Reinventing the Auto Industry: Lessons Learned from IBM

Picture the scene. It’s late 1992. The U.S. is still recovering from a severe recession and financial crisis. But there’s trouble on Main Street. One of the nation’s most venerable industries is in shambles. Upstarts from Silicon Valley created a new technology that is rapidly destroying the main frame computer business, one of the great success stories of postwar America. And now low cost competitors from Asia are rapidly destroying the competitiveness of the U. S. chip manufacturers.

As a new administration is preparing to bring historical change to Washington, hordes of blue suited, white shirted IBMers descend on Washington to demand a bailout for their critically important industry. Joining the chorus are congressional leaders from New York State, fearful that high paying jobs are about to be lost. The nation is galvanized as Congress passes and the new President signs the Computer Industry Relief Act of 1993.

Well of course we know that this never happened. Instead, Lou Gerstner and his team transformed IBM (IBM) from a hardware manufacturer to one of the world’s leading IT services providers. Intel remade the chip industry, replacing dumb chips with very smart ones, creating an explosive personal computing industry. Sure some of the old mainframe and mini-computer companies are no longer around and those that are look nothing like the ones their previous selves. But the industry that emerged is far larger, more profitable and provides many more jobs that the mainframe manufacturers ever dreamed of.

The federal government is going to provide some form of support for the auto industry. There are too many jobs at stake and frankly the patient (the U. S. Economy) is too weak to risk any more systemic shocks. In yesterday’s New York Times, Thomas Friedman has written a great tell-it-like-it-is article outlining a realistic plan for a federally funded bailout that will assure that the necessary steps are taken to assure real change in the auto industry, by demanding both financially viability of the surviving companies and aggressive steps to raise fuel economy and reduce the greenhouse impact of the future fleet.

As Freidman pointed out Wednesday morning on MSNBC, the U. S. Venture Capital Industry and Silicon Valley entrepreneurs are already making significant private investment in developing new technology vehicles, targeted to be far more efficient than anything being proposed by Detroit. Yes, let’s preserve American jobs, but as we do so, let’s invent a new transportation industry that will eclipse what’s left of the old car companies and in the process that will position America for energy independence and assure a better environment for our grandchildren.

Comments

[casey00001:]

You are comparing Apples to Oranges. The primary reason IBM got in trouble was they never laid anyone off and had tons of dead wood. Also IBM was never unionized like the Auto Industry.

2008 Nov 13 09:29 AM

[sabbadoo32:]

The similarities exist in the macro, as well as for descriptive purposes. His point is valid. Detroit is asking for money to stop today's bleeding, and isn't necessarily ready to announce their intention of committing to a hybrid/electric fleet.

Taking money from the government should really be like making a deal with the devil. In this case, we need to create jobs and clean up the air by taking advantage of the market opportunity that's presented by hybrid and electric vehicles.

2008 Nov 13 09:40 AM

[Bashful:]

Weren't the original arguments that were made for replacing the analog television standards with HDTV supposed to save the U.S. television industry jobs? Look around and you'll find there is no American television maker. The management decisions to follow shorter-term profits discarded the entire industrial capacity for making them in this country.

Be careful of how the automakers plan their own re-making with our money.

2008 Nov 13 10:38 AM

[John Lounsbury:]

I lived through the IBM crisis of the early 90's. Actually, only part way through, because I took an early retirement in mid-year 1992, frustrated with my lack of success in moving Big Blue in the direction of networking mainframes with personal computers via the internet.

IBM did indeed do lay-offs. As a lower level manager I was involved in the process. From 1990 to 1994 IBM reduced the number of employees from approximately 450,000 to aproximately 250,000. Casey00001, you are correct about the deadwood, but you are wrong to imply IBM didn't address the problem.

GM needs to redefine mission, as IBM did, streamline to meet the new business plan, and save themselves. GM does have to deal with unions, which IBM did not. The unions are going to have to decide if they want some future or no future. Will the government get involved? Maybe, but it should be recognized that government involvement is not the only way to get to a solution.

If the government does get involved, I believe Tom Friedman is right in his argument that the government must force the business plan to be far different than what has been in place for the past two decades. There are a number of small companies that have emerging technologies that can contribute to future transportation vehicles. Two paths can be followed: (1) the new companies can keep growing and replace the old big three, much as the early car makers grew to displace the old horse carriage and buggy whip makers; or (2) the new companies can partner with the Big Three to introduce the new transportation technologies. IBM chose the second path. In my opinion, IBM came within 1-2 years of waiting to long to change. The current question is: Has GM waited too long?

2008 Nov 13 11:18 AM

[Stockguy456:]

the company is on a PR tear to tell the world it is "reinventing the automobile."

www.wired.com/wired/ar...

2008 Nov 14 11:41 AM