CESTA

Promotion of Bicycle and Tricycle Use in El Salvador

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APPENDIX: SCENARIOS OF BICYCLE PRODUCTION IN EL SALVADOR

What follows are 2 scenarios about the initial step of bicycle production in El Salvador. Both scenarios are based on the assembly of bicycles with hand tools in small family workshops and an average production of 1 bicycle per person per day. The following assumptions are valid for both scenarios:

1. The first shipment of bicycle parts is ordered on July 1 1987
2. A new shipment is ordered every three months
3. The shipment with the bicycle parts arrives 6 months after the order is placed. The first shipment arrives on January 1 1988
4. Each shipment is a 40 foot container with bicycle parts to assemble 600 bicycles
5. The first training course on bicycle assembly starts on September 1 1987, to prepare 10 family workshops. The course ends at the end of the year and the assembly of bicycles begins on January 1 1988
6. Each workshops assembles 240 bicycles a year
7. To sell a group of 600 assembled bicycles, 3 months are required
8. The bicycle is sold at a price that covers all the costs, therefore, a container of bicycle parts reproduces itself indefinitely.

The first scenario assumes that the funds from selling the bicycles are recovered immediately. That can take place if local banks finance the purchase of bicycles to the workers.

Since each container with bicycle parts is sold 3 months after the bicycles have been assembled, the total cost of the 600 bicycles is recovered 3 months after they have been assembled.

The scenario is as follows:

Date	FIRST CONTAINER	SECOND CONTAINER	THIRD CONTAINER	FOURTH CONTAINER	FIFTH CONTAINER
1/7/87	ordered
1/10/87		ordered
1/1/88	arrives		ordered
1/4/88	assembled	arrives		ordered
1/7/88	sold	assembled	arrives		ordered
1/10/88		sold	assembled	arrives

This scenario shows the history of the first 5 containers. The first container is ordered on July 1 1987, it arrives on January 1 the following year, it is totally assembled by April 1 and it is sold by July 1. The following containers have a similar history but each container has a 3 months offset time with respect to the preceeding one.

The fifth container has to be order by July 1 1988, but by then the money from the first container has been recovered and it can be ordered with these funds. To keep this scenario an initial financing of 4 containers is needed, since after the fifth container the industry is self-sufficient and the funds can be recycled indefinitely.

This scenario assures that no funds can be obtained from the local banks, so CESTA has to finance the acquisition of bicycles to the workers by allowing them to pay the bicycle in 2 years (24 installments). This means that 3 months after assembling the bicycles, CESTA sells them but their total cost is recovered after 2 years.

When a set of 600 bicycles is going to be paid in 2 years (24 installments), it means that each month CESTA recovers in payments an equivalent of 25 bicycles (25x24=600), or 75 bicycles every three months.

The history of the first container is the following:

1/7/87	ordered
1/10/87
1/1/88	arrives
1/4/88	assembled
1/7/88	sold
1/10/88	A money equivalent of 75 bicycles is recovered
1/1/89	75 more are recovered. Accumulated total = 150
1/4/89	75 more are recovered. Accumulated total = 225
1/7/89	75 more are recovered. Accumulated total = 300
1/10/89	75 more are recovered. Accumulated total = 375
1/1/90	75 more are recovered. Accumulated total = 450
1/4/90	75 more are recovered. Accumulated total = 525
1/7/90	75 more are recovered. Accumulated total = 600

The bicycles of the first container are sold by Julv 1 1988 and every 3 months an equivalent of 75 bicycles in regular payments is recovered until the total amount is recovered by July 1 1990.

The objective now is to combine the effect of several containers and find the time when the recovery of funds reaches a level where the industry can continue ordering containers from its own resources.

The following calculations show just the effect of the recovery of funds of the different containers. It must not be forgotten that the first container was ordered on July 1 1987, and its recovery (the first 75 bicycles) starts on October 1 1988. All the other containers behave in the same wav, but each one has an offset time of 3 months with respect to the preceeding one.

Missing table. Please write me an email, if you are interessted in the table

The first container is totally recovered by July 1 1990, from then on en equivalent payment of a container of bicycle parts is recovered every three months.

On October 1 1989 the accumulated money recovered from the payments was the equivalent of 1125 bicycles, so a new container of parts can be bought with the recovered funds. A container with parts for 600 bicycles is ordered and the net accumulated recovery remained equal to 525. Three months later (1/1/90) the accumulated recovery increased to 975 but a container was ordered on the same day and the net accumulated recovery remained equal to 375. From then on a new container can be ordered every 3 months from recovered resources and the net accumulated recovery remains constant and equal to 300 bicycles.

The results from this scenario show that from October 1 1989 the industry is self-sufficient but in order to reach this stage an initial financing of 9 containers is necessary.

The 2 scenarios discussed represent the extreme cases. In the first case when the money from the bicycles is recovered immediately, a financing of 4 containers is required to start and keep the industry producing 2400 bicycles every year. If the bicycles have to be financed to the workers from own resources giving 2 years to pay, a financing of 9 containers is required to start and keep the industry at the same production level.

To simplify the scenarios, losses that may arise due to some irregularities in the payments were not considered, possible profits were not considered either. In the selling of the bicycles a small profit margin will be established to cover any possible losses.

The bicycle parts to assemble a good quality bicycle (CKD bicycle) may cost about US$ 75 CIF in a Salvadorean port. This means that a container with parts to assemble 600 bicycles will cost about US$ 45000.

To start this project it is, necessary to equip the 10 family workshops with a good set of tools and give a training course. The tools for the workshops may require an investment of US$ 15000 (US$1500 per workshop) and the course may cost some US$ 6000 to prepare it and US$ 4000 to teach it, which means that an additional investment of US$ 25000 is recquired.

For the first scenario the total investment will be about US$ 205000 (US$ 180000 for the 4 containers and US$ 25000 for the tools and the course), which is an average of US$ 51250 per container of bicycle parts. For the second scenario the total investment will be about US$ 430000 (US$ 405000 for 9 containers and US$ 25000 for the tools and the course), which is an average of approximately US$ 47800 per container of parts. In both cases there will be an annual production of 2400 bicycles.