Auto Manufacturers Should Take Cue from Computer Industry

Yesterday we learned that Toyota (TM) and Honda (HMC), who were once the pride of the auto industry, have succumbed to market forces and have joined their US counterparts in asking the government for money. Anyone that has been following the auto bailout story cannot help but feel overwhelmed by the litany of problems affecting the industry – exorbitant salaries, bloated union contracts, excessive dealer networks, lack of fuel-efficient cars, the credit crisis, health-care costs and more.

Since last month's congressional testimony, the "tone-deaf" auto executives, who flew to D.C in private jets requesting a $34B taxpayer bailout, have not offered a serious recovery plan for the industry. Meanwhile, oil has fallen from $147/barrel to $40/barrel, and is projected to fall further in the coming months. Is selling more fuel-efficient cars when oil is only $40/barrel the road to recovery? Will cutting health benefits really improve productivity? What if these aren’t the real problems but symptoms of the problem?

I believe the fundamental problem with the auto manufacturers is that their business model is obsolete. The auto manufacturers should be reorganized into separate companies specializing in manufacturing different components and systems, much in the same way computer manufacturers are organized. Dell (DELL), HP (HPQ), and IBM (IBM) (i.e. the big three) all utilize the same basic x86 processor (i.e. the engine) supplied by Intel (INTC) or AMD (AMD), a graphics card from Nvidia (NVDA) or ATI, a hard drive from Samsung or Seagate, all running an operating system from Microsoft (MSFT) or Linux. The result: satisfied customers, falling prices ever since computers were invented, and no one has ever needed a government bailout.

A computer manufacturer, using components from various suppliers, can design and assemble a performance-driven desktop for multimedia users or an energy-efficient laptop for mobile users. How does that compare to GM (GM), Chrysler, and Ford (F)? Is each car manufacturer making their own proprietary engines the most productive thing? I believe we can eliminate the redundancies, inefficiencies, and over-capacity in the industry by breaking up the giants into specialized companies. Specialization will also lead to higher quality because each manufacturer will focus on his or her core competences and ramp up or down production as the economy dictates.

Additionally, the computer manufacturing industry in its short history has managed to create standardized interfaces on components to allow suppliers to compete for the best design. Whether you prefer the Dell Monitor that came with your computer or the latest 24” Samsung widescreen, they both use the same VGA connector. How does that compare to the century old auto industry? Can you swap your old engine for the latest fuel-efficient engine through a standard port? How about upgrading the cloth seats to leather seats through a USB-like "plug and play" port. I believe standardized interfaces will lower overall costs and speed up innovation by creating a more efficient market for suppliers. Standardization may even create an environment where car prices fall like computer prices.

Above all, breaking up the industry giants would eliminate the problem of “too big to fail.” We have an opportunity to change an industry that steadfastly refuses to change itself. In exchange for money, the US taxpayers (i.e. the largest shareholder) should demand a full restructuring of the auto industry so that it is innovative, competitive, and no longer “too big to fail and too inefficient to succeed.”

P.S. Since we are discussing inefficiencies in the auto industry, is having 300 cars parked on the side of the road the best way to sell cars?

Comments

[greeneggs00:]

Just wait for the blue screen of death to happens to your car. Then wait 3 hrs on the phone to talk to someone from India to fix your car.

Mar 05 05:07 AM

[butwait:]

Not all of Toyota's counterparts are asking for government loans . Futhermore . I know it pains certain people to see their MightyToyota apply for loans .And that last thought . The one about breaking up Big Autos ? That might be perfect for Financial Industry too . Theres plenty of To Big to Fail Banks that Americans are shareholders in now too.

Mar 05 05:28 AM

[aaavoid:]

Your proposal ridiculous to say the least. So the differentiating factor of buying a ford and chevy would just be the shape of the car? Then all cars would have intel inside logos? And your proposal would mean that Apple is an obsolete model?

Big 3 problems lies largely on 2 things, the labour union and their poor car design. Ford has learnt a lot from the japanese that they need to make cars based on global platforms to achieve economies of scale and at the same time flexibility in production line.

Each kind of business model be it vertical integration(apple) or horizontal integration(pc industry) has their own benefits, it all depends how the management manage their business and executes them. Apple used to have a failing vertical integrated business model, but they have evolutionized well and is reaping the benefits.

The PC which is horizontally integrated did very well in the past, but is being haunted by disfunctional products which has parts that dont work welll with one another resulted in the blue screen of death mentioned above.

Mar 05 05:37 AM

[Mike123A:]

Re: Auto Manufacturers Should Take Cue from Computer Industry

Standardized interfaces started during the 19th century American Civil War with interchangeable gun components. This approach may work if it is combined with creating an additional new World industry. However, let's go for the works to get higher standards of living for everyone globally. Homes, not cars will be the focus of this century and millennium.

A New World Industry in the Making
Michael A. Grand 03-05-09
[e-mail]

The USA North American Operations (NAO) Automobile Industry has lost its identity with the American consumer, and has reached the end of its incubation stage of Industrialization. Nature abhors a vacuum. Therefore, a new vision of the USA NAO Auto Industry must evolve.

A USA Governmental led bankruptcy can and probably will nurture a restructuring plan that will allow the Big Three Auto Companies to merge, downsize, restructure, and move ahead into a new incubation stage of industry that will gestate to help the USA to give birth to a new World Industry that will help us emerge from our Global economic crisis.

The economy will bottom out and rebuild itself when the USA Automobile Industry evolves into the Automobile & Space-Frame Housing Industry. The USA North American Operations (NAO) Automobile Industry will re-invent itself and begin to build new factories. The steel mills and concrete facilities will grow and produce the materials that will create new construction jobs. Tooling firms will begin to stimulate the local economy along with the transportation industry that will move the tools and materials aboard trains, trucks, and sea transport.

Homes, not cars, will be the focus of this new industry. There will be a new intent for humanity; and, there will be a new faith in a safer world. The old ways of doing business with cost and depletion accounting will fade away; and, a new cosmic accounting of unlimited and renewable resources will flourish.

The USA NAO Automobile & Space-Frame Housing Industry will be creating an additional global industry to assist in rebuilding our cities, slums, and suburban malls. Eco-technical homes and rock-solid plug-in mall-sized city-towns with renewable retrievable low-cost living units will be rented and not sold. Real jobs will be created in industry, transport, and the service sectors. This industry will create new jobs globally; and, join science, management and organized labor together to produce the largest industry this World has ever seen.

Mar 05 05:46 AM

[the Old Marine:]

The desk top computer industry began with the same model as autos 30 years ago-Radio Shack, Commodore, and Apple each tried to control after market sales of software thru a proprietary operating system, and largely failed. Apple hangs on for the people who play with color graphics, but even IBM got out of the desk top business.

The proposal in this article makes sense, but I doubt either the UAW or the Big 3 will accept it

Mar 05 06:46 AM

[frustrated-...:]

Can't say I appreciate the comment about "bad design". There is no way for you to comprehend the regulatory obstacles, cost/benefit analysis, durability, economy of operation, economy of ownership, operational emissions, evaporative emissions, fire safety, crash safety, operational (power window) safety, thermal operating ranges, fuel variances, degraded operation (low tire, limp-home mode), paint fade, comfortable interiors that do not compact in time, smell, aerodynamics, rolling resistance, driveability, organized labor, cost legacy benefits, vehicle abuse, negligence, road hazards, component failure, legal torts, liability, ..., and make it affordable and appealing to a customer for their current "tastes". Do not forget that other countries and some American states have their own unique requirements.

For common parts suppliers, look no further than Johnson Controls, American Axle, Monroe, John Matthey, Bosche, ... .

The "Blue Screen of Death" is exactly right. Ever have trouble getting components to work with Vista? Do you go back far enough that GM was bludgeoned because the Cadillac Cimmaron looked like a Chevy Cavalier? Cadillac Seville looked like a Nova?

Dell puts their name with a blue light behind it on a Chinese box, and markets the sin out of it. You can buy the same Chinese box from Fry's Electronics for 2/3's the price.

If you have a new car, you will find turning the key to start it is only a signal to the PCM to start the car (to minimize the initial burst of unburned hydrocarbons).

I trust you can comprehend that the wiring of the key starter switch to the PCM is considerably different than running a wire to the starter solenoid.

Yes, we design parts for common use between models and use parts suppliers. We really do not want our suppliers selling our engineering to competitors. We do use the supplier's designs (IE: batteries, tires, lights, O2 sensors) because they are truly platform neutral.

The fact is, "It is punitive to manufacture in America". The government works against industry at every juncture. NTSB, OSHA, EPA, CARB, DNR, ... impose new regulations to stay busy and keep their jobs, not because of an tangible benefit. Tort attorneys look for every possibility (even making their own) to sue for ridiculous sums of money.

Because the companies try to sell their products for more than cost (aka "profit"), they are labeled "greedy" and taxed and penalized at every level.

Do you work hard? Are you paid? Do you have discretionary income? Can you save for retirement or unexpected expenses?

Why do you suggest that a company should not be or try to be?

Mar 05 08:32 AM

[john s. gordon:]

mike 123 -

'standardized interfaces' began in the early 1800's with eli whitney.

american muskets were built with interchangeable parts. it was called 'the american system'.

european muskets were assembled by craftsmen with everything handfitted. parts from 2 units could not be interchanged without more hand-fitting.
> jack

Mar 05 09:04 AM

[TB3:]

Mike, what planet are you living on? I think you've been watching too many Star Wars movies.

Mar 05 09:59 AM

[wmubronco:]

A computer and a car, those are about the same.
Lets see car: rollover prevention, anti-lock brakes, air bags, collision survival and at a of on board computers (did i mention heated seats, sunroof, epa requirements, voice activated navigation, diagnostic systems, carpeting, trim, lights, power windows, engine, drive train, chassis, paint, child safety, DVD players, multi disc cd changers, sound system, interior lighting, passenger restraint systems,tires, wheels, fuel storage, fuel delivery, )

Ok now computer: same as computer in most cars, monitor similar to those available in cars, oh yeah key board and a mouse.

WOW Syed your a genius!!!

Mar 05 07:12 PM

[qw:]

Another simplistic approach to a complex problem from an an apparently ignorant columnist.

Mar 05 10:58 PM

[User 372861:]

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Mar 09 06:31 PM