A Modest Proposal For The U.S. Auto Industry: Stop Building Cars 28 comments
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Everybody these days has some advice for the beleaguered U.S. auto industry. Bail them out. Break up the unions. Do something about the dealerships. Do something about spiraling health care and pension costs. Design cars people will love. Etc.
There’s always the “be more like Apple” advice that’s been going around for a couple of years. Make the iPod of cars. One that people love so much that they’ll pay a premium for it. Robert Scoble handed out pounds of this kind of advice a couple of weeks ago.
But there’s a reason why the car companies can’t build the iPod of cars. It’s because they’re so weighed down with all the logistical nightmares of actually building the stuff that goes into those cars.
Apple doesn’t actually make any of the parts that go in the iPod or iPhone. Factories, mostly in Shenzhen, China, do that. Most of the big PC manufacturers don’t actually build computers or any of the parts that are in them. Every part is made by different companies that specialize in building that particular thing. Even final hardware assembly is outsourced. Dell and some others do some final assembly themselves to allow for easy customization, but they are quickly getting out of that business, too.
If the car companies want to be more like Apple, they need to stop building any actual cars.
Vertical integration kills real research, because every company is doing their own work. With personal computers, every component has a vibrant and competitive market that drives innovation, quality and cost control. The big PC brands just design the final product and outsource the actual building of it.
Every major car manufacturer designs their own engines and drivetrains, manufacturers many of the important parts of the car, assembles it, manages a network of dealers and own their own finance companies to help people pay for those cars. Over the years they’ve dabbled in outsourcing, but the current trend is actually more vertical integration, not less.
Who’s the Intel of engine manufacturers? Why isn’t there one?
The best way forward for the automotive industry is to rip itself apart and start doing things sensibly, like the PC industry does. It won’t make any one company more stable, of course. In fact, it means competition will regularly drive companies at every point in the process out of business. But none of those companies will be in a position to drive our economy south if they do go out of business. Someone better will just take their place.
Does this mean cars our cars will be built in China? Yeah, it does. There’s no avoiding that. U.S. workers are just paid too much to build cars any more. Detroit may become the center of the car design world, with highly skilled and highly paid workers designing the iPod of cars, but the parts will be built elsewhere, and assembled elsewhere.
There’s a counter argument, that Toyota is the most vertically integrated car company in the world, and also the largest and healthiest. I argue that they’re the only ones that can do it profitably over the medium run in such an inefficient market because they have scale. If the market changes, which it is, that vertical integration model will fail.
And here’s the thing - this kind of change could never happen quickly in a normal market. There are just too many people negatively affected to make it work. But right now, with the auto-makers on the edge of collapse anyway, all we have to do is nothing to make this happen. Let the big car companies fail. Don’t bail them out. Their assets will efficiently move to the highest value use. There’s a good chance that ten years from now we’ll have a whole new crop of U.S. auto companies designing (and overseeing the assembly of) some really awesome cars.
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This article has 28 comments:
And that doesn't take into account the competitive advantage these electronic manufacturers enjoy in lower wages and benefits, not to mention their freedom from onerous government regulations and mandates that largely only serve to run up costs.
As a result, we get a line-up of new full-sized trucks from Detroit, rather than the fuel efficient compacts they build in Europe that look great and sell well there. Besides bad management decisions, governmental and union interference in this industry are major culprits here.
I'll argue that until these impediments are reversed, Detroit can NEVER become profitable once again. But you won't hear this from Detroiters. And you can't blame them. They're hardly in a position to blow the whistle on this "dirty little secret" while going hat in hand to the Congress, begging for a lifeline from the very people who put them in this situation in the first place.
And it's even more unlikely you're going to see any of these REAL survival issues contained in their future business plans contingent on their bailout moneys being demanded by Congress. No, it's all a sham and a "dog and pony show" to give lawmakers cover to provide them taxpayer funding.
But the marketplace in the real world can be cruel, especially if you're way behind the eight ball to start with. So by glossing over the problems that got them to where they are and not taking the politically difficult steps needed to actually level the playing field, they have two chances of becoming viable manufacturing enterprises once again, slim and none.
On the other (NGV's), you have a proven 60-year old technology with seven million on the roads throughout the world, a consistent 40% savings over gasoline, and you can convert ALL 250 million existing U.S. vehicles to run on this domestically abundant fuel inexpensively starting tomorrow.
So what does our government want to do? Replace their vehicle fleet with EV's, of course. Not to mention their present regulatory schemes that have resulted in not being able to convert gasoline fueled vehicles to NGV's, much less build new ones here.
Oh, and lest we forget, they plan on renewing the MORATORIUM on domestic oil and gas exploration, crippling our coal industry, making it practically impossible to build new nuclear reactors, and enacting a global warming clean air regime DOUBLING existing electricity rates.
I would suggest, therefore, that U.S. automakers may be only the first pin to fall. If we don't listen to the canary no longer singing in this coal mine, in short order we'll ALL be right behind them.
Historically, whenever the male-female ratio in a generation tips towards 60% males... there is unrest. Thanks to the 1 child law & the aborting of female babies, that is what China is looking at.
So, China blows up & all of our manufacturing is there... Or India & Pakistan go to war... & we've oursourced all of our software & call centers to India. What then?
Such industries do not automatically restart. For every product outsourced, we lose skills that we might one day need. It leaves us to reinvent the wheel.
Americans, of all classes, need to learn that there are things that must be paid for.... either in higher production costs that carry on down the line... or in higher taxes. But in return, we have jobs... & a self-sustainable, self-defense.
The one real thing I hope you will come to understand is that companies who out source everything never create long lasting value and cannot survive long term. When you outsource you lose control, you put your fate in the hands of others. You only create temporary jobs. Contrary to popular belief, businesses exist for great social reasons than just making a profit. Profit is necessary for the continuation of a business but it is not the sole reason for it's existence. I assume you have a job, what is stopping your employer from moving your job overseas? Surely it could be done cheaper by someone else.
Detroit has made mistakes in the past but has been competing for years with one hand tied behind their back, when you consider the govt support for their competitors from Japan and Korea and being shut off from the Japanese and Korean markets through unreasonable govt interventions. Also do not forget the games these countries play with currency manupilations, which is common knowledge but the US is unwilling to call them on the carpet for.
Finally, I get tired of hearing these so called wall street types saying that Detroit does not build vehicles that Americans want . In reality, that is precisely what Detroit has done and Toyota and Honda had joined the frenzy by building full size trucks and SUVs to meet the American consumer's demands. The US consumer, until the $4/gallon gasoline crisis, was not interested in fuel economy, and if the US had an energy policy that forced consumer's to purchase energy efficient vehicles, ala Asia and Europe, the domestic industry would have been well served.
What doesn't work is pointy haired bosses leading companies that manufacturing cars in the USA. Others like Toyota and Honda do it too well for the big 3 leaders to pay themselves 10 or 100 times more more than the executives at Toyota and Honda that are making it so obvious how bad the big 3 managers are.
Chrysler hired a senior Toyota manager this year - it doesn't work to just hire a couple people and think that will fix the problem. The management systems they have in place don't work. Then need to stop thinking the executives should live like kings and just push numbers around on a spreadsheet and everything will be fine.
If they actually would have managed their companies well the last few decades they would be fine now. It is extremely poor management that got them in this mess.
management.curiouscatb.../
Trust me, at some point, Dell will be gone, too.
Quit reading japanese press releases as fact. yeah, they make like $100 k a year salary. Sure, that's why they never jump ship and come over to American companies, because they are not greedy, sure. Are you that stupid?
They don't mention the free houses, and unlimited expense accounts for life. Think about it, which would you rather have, Wagoner's 17 mill salary or an unlimited expense account?
Pull your heads out of your rears.
- A car IS different then an ipod - components of an ipod can be air freighted cheaply when just-in-time inventory fails.
- there is a happy medium between outsourcing and direct manufacturing. if you go to either extreme it you will have quality and cost issues.
- outsourcing generally requires a significant quality control and expediting presence by the buyer.
- vertical sourcing does not kill research. research is killed when continuous improvement is sacrificed for short term profits.
- i have personally witnessed bean counters destroy companies. the cheaper path many times is not the best.
I too worked on the line at GM (Truck and Bus, LCA, and Hamtramck). The waste I saw in all of these plants made it obvious to me that it was unsustainable.
if you want to buy a $2000 stereo for $250 you should wait untill the thing isn't the latest model on the rack I got a sub and amp and stereo big enough to make me deaf in a few years for $1500 installed by hand.
if you only want one supercar one mini van and one truck good for you but the rest of the world likes the choice thats why it isn't like this now.
vertical intergation isn't the enemy bad quality ipods are.
fords for example aren't all american.
the focus is german the falcon is australian the only thing your's is the super GT 40 thing or ford GT and the mustang which hasnt' been new since 1990's just customized
and why is this company going under while the others aren't hmm
On Nov 30 07:56 AM robinjoe wrote:
> Exactly, the cool thing that could come out of this is is you are
> 5'4" you will be able to order a car with a seat for someone 5'4"
> i.e customization. You should be able to order everything the way
> you want it. If someone builds the Intel of engines, the NVidia of
> transmissions, etc you can have that in your car. $2000 for a $250
> stereo will be a thing of the past.
made for you go the kiwis.
the only stuff ups that stuff has had is through human error
On Nov 30 11:00 AM paulk8756 wrote:
> By way of example, let's take a look at EV's (electrics) versus NGV's
> (natural gas vehicles). On the one hand you a have an unproven technology
> (EV's) that can run only light-weight vehicles 40 miles, costs twice
> the price of conventional cars, and will NEVER make money for automakers
> as far as the eye can see.
>
> On the other (NGV's), you have a proven 60-year old technology with
> seven million on the roads throughout the world, a consistent 40%
> savings over gasoline, and you can convert ALL 250 million existing
> U.S. vehicles to run on this domestically abundant fuel inexpensively
> starting tomorrow.
>
> So what does our government want to do? Replace their vehicle fleet
> with EV's, of course. Not to mention their present regulatory schemes
> that have resulted in not being able to convert gasoline fueled vehicles
> to NGV's, much less build new ones here.
>
> Oh, and lest we forget, they plan on renewing the MORATORIUM on domestic
> oil and gas exploration, crippling our coal industry, making it practically
> impossible to build new nuclear reactors, and enacting a global warming
> clean air regime DOUBLING existing electricity rates.
>
> I would suggest, therefore, that U.S. automakers may be only the
> first pin to fall. If we don't listen to the canary no longer singing
> in this coal mine, in short order we'll ALL be right behind them.
Assembly line, vertical integration, bureaucratization, job protection, preservation of status quo (an obsolete business model) all form part of traditional groupthink.
Detroit will live on - only if it morphs into Detroit 2.0, which means innovative design, made-for-market customization, just-in-time lean business models, agility, efficiencyt, market responsiveness. Detroit 2.0 is not just Detroit, but embracing all the strengths in American ingenuity in business and engineering. In short, "applelized" thinking and implementation. Short of this, we will be throwing good money at bad practices, only to defer the inevitable.
Nothing will work for a company like GM that will not even demand that the hospitals that provide health care to its workers and retirees meet the same quality system standards that GM demands of its part suppliers. GM will not even implement a spoon-fed off the shelf solution from its own industry association, the Automotive Industry Action Group (which developed a health care specific version of ISO 9001:2000).
GM's "job bank," where workers with nothing to do get full pay, is a sick joke. It is a perversion of the lean manufacturing principle that says you can't lay people off when productivity improvements make them unnecessary (if you do, you can forget further employee-aided improvements). However, you don't put them in a room with nothing to do, you put them to work on more productivity improvements! I am glad I unloaded my GM waste paper a couple of years ago, when it was still worth more than $20 a share.
As for outsourcing to China--didn't someone just have to recall a bunch of tires whose valve stems were made in China??? I will buy an American car, or a Japanese car, but I will not buy Chinese-made trash that may actually put my life at risk.