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The Explainer: Wrapping up the year and emptying the in-box

  • By Charles Pelkey
  • Published Dec. 30, 2010
  • Updated Jan. 6, 2011 at 7:52 AM EDT

Dear Readers,
It’s been an interesting year in cycling and in trying to choose a topic for this final Explainer column of 2010 I turned to my in-box and found I had a number of requests for follow-ups and questions that really only need brief answers. So, I thought I would use this opportunity to clear the decks, as it were, and try to update readers on some past stories and to answer some of the short questions to which I’ve either replied personally or that have lingered unresolved.
Charles

Q.Hello from Cancun,
I have a question for the Explainer. I read that a German table tennis player named Ovtcharov got busted for clenbuterol. His federation dismissed the charges when his teammates got hair samples tested that showed also traces of clenbuterol, seemingly proving that they got it all from food eaten during a trip to China.

Alberto Contador : Would a haircut help?

Is there any chance that we might get a surprising ending to Contador’s problems with such an outcome?
Jesus

A.Dear Jesus,
Indeed, Dimitrij Ovtcharov, a silver medalist in the table tennis team competition at the Beijing Olympics, was cleared of charges that he had used clenbuterol as a performance-enhancing substance.

He was suspended in September by Germany’s table tennis federation – the Deutscher Tischtennis Bund – based on the presence of the stimulant in a sample analyzed by the same lab in Köln that did the work on Contador’s sample from the Tour. Even Wilhelm Schaenzer, the lab director, said that it was likely that Ovtcharov’s exposure to clenbuterol was the result of food contamination.

In a relatively quick hearing, the DTTB then cleared Ovtcharov, based in part on hair samples he and his teammates supplied to bolster his very Contador-like defense, that he had consumed contaminated food during a trip to China.

I have not heard of a similar hair-based evidence being supplied by the defense in the Contador case.

Even if it is raised in Contador’s case and proves to be successful as far as the investigating panel in Spain is concerned, such a conclusion will most certainly be challenged on appeal.

While Ovtcharov was cleared by his national governing body in October, the World Anti-Doping Agency (WADA) had the right to appeal the decision to the International Court of Arbitration for Sport (CAS) if it disagreed. WADA exercised that option earlier this month and the case bears watching — especially for Alberto Contador.
Charles

Q. Dear Explainer,
In the past year, there have occasionally been stories about a possible doping investigation into Team Astana during last year’s (2009) Tour, apparently stemming from the discovery of “suspicious items” in the team’s trash bags. Is there an active investigation, and does it relate in any way to the current charges being brought against Contador?

Thanks!
Charley

A.Dear Charley,
It’s true. Back in January, French authorities confirmed that they were analyzing medical equipment that had apparently belonged to the Astana team during the 2009 Tour de France.

There have been few reports as to what results that investigation produced, but, according to some sources, the equipment analysis was one of the topics of conversations between European anti-doping officials and American investigators during a joint meeting at Interpol headquarters in Lyon, France, in November.

That would suggest that the equipment question was raised in connection with Jeff Novitzky’s ongoing U.S. investigation into allegations that Lance Armstrong’s U.S. Postal Service team engaged in illicit performance-enhancing practices. One would have to assume that the same questions are being raised in connection with the Spanish investigation of his then-teammate Alberto Contador.
Charles

Q. Dear Explainer,
I was reading the newspaper and noticed that there are now several 2011 model year cars for under $11,000. I happen to think about the fact that I could spend that much on a bike. My thought then turned to the amount of raw materials, research and development, moving parts, electronic parts, combustion, shipping to a destination, unions to deal with, in each of the products. It does not make much sense.

Of course, I would rather have the bike. Thought you could have some fun with this one.
Tom

A.Dear Tom,
Man oh man, that’s a question for my wife, Diana, who is an economist and the smart one in our family. Since she’s still asleep, though, I’ll take a stab at it.

My first gut-level response is to suggest that comparing an $11,000 bicycle to an $11,000 car is probably not fair. It’s probably more appropriate to compare that $11,000 car to something akin to a bike you can pick up for around $100 at your local big box department store. Both benefit from the economies of scale enjoyed by the mass production of components and the final product.

When dealing with mass-produced items like bikes and cars, manufacturers can spread the costs of production over a greater number of units, get a tiny marginal profit from each item and still walk away with a lot of money, if they sell a huge number of them.

The Tata Nano: It might get you to the grocery store and back, but you won't be racing it.

Indeed, when taken to the extreme, the $11,000 car appears to be downright pricey when viewed in terms of the global market. In China and India, manufacturers are engaged in a race to the bottom when it comes to price points for automobiles.

Renault and Nissan have teamed up to produce a car for the Indian and Chinese markets that would purportedly sell for around $3000. India’s Tata made a big splash in 2009, unveiling the Nano with an advertised sticker price of around $2000. The final sticker price of the Nano actually came out to be much more than that (around $3200) and sales have been sluggish, largely because of safety, quality control issues and an annoying habit of bursting into flame.

Cars in that price range are unlikely to appear in an American showroom, since there the U.S. has emissions and safety standards … and because folks here also remember the Yugo or that tort attorney’s dream car, the Ford Pinto. Nonetheless, once a company can overcome the initial investment hurdles, it’s amazing how cheaply one can produce even a complicated machine like a car, especially when quality isn’t exactly a top priority.

On the bike side, two-wheeled, human-powered transportation of similar quality can be produced for next to nothing. Indeed, once the manufacturer has invested money in production equipment, the marginal costs are so small, it makes more economic sense to wholesale a complete — albeit crappy — bike for less than 20 bucks, than it does to shut down production and wait for prices to go up. Of course, the long-term consequences of that strategy is greater production, which leads to lower prices as demand gets filled. Then manufacturers have to come up with even more efficient means of production, lower quality or re-tool and start making lawn-mowers or kitchen tables.

So, to what do we compare a bicycle with a sticker price of, say, $10,000 to $15,000? I wouldn’t go so far as to suggest that a brand new Pinarello Prince with all of the best high-zoot components you can assemble is in anyway akin to a Bugatti Veyron, with its sticker price of $1.7 million (let alone the Super Sport version of the Veyron, which goes for $2.7 million). But it might be fair to begin looking at other high-end sports cars as a fair comparison. Think a “mid-priced” Ferrari or Lamborghini, for example.

What economists do for fun

At those levels, you’re likely to see considerably more hand labor and individual attention, precision engineering of components and far more expensive materials. On top of that, there are fewer units produced, so a manufacturer has a smaller number of items over which to spread its initial investments.

Sure, a race-quality bicycle can still be built for far less than $11,000, but the demand elasticity for high-end bicycles and cars may be quite different than it is for their more “commodity-like” low-end counterparts. Prices at the high-end are high because … well, because they can be.

Cool as it is, I really doubt that the Veyron really costs anywhere close to $1.7 million to produce (although a reader recently posted a comment below that suggests otherwise). The marginal profits can also be high on luxury and high-performance goods like that because of that more subjective cachet of high-end branding (you know, that’s the reason a handbag with a stylized “G” can sell for $2000, despite the fact that a knock-off Gucci bag of identical quality can be produced for around $30) and you see why some bikes sell for more than some cars.

As you can see from the graph, it gets complicated and involves much more math than I ever had to deal with in law school (where we were pretty much limited to calculating damages and figuring out what our contingency fees might be). As I said, Diana is much better at that stuff than I am, but she’s on semester break and enjoying the option of sleeping in.

Simply put, I would happily race a Tour de France on an $11,000 bicycle (assuming my aging “engine” were worthy of such a ride), and I would venture to say that a fit and talented cyclist could fare reasonably well, even on a $2000 bike. Conversely, I sure as heck wouldn’t want to line up at the Grand Prix de Monaco with an $11,000 car, let alone a Tata Nano.
Charles

RE:And while we’re on the subject of finely crafted automobiles, I do want to add another note or two in the ongoing saga of our poster boy of responsible driving, Mr. Martin J. Erzinger.

Where's Martin?

As I mentioned last week, Mr. Erzinger finally took steps to comply with the reporting requirements of the Financial Industry Regulatory Authority (FINRA), by updating his BrokerCheck profile and reporting that he has, indeed, had a criminal “event” pop up in his life.

It took the District Court in Eagle County, Colorado, to encourage him to do that, despite the fact that FINRA regulations really required him to have done so back in September. Mr. Erzinger’s profile did mention the dismissed felony charge of leaving the scene of an accident resulting in serious bodily injury. That, however, appears not to be sufficient to Mr. Erzinger’s victim, Dr. Steven Milo.

On Wednesday, Milo’s attorney, Hal Haddon, filed an objection with the court in Eagle County, noting that Erzinger had failed to disclose the two misdemeanor guilty pleas that resulted from the same incident.

Quoting the directive of the Court that Erzinger file “all documents associated with any professional activity in which you are engaged that demonstrates that you have been charged with a felony and that you have entered pleas to something other than a felony,” Haddon rightly contends that Erzinger has not fully complied with the order.*

I have lately made it a habit to look in on FINRA’s “Broker Check” to see if there are any new developments. (Given that I have all of the financial acumen of anyone who’s stayed in journalism for as long as I have, it’s certainly not a website I’d used too often before.) As I said last week, his profile was updated, but not to the satisfaction of the victim. There have been no new updates since last week.

Neither had I spent a lot of time dinking around Morgan Stanley Smith Barney’s website until this story broke. But it was there that I first tried to learn who Martin Erzinger was and why District Attorney Hurlbert was concerned about his professional prospects. Oddly enough, when I went back for a visit this week, I could find no mention of Mr. Erzinger. His profile on that site seems to have vanished into the ether.

Not one to jump to conclusions, I tried to contact Morgan Stanley’s media relations office, but they haven’t returned any of my 11 calls. Go figure. Anyway, I’m not sure what’s up with that, but I thought it interesting and worthy of mention.

Hey, have a Happy New Year folks. It’s been an interesting year and I look forward to hearing from you and fielding more of your questions in 2011.

Be safe, be smart and have fun out there.
Charles

* UPDATE: On Thursday, Erzinger’s attorney, Richard Tegtmeier filed an initial response to Haddon’s objection:

Mr. Erzinger has complied with the requirements of the FINRA report. He has fully and truthfully filed all of the required information. He has paid all the court fines and fees imposed by the Court. Additionally he has received Court approval for the community service element of his sentence and is en route to a 45-day mission in Haiti where he will assist with care for the poor and orphans.”


“The Explainer” is a regular feature on VeloNews.com. If you have a question feel free to send your query toCPelkey@CompetitorGroup.com and we’ll take a stab at answering. Not all letters will be published and some questions may be combined with those of other readers. Please include your full name and hometown.

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