-2004Dec2.html

    They focus on Schwinn and how its decision not to focus on high-end bikes, as Trek does, led to its bankruptcy. The story also gives information on the decline of local bike shops (there are 20% fewer today than in 1990, as more people are buying bikes form WalMart instead of the LBS) and manufacture in the US (down from 9 million in 1995 to 200,000 in 2003).

    The article points out that Trek, Specialized, and other small manufacturers are doing all right making quality bikes in the US, but that even they are in a tenuous position:
    Still, to make its expansion pay off, Trek will have to sail against the trade winds; it makes a higher profit on its lower-end, foreign-made products. "It's definitely getting tougher to compete. You can get a complete bike offshore for what it costs us to weld one," said Zapata Espinoza, Trek's brand manager.
    Of course, I am no one to throw stones here. I've given up my old Trek for a new Orbea, not because I could buy one cheap in WalMart, but because it's such a sweet ride. And yes, I bought it at the LBS!

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    High End

    Call it the Lance effect, but from what I've read, the high end market segment (albeit a very small segment), has exploded in the last 2 or 3 years as interest has increased. Hopefully this will continue into the future as new riders stick with riding even if the interest level decreases (post LA era in US).

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    Quote Originally Posted by sbindra
    Call it the Lance effect, but from what I've read, the high end market segment (albeit a very small segment), has exploded in the last 2 or 3 years as interest has increased. Hopefully this will continue into the future as new riders stick with riding even if the interest level decreases (post LA era in US).
    According to the Post, the number of local bike shops has steadily decreased and the number of bikes manufactured in the US has dropped as well, so even with the Lance effect, there are fewer places for people to buy nice bikes and get them serviced.

  4. #4
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    Here's the article for those who don't have an WP.com account

    A Rough Ride for Schwinn Bicycle

    by Griff Witte

    MADISON, Wis. -- In the glass atrium that marks the entrance to the Pacific Cycle company, the old and the new of the bicycle business are displayed side by side. Each is called the Schwinn Sting Ray, and each in its time has been a bestseller.

    But the similarities end there. In the space of a generation, everything about the process of designing, producing and selling a Schwinn has changed.

    The old Sting Ray broke the conventions of bicycle design, boasting a banana seat, high handlebars and extra-wide tires. In the 1960s and early '70s it became not only a symbol of middle-class aspirations, but also a provider of thousands of jobs that paid good wages with health and retirement benefits.

    Today's model, which projects the rough look of a motorcycle, comes from China, where the average factory worker makes less than a dollar an hour. It is a symbol of a different sort -- an illustration of how global economic forces and the sometimes clumsy responses of U.S. companies transformed middle-class jobs into low-wage work both at home and abroad.

    In a nation that measures jobs in the tens of millions, changes to a few thousand barely register. But when multiplied across a wide range of industries, the rise and fall of companies such as Schwinn help explain why the economy has become less forgiving of workers who lack higher education or specialized skills.

    "We're missing a big, important part of our society. Either everyone has to go to college or everyone has to have very low-paying jobs," said Richard Schwinn, part of the fourth and last generation to run the firm that bears his name. "I'm not sure that's a great balance."

    The Schwinn Bicycle Co. went bankrupt in 1993 and sold off the brand. But at its peak two decades earlier, the Schwinn family oversaw a labor force of 2,000, the majority of whom never made it past high school. Several thousand more U.S. workers benefited from jobs at Schwinn dealerships, or in the steel and rubber factories that supplied parts.

    Richard Schwinn, a large, bearded man with the bearing of a lumberjack, now oversees an empire of 17 at a small custom bike factory in rural Waterford, Wis.

    About 75 miles away, in Madison, Pacific Cycle manages the Schwinn brand from a sleek office with just 80 workers. Pacific, part of a Canadian conglomerate, has a couple of hundred employees in California warehouses, taking in the bikes imported from the seven Chinese factories where most Schwinns are produced.

    From California, the bikes fan out to mass merchants such as Wal-Mart. Once there, cashiers making less than $10 an hour ring up the latest Sting Ray at prices much cheaper than the original. Pacific sells more than a quarter of all bikes purchased in the United States, with just about 350 U.S. employees.

    This is the outcome the Schwinn family had desperately sought to avoid. But like many companies struggling to decipher how American production and service workers fit in a globalized market, Schwinn erred badly. Industry insiders say the family's dogged but ultimately flawed determination to stay American-made contributed to its doom.

    "They did a lot of things right over nearly 100 years," said Gary Coffrin, an industry consultant. "But at the end, there were a lot of things that caught up with them."


    Building a Brand

    The Schwinn factory jobs paid what in today's dollars would be around the national average of $17 an hour, with benefits -- the kind of job that has been getting increasingly difficult to find.

    Many jobs disappear because their products or services become obsolete -- think buggy whips -- but the world still needs bicycle makers. Just not many American ones.

    In 2002, 41.4 million Americans rode a bike six times or more. But 99 percent of the bikes sold in the United States today are imports. "It's still a going industry," said Michael Kershow, former counsel for the now defunct Bicycle Manufacturers Association of America. But in terms of U.S. employment, "it's really a shadow of what it used to be."

    Imports held only a sliver of the market when Schwinn dominated the industry. It was founded in Chicago in the 1890s but rose to prominence through Depression-era innovation that redefined the bicycle as both durable and stylish. Its marketing genius was to cultivate a network of small dealerships run by people who knew bikes, and who were eager to promote the brand. Schwinn dealerships became a staple of downtowns, typically employing a manager, a full-time worker or two and perhaps a few teenagers in the summer.

    As employment rose at Schwinn and other factories after World War II, so did the fortunes of the middle class. From 1947 to 1979, median family income more than doubled, from $21,201 to $45,989 in inflation-adjusted terms. The gap between rich and poor narrowed, as the middle 20 percent of families gained ground more rapidly than the top 5 percent.

    Frank Greco's family was one that benefited . He started on the Schwinn assembly line at 25, grateful for the opportunity since he was just back from the service and lacked a college degree. "They paid good -- 80 cents an hour," he said.

    Greco's fortunes improved with the company's. By 1950, Schwinns accounted for one of every four bikes sold in the United States. Buying a Schwinn became a sign of making it in the middle class, just like the picket fence and the station wagon.

    Greco stayed for 40 years, rising to become a foreman. "I made a living. I bought my home. I raised my children. I got paid every week for what I did. I told [then-chief executive] Edward Schwinn when I retired, 'You don't owe me 2 cents,' " he said.

    Schwinn was at its busiest in the early 1970s when a nascent environmental movement coupled with a sudden exercise craze spawned a bicycle boom. Dealers began making pilgrimages to Chicago to appeal for more bikes.

    "We could only build so many," said Jack Smith, the executive in charge of distribution. "I'd tell them, 'I'd be glad to give you more. But who am I going to take bikes away from to give them to you?' "


    Imports Roll In

    As tastes began to change, however, Schwinn didn't. It continued to churn out the same heavy, tough-to-maneuver bikes that had been the mainstay of the industry for decades. "Durable? Yes. Lasts forever? You bet," said Jay Townley, an industry consultant and former Schwinn executive. "What the customer wanted? No."

    Competitors like Mongoose became pioneers in the burgeoning BMX market, while newcomers such as Specialized and Trek offered mountain bikes.

    There were new entrants from abroad, as well. In the aftermath of the bike boom, the tariffs on foreign bikes were lowered and it became easier to import. Entrepreneurs in Korea, Japan, Taiwan and eventually China, stood ready to feed American demand for ever-cheaper goods by supplying components and whole bikes under U.S. brands, or their own.

    Schwinn was among those that began to shift to foreign parts and imported bikes. But in its initial forays into globalization, it got burned badly. Its foreign suppliers, especially Taiwan-based Giant, soon became its toughest competitors, applying Schwinn technology and techniques to their own, cheaper lines. The Schwinn brand lost its cachet, its bikes indistinguishable from many of the rest.

    The total cost of just the parts for a Schwinn Varsity made in the United States might have been $70, but a Taiwanese producer could deliver the whole bike for that price, Richard Schwinn said. "Once that came up, you say, 'Oh, party's over.' " Compounding the problem was that Schwinn had failed to invest in its Chicago factory. It had become a relic -- a rickety, fire-prone facility incapable of producing the quantities of lightweight bikes that consumers demanded. In 1983, Schwinn shut it down.

    That decision foreshadowed a broader decline in U.S. manufacturing, with the sector supplying 5 million fewer jobs today than at its peak in 1979. Meanwhile, family income growth slowed, rising only about 15 percent over nearly a quarter-century. Americans without a college degree -- who make up about three-quarters of the adult population -- now earn lower wages in real terms than they did a generation ago.

    As it became clear the Chicago plant was doomed, the Schwinn family made one last attempt to preserve its heritage as an American manufacturer. While competitors focused their strategies overseas, Schwinn opened a plant in Greenville, Miss., in 1981. The location was no accident: A century earlier, Southern farmers migrated en masse to northern cities like Chicago in search of steady factory work. Now northern factory owners were looking south to traditionally agricultural, anti-union areas where they could cheaply hire the descendants of those farmers who had stayed behind.

    The plant struggled from the beginning. Costs were high and the quality uneven: The bikes coming off the assembly line in Greenville weren't necessarily any better than the ones shipped from Asia. Wages may have been low in Greenville compared with Chicago, but they were still several times higher than those paid to laborers in China or Taiwan. As the plant hemorrhaged money, Schwinn's leadership pulled the plug in 1991. The company declared bankruptcy two years later.

    Tommy Hart, who ran the area's economic development office, managed to acquire the last bike that rolled off the assembly line in Greenville. He had coveted a Schwinn as a kid. But as his own son prepared to leave for college, the pleading began: The bike would be perfect for getting around campus. Couldn't he take it with him, if he promised to take good care of it?

    "I let him talk me into it," Hart said, sighing deeply.

    It wasn't long before the bike was stolen.

    "That was the last U.S.-made Schwinn bicycle," Hart said. "And the crook doesn't have a clue. To him, it's just another bicycle."


    The Road Not Taken

    As Schwinn declined, another U.S. manufacturer moved into the breach. Unlike nearly every other major bike company, the three-decade-old Trek Bicycle Corp. still makes a considerable share of its bikes in the United States -- any bike that costs more than $800, about 30 percent of its production. At its Waterloo, Wis., headquarters, about half of its 785 employees work in manufacturing, and the plant is expanding. An additional 440 Trek employees work elsewhere in the United States.

    Still, to make its expansion pay off, Trek will have to sail against the trade winds; it makes a higher profit on its lower-end, foreign-made products. "It's definitely getting tougher to compete. You can get a complete bike offshore for what it costs us to weld one," said Zapata Espinoza, Trek's brand manager. "But being made in America is not just about the warm feeling of giving jobs to people. We control the process. We invented it. And we're doing it the best way we can by keeping control of it."

    For Schwinn, this is the road not taken, a model for how a company can simultaneously retain at least some U.S. manufacturing and stay competitive. Even though Trek's share of the total bike market is small, it dominates among customers at the high end. Industry insiders say a slimmer Schwinn with quality domestic manufacturing could have joined Trek at the top. Instead, Schwinn got caught in the middle: unwilling to move down to the mass-merchant level where most customers now shop; unable to compete for serious riders willing to shell out top dollar.

    "Schwinn was in such a dominant position. It's shame on them," said Chris Hornung, chief executive of Pacific Cycle. "They should have had my business and Trek's business."

    Instead, Hornung has Schwinn's business. He bought it out of bankruptcy in 2001, the second time Schwinn had gone belly-up in less than 10 years.

    Hornung's strategy has been simple: Import quality bikes from Asia. Get them to mass merchants such as Wal-Mart. Keep payrolls to an absolute minimum.

    Since applying that strategy to Schwinn, the brand has lost the support of most independent dealers, whose ranks are in decline. But it's been a hit among mass merchants, with the Sting Ray expected to top many kids' Christmas lists this season. "The bikes that we're putting the Schwinn brand on and selling to Wal-Mart are absolutely the best bikes that Wal-Mart has ever sold," Hornung said.

    Grudgingly, Richard Schwinn has to agree. Reviving the Sting Ray, he said, "is probably the coolest thing they've done."

    Schwinn is fatalistic about the fall of his family's company. The cause wasn't his family's mistakes, he insists, so much as the worldwide pressure on prices to keep sinking lower, a phenomenon to which he sees no end.

    To many economists, this is how things should work, with efficiencies making products cheaper and creating new opportunities at the high end -- in building satellites, if not in bicycles. Schwinn is less sure the trade-off is always worth it. What happens to a worker who has mastered the art of welding a bike frame, but whose command of advanced physics is shaky? "I know I have the right to life, liberty and the pursuit of happiness," he said, smiling wryly. "I didn't realize I had the right to the lowest possible price."

    And consumers do pay less for the new Sting Ray under Pacific's ownership. It may not be the engineering marvel that was the old Schwinn, but it retails at Wal-Mart for $180, about a third of the original's price in today's dollars.

    "People complain that a Schwinn is not what it was. True," said Greg Blake, an engineer at Pacific.

    "But," he said, "it doesn't cost what it did, either."

  5. #5
    Incorrigible Wanderer - R.I.P.
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    Is that a joke? Zap Espinoza?

    The Zap Espinoza, of Rodale Press fame? One of the lamest cycling writers who ever lived? And he's Product Manager for Trek? That company is doomed....

  6. #6
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    Quote Originally Posted by The Walrus
    The Zap Espinoza, of Rodale Press fame? One of the lamest cycling writers who ever lived? And he's Product Manager for Trek? That company is doomed....
    Boy, that was my sentiment exactly.

  7. #7
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    Not just the bike industry

    This is the story, more or less, of a large number of manufacturing industries. TVs, microwaves, washers & dryers, etc. And let's not forget, at the time Schwinn was a dominant player, GM had a 65% market share in the US. It's a harsh reality for the workers, but there's no realistic way you can pay somebody $30 an hour to put lug nuts on a Chevy, and that's essentially what GM was doing in the early 70s. Short of protectionist trade policies, which are shown, on balance, to depress economic activity, you cannot sustain such gross global inequities. It's the equivalent of trying to grow oranges in North Dakota. The trick is to keep the playing field level, not to offer tax subsidies for exporting jobs and to prevent countries like China from gaming the system, which they are doing to a massive degree.

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    New Chopper Stng Ray is a POS...

    [QUOTE=SamDC]A Rough Ride for Schwinn Bicycle

    by Griff Witte

    MADISON, Wis. -- In the glass atrium that marks the entrance to the Pacific Cycle company, the old and the new of the bicycle business are displayed side by side. Each is called the Schwinn Sting Ray, and each in its time has been a bestseller.

    Grudgingly, Richard Schwinn has to agree. Reviving the Sting Ray, he said, "is probably the coolest thing they've done."

    [QUOTE=SamDC]

    I saw a line up of these Schwinn Chopper bikes at a Dick's Sporting Goods in the Midwest. God, what a disaster!

    These are in no way comparable to the Schwinn Stingrays we saw in the '60's and '70's. These new bikes are unbelievably heavy, have no gears at all, and look to be very cheaply made. Ugly green paint and a goofy "West Coast Chopper" decal. Pul-eeze.

    The bike has plenty of trail, but wheel flop has to be a serious concern. With the pedals so far forward, I can't see how the kids will stand and get leverage over the pedals, an absolute necessity for any kind of single speed.

    The rear wheel is HUGE - what do you do if you get a flat?

    It's just another sign that the Apocolypse is nigh!

    The old Stingrays were well-built and very practical bicycles. The five-speed version could go anywhere. I delivered many a newspaper on mine and made great time doing it. They were practically indestructable and beautiful. These new ones are just junk priced at $190.

    The old days were much better.

    -PV

  9. #9
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    Hornung's strategy has been simple: Import quality bikes from Asia. Get them to mass merchants such as Wal-Mart. Keep payrolls to an absolute minimum
    that's the line that got me. i've never really looked over a wal-mart bike closely, but from what i've seen, quality is the last word i'd use to describe them.

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    "Even though Trek's share of the total bike market is small..."

    Not sure I understand, or agree with, that statement in the article. As to the quality of the new Stingray, it is marketed toward a segment of the public (kids) that don't know or care about quality. They want style and cool, and the bike hits those points very well. I predict it will be a huge hit for Schwinn-Pacific-Whatever.
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  11. #11
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    Buy American! It can be more expensive but..

    the best custom built bikes in the world are mostly made in the U.S. I would refuse to pay several thousand dollars for an import high end bike. Obviously, you don't have much of a choice when it comes to a lot of the components (Campy or Shimano).

  12. #12
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    Exactly as Kerry said!

    Quote Originally Posted by Kerry Irons
    The trick is to keep the playing field level, not to offer tax subsidies for exporting jobs and to prevent countries like China from gaming the system, which they are doing to a massive degree.
    Couldn't have said it better

  13. #13
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    kerry is right. I just biult up an older bike and it has the Schwinn Chicago on the head tube. Gives new meaning to it now....

  14. #14
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    Quote Originally Posted by Kerry Irons
    .................. The trick is to keep the playing field level, not to offer tax subsidies for exporting jobs and to prevent countries like China from gaming the system, which they are doing to a massive degree.
    Well, Kerry, take a look at how much of the US debt that the central bank in China is funding through the purchase of treasury notes. Between that and the central control over the value of the Yuan, they keep the cost of their labor artificially low. If you want to have a level playing field, you won't get it from China.

    No, the real problem that Schwinn had was that the company was being run by businessmen who weren't enthusiasts. The kind of person who was profit-driven, and likely didn't even ride a bike.
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    Leveling the field

    Dave, I'm well aware of the tricks the Chinese are playing with their currency. This is what needs to be fixed, and I am sure it will be fixed. I doubt that the US Treasury or State Departments will make this happen, as the entire US government (and its leadership) has shown itself to be either gutless or impotent on the issue. After all, Wal-Mart acutally joins unfair trade practice lawsuits on the side of the Chinese, against US companies. And we all know how important Wal-Mart is

    What I am confident of is that the Chinese practices are not sustainable. Long term trade balances do get fixed by currency adjustments - it's a question of when, not if. I'd sure be happier if the US administration saw this as an issue to be addressed sooner rather than later.

    Regarding Schwinn's demise, you are correct about their management, but the ENTIRE US bike industry (except the high end) went down the tubes, along with the appliance industry, the steel industry, the ship building industry, and on and on. Most of this had to do with globalization, not just bad management. Schwinn stands out to enthusiasts because they actually made good bikes too. No "serious" cyclist cared when Columbia, Huffy, et. al. went offshore because they didn't make better bikes. The US bike market, by volume, has always been dominated by cheap bikes. It's just that they used to be sold by bike shops instead of Wal-Mart. In a market like this, it's to be expected that a low cost producer would always win.

  16. #16
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    Still, to make its expansion pay off, Trek will have to sail against the trade winds; it makes a higher profit on its lower-end, foreign-made products. "It's definitely getting tougher to compete. You can get a complete bike offshore for what it costs us to weld one," said Zapata Espinoza, Trek's brand manager. "But being made in America is not just about the warm feeling of giving jobs to people. We control the process. We invented it. And we're doing it the best way we can by keeping control of it."


    What in God's green earth is he talking about? We invented what? Welding Alumium bike frames? Does Trek even make Al frames in the US?

    I wonder where his next job will be?

  17. #17
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    UNEMPLOYMENT made in China

    I was at ToysRUs with the kid this weekend and got a look at the Schwinn Stingray. Man, it must weigh 50 lbs. Not that the one I had as a kid was light. The thing looked more like a motorcycle than a bike, but I guess that's what sells. Hard to believe something that substantial can only cost around $150. I guess that ten cents an hour labor does it.

  18. #18
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    Well, FWIW, I had the dubious joy of actually seeing the old Huffy plant in Celina OH in action some 15+ years ago. What I saw was just short of apalling.

    A trailer was being loaded for a K-mart distribution center. The dock crew kept stacking boxes any direction that would fit (known as a "floor load"). When they got to the end of the trailer, they crammed as many boxes in sideways at the back, then used 4 guys to push the doors tight against the bikes. When I got the trailer to it's destination, several of the boxes were visibly bashed up. The guys who unloaded the boxes at K-Mart just dropped the top loaded boxes to the floor. I guess that since it was [email protected], they treated it like [email protected]

    Unfortunately, that's all Huffy was doing back then.
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  19. #19
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    Cool

    I miss my old Sting-Ray! And it was a good Sting-Ray too, circa 1969 (spoken like a true child-at-heart!) ;) My brother and I customized it with some "neat" parts, and I rode that sucker all over Phoenix. Even got chased by some Mexican kids who wanted to steal it - so it musta been nice! (Sorry you PC people) That was my first real attempt at a Cippolini-type sprint, but I didn't know it at the time. LOL!

    Too bad I didn't have one today in good condition - they're starting to be worth $omething:
    .
    .
    .
    THE BIRTH OF THE ORIGINAL STING-RAY

    Ask anyone who grew up between '63 and '75 if they ever heard of the Schwinn Sting-Ray and chances are you'll have an instant conversation starter. Not only do most adults of that era know of the Schwinn Sting-Ray, they also remember what it was like to own one -- or want one.

    Introduced in 1963, the original Schwinn Sting-Ray changed the world of bikes forever. By 1968, its design dominated bike sales. In that year alone, 70% of all bikes sold in America were either Sting-Rays or Sting-Ray knock-offs.

    Like most great product ideas, the original Sting-Ray was born from the streets. In the early '60s, muscle cars and motorbikes were all the rage. Kids on the West Coast picked up on this trend, building their own "wheels" from used bike frames retrofitted with customized parts. West Coast kids were especially into dragster embellishments like "Ape Hanger" handlebars and low-rider banana seats.

    In 1962, a young Schwinn engineer named Al Fritz got wind of this growing trend. On a tip from a friend, he decided to journey to California to see these crazy, tricked-out bikes for himself. Inspired by what he saw, he set out to create a bike that not only looked like the newest West Coast creations, but also lent itself to customization, enabling kids to trick out their wheels just as older kids were customizing their hot rods and choppers. After scanning the dictionary for just the right name, he christened his new bike the Sting-Ray, after the winged creature of the sea.

    The first Schwinn Sting-Ray (code named the J-38) went on sale in 1963 -- and received a very mixed response. The bike drew resistance from adults who thought the design was "weird" or "ugly." But the true connoisseurs of cool -- the kids -- couldn't get enough of the new customized creations. Priced at a hefty $49.95, Schwinn sold over 40,000 Sting-Rays in 1963 alone. They would have sold more if the company hadn't run out of 20-inch tires.

    For more than a decade the Schwinn Sting-Ray dominated the streets and alleys of America. Every year, new colors and styles were introduced. The first girl's Sting-Ray, the famous Fair Lady model, was released in 1964. With its pastel paint job and signature floral basket, the Fair Lady was an instant hit -- so much so that Seinfeld paid homage to it in an episode over three decades later.

    Perhaps the most famous model of Sting-Ray was, and is, the Krate. Distinguished by its hot rod colors, small 16-inch front wheel, fat rear tire, rear shock, springer front end, and infamous Stik-Shift, the Krate series was by far the most tricked-out Sting-Ray ever created. It hit the market in 1968, priced between $86.95 and $129.95. Between 1968 and 1970, Schwinn sold over one million Krates, transforming it into a pop culture icon. Then in 1974, the Consumer Product Safety Commission banned the Krate's signature Stik-Shift, essentially ending the life of the bike.

    While the Sting-Ray era may have ended with the birth of BMX, the popularity of the classic Sting-Ray has never faded. If you happen to have an Orange Krate, Apple Krate, Pea Picker or Grey Ghost in the garage, you are probably sitting on a small fortune. Krates in mint condition are commonly sold for upwards of $2,000.

    The way I remember it, if you were a kid growing up in mid 60's-mid 70's America and didn't have a gen-u-ine Schwinn Sting-Ray of some kind, you were "lower than whale crap".


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  20. #20
    bas
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    Trek did this a while ago, no? The lower end bike models are imports (aluminum frames).


    Quote Originally Posted by Orfeo
    Still, to make its expansion pay off, Trek will have to sail against the trade winds; it makes a higher profit on its lower-end, foreign-made products. "It's definitely getting tougher to compete. You can get a complete bike offshore for what it costs us to weld one," said Zapata Espinoza, Trek's brand manager.

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