Next Year's Model
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Next Year's Model
Detroit and Silicon Valley don’t hold the keys to the auto’s future; Henry Ford does.
Posted Monday, December 29, 2008 - 12:00pm
The Detroit bailout may finally be a done deal, but given the precariousness of the auto industry, a critical question remains: If the U.S. car business can't yank itself out of a death spiral, what will take its place?
The consensus is that Detroit has been unable to build cars that people want to buy. At a congressional hearing on Dec. 19, Rep. Edward Markey, a Democrat from Massachusetts who chairs the House Select Energy Committee, faulted the Big Three in software-era language: For decades, they've constructed Car 1.0 and failed to make the leap to Car 2.0.
The distinction between Car 1.0 and Car 2.0 is drastic. Car 1.0 is a gas-chugging polluter. Car 2.0 is a glistening green machine that either sips gas or forgoes petroleum entirely. Car 2.0 can't be built in the old way, either. A pair of Car 2.0 experts—David Muyres and Geoff Wardle of Art Center College of Design in Pasadena, which has one of best transportation design programs in the world and conducts an annual sustainability summit focusing on future mobility issues—testified before Markey's committee and pulled no punches: According to them, "the business model of the traditional car industry is broken."
So if the old way is forever wrecked, who can bring us Car 2.0? Some experts assume that a host of plucky startup companies will be nimble enough to develop the environmentally friendly vehicles and electric drivetrains that will rescue us from the incompetence of GM, Ford, and Chrysler and deliver green nirvana.
That might be wishful thinking, but let's first acknowledge that the Car 2.0 bunch is onto something. Detroit's goal has never been to sell the cars that consumers want to buy; it's been to sell the cars that will yield the highest profits. By contrast, startup car companies such as Tesla, Aptera, Fisker, Bright Automotive, and Commuter Cars have adopted the Silicon Valley mojo, using indie, engineered-in-a-garage values to develop cars that people should buy. These vehicles ooze cool and resemble not so much cars as large-scale consumer products—iPhones on wheels—that are attached to earnest social causes and that advertise the entrepreneurial verve of their founders and the evangelical dedication of their employees.
Palo Alto's Better Place has taken it one step further, eliminating the manufacture of cars altogether and focusing instead on what powers them. The company's plan is to organize subscription access to batteries, treating miles the way that cell-phone providers treat minutes. The cars themselves are yoked into the system either through purchase or lease from established manufacturers. Thomas Friedman caught wind of it and likened Better Place's business model to the iPod's creative destruction of the old music biz.
Comments
New Car?
So a car 2.0 would seat at least 6? Do you have any idea what percentage of trips are made with just one or two people in the car? If you want to get crazy enough to call something 2.0 you need to actually innovate. You throw as many crazy ideas out there as you can and see what sticks.
What about if your car only had two seats but you could easily add a trailer to it for more passengers? Then you could add just the right amount of seating for any trip. On longer trips you could hook up with other peoples cars and cut the drag coefficient. What if a city didn't allow private car ownership but subsidized a car share program instead? What if certain roads only allowed super-compact cars? (What if instead of mostly evaluating vehicle safety based on crash survivability we evaluated based on crash avoidance?) Six passenger cars might work, but maybe only if you also start using a mileage tax or a congestion tax.
DARPA is doing so pretty cool things with self driving cars. If that got integrated into a car share service it could be revolutionary. You talk about mobility. Is it better to be able to drive 10 miles to a drug store or to live somewhere where the drug store is only a block's walk away? (Or maybe a 2 block free bus trip.) Car 2.0 is probably not even worth looking at unless it's part of an overall transportation redesign/rethink. If the bus stops in my town were inside buildings I wouldn't get could waiting. I'd think about leaving my car at home. What if box stores pushed a delivery service?- you check out your groceries, get on the bus and a store delivery service drops off your groceries. If they delivered groceries for a different neighborhood each day think how much gas they could save. Maybe car 2.0 is a bigger mail slot (maybe with a separate refrigerated/freezer slot for your food.)
Have you ever noticed modern buildings sit way back from the road at the back of a parking lot? Great for cars, lousy for buses... Get a bunch of smart people in a room. Tell them no idea is too silly. After you have run out of new ideas, sift through and see what makes sense. Maybe you'll have Car 2.0, or maybe you'll actually have mobility.
Back to the Future w/ Henry Ford?
The persistent anti-union bias on this and every financial Web site gets a little tiring. As others have pointed out here, the UAW is not adding costs and is not part of the problem here.
The car that DeBord describes is actually already made by Ford. It's called the Escape Hybrid, and there are thousands of them roaming the streets of New York as taxicabs. I would buy one if I could afford it, and so would many others I suspect, and there's the problem. The Escape Hybrid won't solve Ford's problem or anyone else's because this technology is still too capital-intensive, not just for the manufacturer, but for the consumer.
Even if I had the money, and even if gas were to go back up to $4/gallon, the break-even point for the additional cost of such a vehicle happens well after 100,000 miles. This is a public policy problem far more than a corporate governance problem. Less efficient vehicles must be taxed and more efficient vehicles must be subsidized. Public transport must meet a much greater share of our transportation needs, a revolution that must be brought about by subsidy, zoning, legal, and tax changes. 30+ years after the Arab oil embargo, do we have the wherewithal?
Car 2.0??? Pretty low expectations
Your vision of Car 2.0 is, I have to say, fairly unimaginative. In some sense you are right on the money...sure Car 2.0 is green, meets the needs of most people, is affordable and dependable. Unfortunately, I think your definitions are a little bit off---25-30K for basic car that gets a measley 35-40 miles to the gallon? And I think that one of the outcomes of the economic downturn is that the average worker is beginning to wonder if they should splurge on a big SUV for the solo commute. How about a comfortable, but no-frills sedan? That costs under 20k? Or better yet, how about under 15k. I own a Yaris that meets both these criteria and didn't require a hybrid engine. What you've described doesn't require innovation or nouveau engineering, and at your price point is called the TOYOTA PRIUS!
Sure I like creature comforts, but I don't base much of my self image on the car I drive, and I'd never spend over 20K to buy a car. (I think there are others out there) Give me a hybrid gets 75miles - 100miles to the gallon and gets me to work and you've got a potential customer---make it affordable (so that most now-economically challegenged americans can buy it---maybe even without a note (ala Tata)) and that's car 2.0 with technological and economical innovation.
Already have this car
The car this article proposes already exists. The description fits the Scion xB (first generation) from Toyota. It can seat 5, gets 30-34 mpg, cost 15K new with a/c and auto tran. Perfect for city driving, 30 mile commutes, mid-city travel. Admittedly, a bit underpowered for long distance travel or for real hilly terrain.
If it had been marketed differently, the Scion xB could have been the Model T (or the 'peoples car') for this decade.
mobility paradigms
Aw, this article started off so great but the ending was a real let-down. After outlining some actually innovative ideas like the subscription battery thingie, you end by proposing exactly what car companies are already doing!
On the long term, the real problem is getting beyond the idea of the car and towards efficient mobility. A car is the most efficient means of transportation in some situations. Innovators will find ways to promote the car (in its greenest form) for those kinds of situations and discourage it for others, while providing the alternatives for situations when a car is not ideal.
The last thing we need is more people driving because suddenly cars are "okay" again. Pollution is not the only negative effect of individual commuting. The construction of exurbs and the added costs to social/community life and infrastructure that come with them, wasted time spent in traffic jams--these are all real costs too.
Normal Auto Business Cycle
This is the normal automotive business cycle - boom and bust. Even the Japanese transplants are hurting. Everyone appears to want to make this current cycle a "crisis".
It appears the North American auto market bubble has popped from 16 million units down to 13 million. Why? Consumers thought they were rich by taking second mortgages and flipping houses and buying expensive vehicles they really didn't need but wanted. By looking at their 401k's, they now realize they weren't rich but heavily in debt over their heads and they didn't need the vehicles.
The auto boom will happen again. Americans relish large SUV's and will get them as long as:
A. Gas stays cheap. I bought it yesterday for $1.39 per gallon.
B. Interest rates come down. 30 Year fixed nearing 5.00% and about to go lower. Refi's are on their way.
The automotive business cycle "boom" will start again in 9 to 15 months.
As a side issue, I'd really like someone to research and write an article on why was oil so artificially inflated during the middle part of 2008 when U.S. was in the middle of the recession. Only when the Automobile Association of America supplied hard data that miles driven compared with previous year were WAYYY down did the price of oil start to drop. Somebody is missing a story here.
A Few Misconceptions
Matthew:
Lets start here:
"Detroit's goal has never been to sell the cars that consumers want to buy; it's been to sell the cars that will yield the highest profits."
Up until 2005, Detroit was selling 15-17 million cars per year to customers who were snatching up these big, by the pound, and faster dinosaurs. They had no reason to demand efficient and smaller, muchless change their driving habits, until $4/gallon gasoline came about. Remember, the economic maodel is driven by laissez faire reaction and market corrects.
"few startups could handle the high cost of a unionized work force."
Detroit wages are comparable to Toyota wages and also down-South wages when one takes into account cost of living between the South and the North (15-25% difference). Corker's and McConnell diatribe on union costs was silly at best and partisan as they sought more business for their state. If you enter into manufacturing thinking that labor cost is going to be the problem and the highest cost of manufacturing, you are employing a manufacturing model that is not in keeping with your product's ingenuity. The costs will be the same as the South or the much lower costs of Detroit after 2010 (which the South will follow also).
Labor has not been an issue in manufacturing since the sixties. Intensive labor product industries were one of the first to leave the nation in the migration overseas. Sounds contradictory I know . . . maybe get a hold of some of Drucker's work. Direct Labor (and Gettelfinger hit on it) is <10% of the cost of a product/car, 30% - 40% is Overhead, and the balance is Material Cost. That $75/hour invented by Delphi's Miller is made up of retiree pensions/healthcares and worker healthcare. Maybe if the companies (not just automotive) and the states had funded them properly and not over forecasted the ROI, they would not be citing these costs as issues now?
Automotive companies were profitable with $28/dollar hourly wages when the cars were selling. That $28/hour was based upon a skilled and efficient labor force which evolved over the years. With the oil price increase and Wall Sreet driving the economy over a cliff with the derivative market, they would not have been knocking at Congress's door.
"a simple vehicle that adequately satisfied the needs of most prospective new-car owners (and it was cheap enough for the workers who built it to buy one)."
You are hitting on the crux of much of today's issue with Detroit . . . Detroit is too diversified. Oldsmobile and Plymouth have disappeared along with many singular car models. Pontiac will disappear also except for a few niche models. SUVs and Pickups will be relegated to the base models of Ford, Chevy, and Dodge. The promulgation of platforms and designs has spawned a plethora of parts and materials that is ridiculously expensive (see above on costs). Why was it done? To satisfy customer demand for something different to appeal to each consumer's uniqueness (note those Nissan and Toyota look alike pickups). This is not going to disappear until we hit high gasoline costs again and there is "no" administration (yet) that will legislate efficiency in auto transportation. Your point on being nimble and decisive pivots on how big and how many models a company has, a point that Toyota and Nissan are rapidly approaching.
Anyhoo, my $.02
Ford has a dated idea. Give us freedom FROM the road.
Now that we routinely spill blood for oil, oil companies and carmakers are pee-pants scared that we'll come to define recreational driving as overconsumption and unpatriotic -- and abandon them forever.
Yet a radical "Car 2.0" is the wrong initial response to the severe & immediate problems caused by Car 1.0.
Solution?
Build us some us radically lighter gas powered cars Detroit. To immediately double or triple mileage from a gas powered car, set a federally mandated weight limit of @ 1500 lbs for a 4 passenger sedan,that's about half the weight of today's car. Force the phase-out of the heavier, deadlier cars through punitive hikes on registration and insurance fees to penalize into submission those drivers who insist they need a Ford Excursion because once a week they have a baby on board.
Also focus on the real issue: Your primary need is for locomotion of that part of you that needs to be at a specific place at a specific time -- mostly to earn your daily living.
For 70% of us deploying the unexciting concepts of modern mass transit, combined with telecommuting, would personally save us thousands of dollars each year and ultimately save your employer overheads for parking structures, for heating worker bodies,for providing us well lit places to do our work.
Still want your car? Me too. Just make it a slim, trim one that lets me spend my money in other sectors of the economy.
"Startups should deal with
"Startups should deal with union labor—ethically, supporting the workers fits more with the entrepreneurial mindset—but, regrettably, few startups could handle the high cost of a unionized work force. That said, they should leave themselves open to rapid unionization once their businesses are better established—a sequence that could actually benefit the UAW in the long run."
Perhaps the start-up you have in mind could find a way to support the workers _without_ dealing with union labor. For example, it could simply offer to issue workers money in exchange for their labor -- that would be ethical. Or, it could avoid the problem by subcontracting out the assembly operations to a variety mechanical-assembly small businesses -- and let the contractors deal with the labor issues themselves. That way, if a union puts one contractor out of business they could redistribute the tasks to a competing contractor.
Distinctions between Prius and Volt
So, is it just fashionable to diss the Volt because it's from GM instead of perfect(ly dull) Toyota? A "plug-in of the Prius variety" is really just another Prius. The Volt's ability to serve the needs of the majority of US drivers in all-electric mode most of the time offers significant advantages, and is more of a "car 2.0" concept than a Prius that gains an MPG or two by charging its batteries from the wall socket but is still dependent on gasoline in nearly all of its operating regimes.