Wednesday, November 12 I’ve been mulling for a few days about writing a post about the current crappy state of the US car industry, thinking about the $25 Billion proposed “bail-out”, the crashing sales, and even the crazy proposed merger of GM and Chrysler. But Thomas Friedman has pretty much written it for me, so go ahead and read it.
How could these companies be so bad for so long? Clearly the combination of a very un-innovative business culture, visionless management and overly generous labor contracts explains a lot of it. It led to a situation whereby General Motors could make money only by selling big, gas-guzzling S.U.V.’s and trucks. Therefore, instead of focusing on making money by innovating around fuel efficiency, productivity and design, G.M. threw way too much energy into lobbying and maneuvering to protect its gas guzzlers.
I’ll just add a few things.
My prediction is that Toyota will move up from it’s #2 slot to be the #1 manufacturer by the end of 2009. Their sales have been impacted by the current economic crisis, just like everyone else, but not nearly to the same degree as GM.
And Toyota’s product portfolio is much more diverse and better protected against parsimonious spending. GM’s is far too heavily skewed toward large, expensive gas guzzling trucks and SUVs, and its small and inexpensive cars are fewer in number and not as good as Toyota’s (with a couple of notable exceptions such as the well-received Chevy Malibu and Cobalt). That doesn’t bode well for riding out a combination of tight consumer spending and credit, and still relatively high gas prices.
In what universe does the merger of GM and Chrysler make sense? Both companies are in terrible financial shape with the same combination of huge cost structures and poor sales. In fact, Chrysler’s product portfolio is even worse than GM’s: even more skewed to SUVs and big trucks, and its lower end and smaller cars have received universally terrible reviews (Chrysler Sebring, Dodge Caliber).
All of Chrysler’s hot cars are largely irrelevant in a spending-constrained environment: Viper, Ram pick-up, 300, Challenger. Its bread-and-butter minivan has been eclipsed by offerings from Honda and Toyota.
And a merger would certainly result in large numbers of lay-offs as the companies have massive duplication of product lines, production capacity, vendors, and staff. Unless the unions force them to keep the manufacturing workforce, which would just compound the fixed costs problem. Speaking of which…
The prospect of a bailout, whether it’s for banks or car companies, makes me queasy. I’m no laissez-fair free marketer, far from it. But the disparity between the logic of bailing out companies that are “too big to fail” and not helping people with comparatively tiny mortgages (or small businesses) who are “too small to care about” is just too disturbing in its hypocrisy. The management of car companies have squandered innovation for decades in favor of lobbying favors, as Friedman points out, putting them in their now perilous position.
But the unions have played their part too, providing a level of cushion for their workers that no other industries have, and in the process helping drive the hand the feeds them into the ground by forcing massive cost structures (health care, retirement benefits, endless unemployment support). A bailout would just encourage that co-dependency and let everyone off the hook rather than calling them to the carpet for it and forcing them to change. Undoubtedly a reset of the compact between automakers and unions would cause massive pain for the near term, but in the long run it would get the industry back on its feet. And without it, they’ll just be back in this same position in 5-10 years.
automotive, gm, toyota, cars, car industry, chrysler, union, thomas friedman, merger, honda, gas guzzler | IN CATEGORIES... Business, Automotive, Management Monday, August 25 The always provocative Jamie Kitman, columnist for Automobile magazine amongst others, has a piece in the September issue calling out the Big Three automakers (or The Moderately Large Three, he demurs) for their decades long lack of responsiveness on the issue of fuel economy.
Game over. After almost half a century of fighting battles, America’s Big Three have at long last lost the war. Yes, it’s official. From this day forward, fuel economy matters… Too bad Detroit carmakers weren’t prepared. They only had fifty years to get ready.
Detroit didn’t have to encourage profligacy, it chose to. And some will argue that the power of advertising dollars could and should have been used to encourage efficiency. The American industry could have planned the same patriotic card it deployed following 9/11 to advocate fuel conservation instead of throwing around billions of dollars to make sure there were large SUVs in every garage. It didn’t have to spend some four decades fighting safety, emissions, and fuel-efficiency standards.
Clearly this is not just a down year, it’s a total paradigm shift… Cars that seemed like pretty good ideas suddenly seem less inspired. Cars that appeared bad ideas before now seem like the worst ideas ever. The Hummer brand, for instance, is on target to sell fewer than 35,000 units this year, or about twelve percent the number of Oldsmobiles GM was selling when it decided to shut that venerable brand to concentrate on…Hummer.
Strangely enough, while typing this up I’m listening to a Tivo’d recording of Charlie Rose’s interview with GM CEO Rick Wagoner. It’s a good interview, but obviously he gives quite a different perspective than Kitman (who points out that Wagoner got a 64% raise to $15.7M in 2007, despite GM’s heavy losses). And I can’t say that I can entirely blame the automakers for the large trucks. People bought them, and they didn’t buy small cars, for the most part, so the financial imperative in the near term was fairly clear.
But one thing Wagoner just said jumped out at me: he thinks the US government should get behind funding the startup costs for new energy sources, such as fuel cells and batteries, in order to kick-start the growth and innovation. But 15 minutes before he was bemoaning the role of governments outside the US supporting their domestic auto industries because it makes it unfair for competitors (i.e. GM) to compete. Seems to me that you can’t have it both ways though - either government intervention in helping domestic manufacturers get rolling in a new industry is OK, or it isn’t.
Related posts:
automotive, global warming, gm, rick wagoner, toyota, prius, green, electric car, chevy volt, fuel crisis, $4 gas | IN CATEGORIES... Business, Culture, Automotive, Sustainable Design, Management Tuesday, August 12 Sculpting clay on the 2009 BMW 7
Here’s an outstanding series of photos describing the design development for the new 2009 BMW 7-Series. It shows step by step from drawing to renderings and clay how the exterior and interior of the car have been refined. In particular there is a lot about the clay process, which is unique to automotive design. Even in this day and age of CAD and 3-D goggles, there’s nothing like seeing a car physically represented at full scale with masterfully crafted clay.
The BMW Group’s process of designing a new vehicle and finding the ideal shape is based on a concept of keen competition. In the development of each new model, several design teams compete with one another in their design of the exterior and interior in a truly creative contest. Made up of designers and modellers, the teams then, in the second phase of the design process, complete models in original, 1:1 size clearly showing the aesthetic harmony of the car’s proportions and surfaces. To do this they use a simple but very important material in the design process - clay.
I wasn’t a big fan of the last 7-Series (though the roof profile and side glass had great lines and proportion), but from the little you can see on this one it looks like the 2009 model could be very interesting and elegant.
Friday, May 30 
I recently had an opportunity to drive a hydrogen fuel cell car and a Smart car while visiting Mercedes-Benz’ tech center in Palo Alto. They had on hand an “F-Cell”, an A-series car fitted with a hydrogen fuel call drivetrain, and the Smart was one of the models that have been available in Europe for years but just came for sale in the US recently.
The fuel cell model inherited the attributes of the regular A series: small on the outside, big on the inside (it’s a 4 seater and room in the back was impressive), and more premium level materials and design than Americans expect in their small cars (though the A is not a budget car). The fuel cell drivetrain moved the car along at a pace fine for getting around town (we didn’t take them on the freeway). A “turbo” mode could be engaged to provide more pep, at the expense of economy.
The drivetrain had a fair bit of whine coming from the electric motors, I’m guessing this was because the prototype wasn’t fitted with much sound dampening. Otherwise it felt very normal to drive and handled just fine.
Mercedes is not making any promises on availability, these are strictly test beds. About half the hundred-plus F-Cells are in California, I think helping Mercedes meet Californias air regulations.
It would be great to see the A-series here in the US, given how gas prices are going and congestion on the roads is just getting worse every year. As clean diesel is now more widely available, the turbo diesels would especially be great.
The Smart car was an interesting experience. I really like the exterior styling, and the interior is better than the original, more toned down and mature (think half way between a Mini and a Civic). It’s only a 2-seater, and it was snug.
Speed was ok, nothing great; it only weighs 1800 lbs, but the engine is just 71hp, and 0-60 is 14.1 seconds. The biggest problem was the gear change. The automatic box took ages to make the shift (a couple of seconds or more) during which time no power was going to the wheels it seemed, and the car coasted. This made shifting while accelerating a frustrating experience.
“You’ll get used to it,” said my chaparone. And I did…by not accelerating very hard and minimizing the obviousness of the lag. But not a great solution. And it doesn’t give a warm fuzzy that the car has the speed when you need it to get out of a jam. (I don’t think anyone buys a Smart with sporting pretensions and I certainly wasn’t judging it against hot hatches).
The weird thing is that the Smart doesn’t get that great gas mileage — 33mpg in town and 41mpg on the highway. There are other bigger and only slightly more expensive cars (the Smart starts at $11,500) that get similar or better mileage and which don’t require premium fuel like the Smart does. If Mercedes had introduced it years ago before the Mini took hold, before Scion was widespread, and before innovators like the Prius, Yaris or Fit appeared, then it would have been more distinctive. Unless you place a premium on fitting into tiny parking spaces (the Smart is over 3ft shorter than a Mini!) or being the unique kid on your block, the case for the Smart today doesn’t seem that compelling.
Automotive Friday, January 11 
99 years after the Ford Model T, the Tata Nano has been announced in India for 100,000 rupees, or about $2500. And you know what? It looks amazingly good. I was completely expecting a Yugo ugly box, but you could drop this 10 foot long car into an urban street in Europe (the most competitive subcompact market on the planet) and it would fit right in. It looks amazingly refined and interesting - heck, it looks better than budget models selling for many times the price from most mainstream manufacturers.
And they have a website that is fairly Web 2.0, with customer feedback, a conversational letter from the chairman, and colored gradient boxes to complete the look.
It also raises some interesting possibilities for domino effects — more on that in a moment.
The car has a 2-cylinder engine and reportedly gets 54mpg. It only creates 33hp, and tops out at 65mph. Of course, if a lot of them are sold then street congestion will be so bad that 65mph won’t be a serious limit and 54mpg is unlikely in stop-and-go traffic. Ecological concerns are of obviously a major issue if hundreds of millions of new buyers suddenly take to the car. Supposedly it produces less emissions than the mopeds that poor Indians currently ride (the next cheapest car is twice as much), since it uses a 4-stroke not 2-stroke engine. Nevertheless, it probably has worse mpg, requires far more energy and resources to fabricate the Nano than mopeds, and takes up more space on the road so density is decreased (so less efficient).
But the Nano has some strong upsides of comfort and safety also:
Mr. Ratan N. Tata [Chairman of the Tata Group] said, “I observed families riding on two-wheelers - the father driving the scooter, his young kid standing in front of him, his wife seated behind him holding a little baby. It led me to wonder whether one could conceive of a safe, affordable, all-weather form of transport for such a family. Tata Motors’ engineers and designers gave their all for about four years to realise this goal. Today, we indeed have a People’s Car, which is affordable and yet built to meet safety requirements and emission norms, to be fuel efficient and low on emissions. We are happy to present the People’s Car to India and we hope it brings the joy, pride and utility of owning a car to many families who need personal mobility.”By adopting the term “the people’s car” Tata is explicitly referring to the VW Bettle, a similarly inexpensive car that was designed to help bring affordable mobility to the German population, and which went on to become a cultural icon worldwide representing freedom and independence (despite its Nazi roots).
And while the Beetle is an obvious reference, the Ford Model-T is a more accurate forecaster of the future the Nano may bring. Just as trains and inexpensive cars like the Model-T led to transformation of population centers, massive shifts in attitudes toward city and rural areas, flexibility of employment and education, broadening of social perspectives through travel, and shifts in family dynamics and roles, the Nano may bring the same to India.
From a business perspective, Tata has had to do some radical things to achieve the $2500 price. They have worked closely with component suppliers and brought them close to the assembly plant to reduce costs (like Dell does).
The design team practiced a concurrent engineering model with many iterative physical prototypes, working in a skunk works fashion away from the “hidebound” practices of the larger Tata organization, and collaborated early on with component vendors to sort through problems.
Like the manufacturing line of the Model-T which had far reaching implications for the American manufacturing industry (and economy), if other Indian companies can harness the lessons of Tata’s Nano, we will see a transformation of the entire country in the next decade even beyond what is already coming.
Business, Design, Culture, Automotive, Sustainable Design, Innovation