A View on the Auto Bailout
Well, it is pretty easy to blame the state of the US automotive industry on a combination of management, dealers, and organized labor. It’s not like the circumstances just crept up on everyone overnight – they had at least 4 decades of notice. But, let’s elevate the debate and discuss the real villain in the process.
Let’s fast forward to the year 2091. What if I told you that starting right now and for the next 83 years every single investment, venture capitalists, hedge fund, private equity firm, pension fund, family office, or general institutional investor pulled every single dollar out of Silicon Valley. Not one more dime for new technologies, new companies, new business models, nothing. Just freeze everything and we get Google, eBay, and Yahoo as they are now for the next 8 decades. Do you think there might be some issues in the future if just these three firms were to carry the weight of an entire industry for the country?
Well, that is what we have done with the US automotive industry. Why is it OK that the last surviving new firm in this industry was hatched in the year 1925 (Chrysler) and not one, not one, new viable firm has emerged from this country since then? Oh, and do you know that there is no such thing as an industrial venture capital firm in this country? Do you know that this tired, old business model the Detroit Three have held for the last 100 years is the same one they started with – perhaps there just might be an alternative to the mass production, mass distribution, mass marketing, build-to-inventory using organized labor and a dealer distribution channel model – that maybe there just might be a different way to do things?
The real villain in this sad story is a country with a complete lack of an industrial policy and financial system to support it. We have thriving information technology and life sciences industries in this country because every year, hundreds of money managers invest billions and billions of dollars into new companies that build a new, positive future for all of us. The powers that be in NYC, Boston, Chicago, and San Francisco and funds all across the country came to some consensus one day to create, support, and continue to fund these two particular industries – I guess some of us didn’t get the meeting notice for that one. Exactly who decided to plow money into just 2 industries and have us end up with a lop-sided economy? I am a capitalist at heart but don’t tell me this was done by the free market at work…
Where are the industrial patriots in this country? Why do money managers continue to overlook a $3 trillion worldwide automotive sector as an opportunity to make just as handsome returns (actually better in some cases) as the IT and biotech sectors? As president-elect Obama stated, ‘head-in-the-sand’ leadership out of Detroit is not going to fix the problem – for which I would add, ‘head-in-the-sand’ financial investing approaches in this country is not going to fix the problem either.
However, I do trust that a realization is around the corner and as Americans do, we will fix the problem and put the country back on track – one way or another.
Tagged: police, police car, william santana li, auto bailout, patriot, carbon motors, e7, investment, industrial, homeland security, law enforcement, cop car
Comments
Bill, It's really easy to look at the automotive industries bailout and say "How did they not see this coming"...and then dismiss the companies as just incredibly tired, old and uncreative and then completely overlook the point you are making right here. You are right...competition makes you fierce and in this country there has been little in the way of competition in the automotive industry. Yes, the foreign automakers are a competitive force for the american automakers but there are significant number of americans that only buy american goods - those companies count on that population. So they got comfortable and they got lazy. The financial services sector has been very creative - they have found ways to invest in markets that are artificially inflated, like the housing market. Each time a home is bought and sold, the price of the home is inflated by about 7% to pay the realtor fees. Americans today hold onto real estate for very short periods of time and the realtor fees quickly increase the cost of the house but contributes no actual value to the house. The great american dream of bigger and better has taken over the housing industry and as a result has made home ownership a risky endeavor - for the home owner and the company financing it. I'm no financial expert, but it does seem the financial sector should branch out into reinforcing what made America the powerful force that it is - the industrial and manufacturing industry.
GM, Ford, and Chrysler constantly year after year produced poor quality, poor ergonomics, outdated vehicles. Head in the sand. They owned the market and that is why nobody else in America dreamed about starting a new company, number four. They would lose if they did try. So, GM just kept getting larger with names like Buick, Pontiac, and Saturn. But their cars still sucked. They shot themselves in the foot by selling to every person a cheap car that toughed the purchases a hard lesson. Don't trust American built cars. Don't through your money away at American cars. They should have fixed their problems with the car before selling it to more people. I feel they deserve the slumping sales, and feel the government rewarding bad car companies. Instead that money should go to the unemployed from the effects of bad car companies and hopefully one day a new American car company would rise and work hard to earn the respect and loyalty of customers. Instead GM and others learned it's easy to lean on Uncle Sam, aka tax payers, to keep their company alive. I still won't purchase a GM vehicle. Comparing to foreign, I get a better ride for my money.
It is time for a shakeup of the automotive industry. They (the car manufacturers) keep pushing gas guzzlers and ignoring the need for economic vehicles. Now, finally, we are beginning to see more hybrid cars and electric cars that will soon be available but what about the pick-up truck market? Businesses that depend on a truck or van for their service vehicles will continue to suffer as this sector of the market seems to be ignored!
To William Santana Li Chairman and CEO Carbon Motors - I can speak for many in the Upstate of SC that we welcome you and your company your great vision with open arms. I know that you have spent some time in the Upstate and hopefully you have seen what I and many people have fallen in love with about Greenville, SC. I relocated my family to Greenville, SC over 10 years ago and now am happy to call Greenville home. Anyone that visits and experiences all that this area has to offer also falls in love and several have decided to move here as well. I know that you are well aware of the ICAR project and the future and potential of that project is life changing for Greenville. I see your company and vision as being a perfect fit and being welcomed with open arms by ICAR. Greenville was recently rated by Forbes as #5 best places to ride out a recession and is continually rated as a top place to live and work. The housing is affordable, the people are beyond friendly, we have an eager and willing workforce that gets better daily, our schools despite national averages improve every year, our climate is awesome, we are centrally located and there is so much to see and do. We live smack in the middle of the bible belt and what a great place to raise your families. I hope that you and your company will give Greenville and the Upstate of SC a chance to show you our Southern Hospitality and willingness to partner with you as you do your part to make this world a better place to live. Thank you for your time and interest in Greenville, SC.
To Robert: your post was truly one of the most misinformed, ignorant posts I’ve seen in a long time. “They (the car manufacturers) keep pushing gas guzzlers and ignoring the need for economic vehicles.”? You are in need of a reality check. One, whether it’s GM, Ford, Chrysler or Toyota, Honda, and Nissan, the auto makers build and sell what the majority of consumers want. As long as gas prices stay below the $3.00 to $3.50 a gallon mark, economy cars, and especially hybrids, won’t sell. As cars sales sank in the last half of 2008, while at the same time gas prices also dropped, it was interesting to see hybrid sales drop 30 to 40%, conventional economy car sales drop 30% or more, yet large SUV and large crossovers sales went up about 8%. Two, if you look at Toyota, Honda, and Nissan, their bread-and-butter sedans, Camry/Avalon and Accord at Toyota & Honda, and Altima and Maxima at Nissan, all have grown in physical size since the early 1990’s, and as long as gas prices were low, less economical, but more powerful six cylinder models made up a larger portion of their sales. Yet the Detroit automakers get slammed, inaccurately and undeservedly, for “pushing gas guzzlers”? Toyota and Nissan spend BILLIONS to get in to the full size (quarter ton) pick-up market, make a mainstream Toyota/Nissan SUV off their respective quarter ton pickup truck chassis, AND a higher profit luxury brand Lexus/Infiniti large size SUV off the same gas guzzling quarter ton pickup truck platform, and then make their mainstream and luxury midsize SUV’s and pickups off a shortened, yet still gas guzzling, version of the same truck platform, and it’s Detroit in the wrong for “pushing gas guzzlers”? Third, no matter which brand name, American car buyers will NOT pay top, profitable dollars for small cars. As long as American car buyers equate size with price, no one will make money selling economical cars. Toyota and Nissans third and fourth quarter 2008 losses should prove that to you. To William Santana Li Chairman and CEO Carbon Motors – good luck with Carbon Motors, as I hope you are very successful. But please, don’t mistake your success for expertise in the mass production of consumer oriented cars and truck. Others have tried, with what was thought to be sufficient venture capital, to improve not only Detroit’s model, but the model used by every other auto manufacturer in North America. They didn’t succeed. The manufacturing, distribution, and retail of automobiles and light trucks is capital intensive like no other business.
To Len_A: Excellent! Let the debate begin. One major shortfall our country has is a focus on or actually an industrial policy coupled to a comprehensive energy policy. For all the discussion of automotive-related entities, Carbon Motors is actually very far from being anywhere close to a legacy automotive OEM and actually closer to what a defense/aerospace firm would like look focused on homeland security (i.e., we sell to government not retail, no dealers, no fads, no major product launches every year, no consumer-driven complexity, no tv/radio advertising, no captive finance company marketing, no dealer advertising, no regional dealer advertising, no incentives, and the list goes on and on). We are not looking to redefine Detroit - we are working very hard to get our first responders the appropriate purpose-built equipment. Our business model has nothing to do with massive stamping facilities, complicated body shops, or $300 million paint facilities. Your last statement about being capital intensive is the paradigm that needs to be addressed to make mid-volume production viable for mid-size niche markets (i.e., not hand building cars and not mass-producing them). One of the things that makes CMC special is that we have the right combination of technology, process, and business model to make it pencil. By the way, we have done the root cause analysis of every major effort in this realm and understand very clearly the pitfalls and how we intend to avoid them. All that said, appreciate the spirited dialogue!
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