The Lo down on Carbon

Interview conducted, transcribed and edited by Joe Lindsey.

Tony Lo is the CEO of Giant Bicycles, the largest manufacturer of bikes in the independent channel (not sold in department stores). He was one of Giant’s original employees and is a veteran of the bike industry with more than 35 years of manufacturing and sales experience. During Mountain Bike’s recent trip to Giant’s factory in Dajia, Taiwan, we had the opportunity to interview Tony about how Giant became the company it is today, where he sees the bike industry going in the future, as well as getting the dish on the frame material du jour: carbon fiber.

Mountain Bike: Take us through Giant’s history with carbon.

Tony Lo: Giant started in 1972, making bicycles for other companies. We started our own brand in 1981 and then after five years we started our brand in Europe and the U.S. and globally. At that time the major material was cromoly, but when we were starting the Giant brand in Europe, we were the new kids on the block and wanted to make the best bicycles.

So around that time (mid-1980s) we were looking in the market asking, “What is the best bicycle?” The answer was that it’s steel, because it’s very light and stiff, but people also said in the future it could be carbon fiber. You had some companies that were already doing this with aluminum lugs, like Alan in Italy and Vitus in France, but it was handmade, very small quantities and extremely expensive. It was only available as a frameset.

So without knowing too much we say, “Hey, if we can make one good carbon fiber bicycle that’s a good way to really differentiate Giant from the other bike companies. As a manufacturer, we’re always thinking about how to make the best product, with the best production, and make the cost more reasonable so more people can afford it and enjoy it. So it was a good idea, but a bit premature given that we didn’t know much about it.

The project was called 858, because it started in 1985 in August. So we started research and what we found is it was very difficult. We did a lot of research on the material. We got fibers from companies in Japan, from the UK and the U.S. and tested everything and identified that in Japan, Toray was the finest in carbon fiber materials. But at that time no one could really supply the prepreg (a carbon fiber sheet with the resin already in it), which currently they do. So we needed to figure out how to do prepreg, which we need for bikes, but Toray can only supply thread (carbon fiber without the resin which cannot yet be made into tubes for frames). So after all the research we find a German company that made a prototype machine to weave the thread in the amounts we needed. We found them because were also looking at resins, and the best was in Germany or Switzerland. And so we went to Ciba to learn about resins from them. They refered us to this German machinery company. They were surprised that we’re in bikes and not aerospace. So when we finally decided to go forward with our own project it was very international; we were using Toray thread and Swiss resin and this German machine and did it all in house in Taiwan.

That sounds like a great plan, but it took us almost two years to figure it out with all the testing and design and hand layup and computer testing. And those theories are great but when you make a real frame it goes to real testing. So it was a lot of challenge and obstacle to overcome and I give all the credit to (Giant founder) King (Liu) and our engineers to overcome all these things. Finally we said, “Hey there’s one more question – is this something we can sell?”

I said, “I’m not sure – maybe 10 or something.” We didn’t ask how we could sell it; we asked “Can we make it?” and we had no idea of cost or anything and we just made it. We introduced it as Cadex. It had aluminum lugs and carbon tubes and it was received quite well in the market. We didn’t sell a really big quantity – at first in the hundreds and then in the thousands, but I’m glad we did that because we set a high reputation in the Giant brand. Anyhow that’s the beginning of the story.

MB: You said in the beginning no one sold prepreg and you had to buy thread. How has industry changed in 25 years?

TL: I think in general the industry has evolved much slower than I anticipated. I figured that the technique would advance quickly. But on the contrary even today there are only a few carbon makers in the world. Toray is the largest. And because of demand of aerospace is so huge and for other needs – like wind energy – that’s taken a lot of consumption. The airlines are using it now, and for many years carbon fiber material has been in a shortage. The prices keep going up. Today it’s stable, but high. That’s one reason it can’t be really mass-produced. Even now the supply is tight. In this year with the financial crisis, the supply is better. But next year when (the economy) bounces back, boom.

MB: As you said, only a few companies make carbon. How important is Giant’s relationship with Toray for its continued success in making composite frames. When carbon becomes scarce, what role does that play?

TL: That’s true – even today there are only a few makers of carbon. With Giant, we’ve had such a long relationship with Toray, and in tough times they will take care of the customers they have. So even if they’re doing some kind of allocation of their capacity they will come to us to see what we need. Maybe they can’t give us all we need but we get some portion of it, not nothing. Whereas other companies that are newcomers or maybe don’t have as strong a relationship, they get nothing.

MB: Because carbon fiber only comes from a few makers, how important is the fiber versus the design process? Because carbon is relatively homogenous, does that make manufacturing techniques and experience the biggest variable?

TL: In the manufacturing world, in carbon, the basic technology never really changed from day one; it’s been almost 40 years. As time goes by everyone finds ways to fine tune it and advance the process to develop from the basic concept. Giant started in 1985 and every year we progress. Now we’re looking for future processes and will continue to move on. Maybe it’s a surprise to people because carbon is high-tech, and expensive and takes a lot of technology, but it also takes a lot of labor. Not only from the manufacturer side, but the product development side. If you’re working with a metal, the metal is stable. You can calculate thickness and what are its strengths and how much you need. You know what you have.

But in composite it’s more alive. It’s chemical and is not so easy to work with. The experience becomes very, very important. That’s something where Giant really differs from other people. We know composite for so many years, and we know bicycles, and we know what cyclists need from their products. Everyone wants their bikes to be as light as possible and as strong as possible. They want everything. But it’s a very fine line – too light and you are taking a risk. Maybe the frame fails. So we progress every year, but we keep a safe margin.

And different bicycles have different requirements – road, triathlon, mountain or even a more comfortable road bike. So I’m glad that we have all this knowledge and experience. Not just that we know how to manufacture a composite frame, but all those things play in to make the best quality products out there. When you look at some of the other companies, most if not all of them are from the tennis racket industry. They learned how to use composite technologies and a bicycle is an interesting product to do. Now they’re improving but the difference is they are not bicycle people. They don’t have the knowledge like us for what a good bicycle really needs.

MB: So with some other makers, the bicycle knowledge has to come from the client. The manufacturing partner just supplies the composite know-how.

TL: That’s right, and maybe the bikemaker doesn’t have that great of experience about composites, so it’s difficult to describe what I want (to the manufacturer). Sure, what I want in general terms is a very light, and very strong bike. But if you want to translate that into a technical language, there may be a gap. With Giant and all the resources and experience we have, we think we’ll continue to have a very strong position.MB: We talked about how there are very few fiber makers, but there are also very few bikemakers making composite bicycles – maybe 15-20 worldwide that actually build large quantities. Do you see that changing, with more companies doing it, or is it saturated now?

TL: I think in the past many companies tried to come in. It’s a good business, profitable and good to get in, so many tried in the past five years. Most are not successful. Personally I believe that the bike industry will continue to grow. Yes, it’s expensive, but more people are riding and there are some great quality bicycles out there. Maybe 10 years ago, a carbon fiber bike was very expensive. But today, it’s say, $3,000 U.S. – it’s a good investment for your health and happiness. So I believe demand continues to grow. Not straight up, but grow.

But we notice in the bike industry, every 10 years we look around and there are different competitors. And when I go to meet people or to trade shows, people say, “Hey Tony, you are the only old face here.” Giant will keep growing and we are one of the largest companies, but others come and go. In the past five years things have taken shape and there are only a few global brands – Giant, Specialized, Trek – and all these companies that are grown from small companies, it has taken time to become important in the global marketplace. Not everyone can sell carbon bikes.

I think in the future there will be carbon bikes from only a couple of types of companies: first, major brands that will continue to grow. They have a global brand and network and service and credibility. The other will be niche brands, in that they are focused on high-end products and carbon is perfect for them. So we’ll see a lot of that. But it’s not very easy for other people who want to get involved. And so what if your product is cheaper, if you cannot sell it? This is a very unique business structure that kind of prohibits a lot of people from joining in.

MB: What has driven that consolidation? I saw a quote that there used to be A-level bike brands, and B- and C-level brands, but that’s changing and now there are a very few A-level brands and no B-level, just C-level and what we just called small niche players. What do you attribute that to – the way carbon manufacturing works, or other things?

TL: Carbon is one reason, but it’s a chicken and egg situation. What made us change is a couple of things: number one, the largest market is the low-end. The independent bike dealer in the U.S. only starts at a medium price. The mass merchant, a lot of companies are chasing that business. Median quality is as low as possible and sometimes when you go to Wal-mart and look at the price – you see a bike at $89.95 and $100 and some customers look at that and a $1,000 bike and say, “Hey, it’s got two wheels, right? The only thing it’s missing is one zero on the price! One’s $100, and one is $1,000.”

So it’s become two different markets. There’s the bicycle market and we are in the cycling market. We made that decision many years ago – we’re not interested in making bicycles. We want to provide a cycling solution. The Giant brand is that we want people to enjoy life through cycling. People won’t enjoy it that much riding a bike around if they’re frustrated climbing a hill. They need the performance a good bicycle gives. So we devote our efforts to making cycling more interesting. And the other companies that are good are doing this too – to try to provide products for every consumer. And we go market by market because they’re all different. What is best for Taiwan is different than what is best for the U.S., or Germany, or Russia.

A few good companies with good strategies started to grow. And when you grow you have more resources to grow with and you can be stable for the long term. But a lot of other companies just cling to what they do and they know and they start to lose ground. And people notice. So in various countries a lot of traditional brands with strong histories start to fade away. And a lot of B players, they want to come up, but they can’t. It’s too difficult. It’s too expensive.

There are a lot of companies that have no history or some that are new but have an angle or a niche and have done a good job. They are taking advantage of carbon to build their niche. So there are a lot of niche companies doing this and now I think everyone was having a good time until last year and this year was difficult and is a big challenge. I’m not worried about the few important brands. We have a good strategy and lots of resources, but if the others want to grow, their challenge is finances and global infrastructure.

And some companies that are fast to market and nimble and have good technology have become successful very fast. But at a certain size they face the reality: there’s inventory, quality control, human resources, warranty and you have to have the financial resources to continue to grow. And in the past few years those brands took advantage of carbon. It’s sexy. They can develop new products and they don’t even have to develop new technology – they use existing technology from suppliers to come up with new stuff. It sounds like a great formula, but this year with the crisis, a lot of high-end products aren’t moving. And I hate when high-end products sit in a warehouse. At the high end, you can have 100 units in a warehouse, and that’s a lot of money. And if it sits there a year, no one wants it at any price. So some companies that are successful now will have to face that new challenge.

MB: That’s a good point. One point of view is that the bike industry will trade one crisis (economic) for another (carbon scarcity when the economy rebounds). Where do you see carbon manufacting going in the next 5-10 years” What will we see available to consumers, and what are the challenges Giant faces?

TL: Overall I believe that carbon will become more popular in the next 5-10 years because of the benefit of the material. And I think that for us, we’ll keep making good products, but even in the past we’re kind of at the limit of our capacity and are careful to expand. Now, we can grow supply-wise and we can do that. Composite is like making bread; there’s not just one kind of bread. Giant has enough knowledge that we know what kind of composite bike to make. And a bike for me is different than a bike for another kind of person. Like women’s bikes. We’re very keen on how to make contribution for women so they can enjoy cycling. Giant will start to diversify as we draw from our competition knowledge for different uses. And we believe we can continue to make technical breakthroughs, particularly in manufacturing.

MB: Tony, thanks very much for your time. This has been a very interesting interview. Is there anything else you’d like to add that we didn’t cover?

TL: Just the difference between Giant and other makers. We have a history of innovation. We were one of the first to mass-produce cro-moly tubing. That’s how we got so big – we came out with our own tubing. And then we went into aluminum and did the same thing. And now we’re the best aluminum manufacturer in the bike industry. I was amazed at what our people can do with aluminum alloy. How we can draw it and shape it and make it ride better. And now into carbon fiber. So we are not a material maker; we’re a bicycle maker. If we’re making the best carbon fiber bicycle, we also want to make the best metal bicycle. Or make a composite of carbon and aluminum. It’s just another application. It used to be there were two names on a bicycle – the tubing name and the bikemakers name. But just as we start with thread in carbon, in aluminum we start with ingot. With all our experience and technology, there are many, many possibilities.