• Printer Friendly
• Email to a Friend

DETROIT, MI — Today, William Santana Li, Chairman and Chief Executive Officer, Carbon Motors Corporation delivered the keynote address to the International Motor Vehicle Program (iMVP) conference. Carbon Motors, a new homeland security company, developed the Carbon E7 – the world’s first purpose-built patrol vehicle for the country’s 840,000 law enforcement first responders.

Ladies and gentlemen – thank you. I am honored to be here and I wish to express my sincere gratitude to all of the Carbon Motors supporters across the country as well of all you here that made today and this conference possible. I know this is the International Motor Vehicle Program conference – but I hope that during this defining moment in our country’s history that you will allow me to address my remarks specifically to the Americans in this room. I am here to share my views on the future of the auto industry – and how I believe you, right here, can start the second industrial revolution. I will tell you a story about two villains, followed by a vacuum of leadership, and lastly, well, I think you and I have had about enough of the finger pointing, empty rhetoric, and hearing from talking heads that couldn’t plan themselves out of a paper bag. What we need is answers and a path out of this crisis. I took a brave pill this morning and I will propose that bold plan and roadmap to you today.

BUT FIRST, WHAT HAPPENED?
Well, it is pretty easy to blame the state of the US automotive industry on a combination of unenlightened management, short-term focused dealers, organized and disorganized labor – and next up, the government. You have heard this story before, have watched the rocks thrown at you, have been beaten down by your competitors, beaten down by your lost customers, beaten down by the public, and of course the media. It’s not like these circumstances just crept up on everyone overnight – you had at least 4 decades of notice. But for once, let’s elevate the debate and discuss the 2 real villains in the process that got us here.

Let’s fast forward to the year 2093. What if I told you that starting right now and for the next 80 years plus, every single investor, venture capitalists, hedge fund, private equity firm, pension fund, family office, and general institutional investor pulled every single dollar out of Silicon Valley? Not one more dime for new technologies, new companies, new business models, new business leaders, 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 exactly what we have done with the US automotive industry. Why is it OK that just until recently, the last surviving new firm in this industry was hatched in the year 1925 (Chrysler) and not one, not one, new viable stand-alone 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, maybe, just maybe there might be an alternative to the mass production, mass distribution, mass marketing, build-to-rebate, build-to-inventory, and a dealer distribution channel model – that maybe there just might be a different way to do things? With all due respect to the mass production line and mass marketing mindset, not everyone was born a Henry Ford or Alfred Sloan disciple.

With that backdrop, let’s get to the real villains. The first real villain in this sad and thoroughly disappointing 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 on the West Coast, East Coast, and everywhere in between into new companies that help build a new, positive future for all of us. The financial powers that be, otherwise referred to by some as the masters of the universe, in New York, 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 makes any sense whatsoever on any level or on any planet.

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? I am not to talking about private equity shops buying firms in a rollup or consolidation, or turnaround situations, recapitalizations, or growth capital for running concerns. I am talking of bold, raw risk capital in new ventures.

As the President 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.

WHAT IS MISSING IS PURE LEADERSHIP
The second real villain in this crisis of ours is a bloody fabulous lack of true systemic thinking driven by true leaders. For one reason or another the auto industry from Tokyo to Stuttgart to Detroit is plagued with functional area focus and optimization with very little regard for the true system. This spans across engineering centers, manufacturing facilities, purchasing departments, marketing staffs, middle management, and beyond. It must be something in the water. Or is it that the design of the industry breeds functionally oriented experts by faking some ‘cross-functional’ training and delegating special assignments, and then it hands the reigns to someone that has yet to thoroughly understand from every avenue how this complex machine works and how to optimize the machine?

Your leaders have failed you. I’ll share a basic, simple poignant example. As the entire marketplace in every possible category, dimension, and geography continues to fragment where per-unit volumes for almost every class of vehicle, jeans, coffees, video games, washers, dryers, and even condos……and every demographic, psychographic, and generational analysis reflects the same fragmentation, your leaders continue on a massive quest for ‘economies-of-scale’. How do we consolidate the industry? How do we build more volume? Absolute foolishness.

The question is no longer how can we develop a viable business at 300,000 – 500,000 units per annum for a vehicle line. The question that should have been asked and answered as the market continues to fragment, is how do we develop a viable business at 10,000 – 80,000 units per annum? I know some OEMs have tried to answer this question utilizing a brave new business model – the ULVV model. If you haven’t heard of it, it is better known as the “Unintended Low-Volume Vehicle”. But as you have read in the papers lately that is not necessarily sustainable strategy!

I would like to know who wrote the automotive manufacturing 3 commandments that said thou shalt have a stamping facility, thou shalt have a body shop, and thou shalt have a paint facility? Did I miss a class? The technocrats in this room all know there are viable and existing technologies being used in industry today that reduce or eliminate the need for such massively asset intensive processes. But yet, every year, every decade, it is the same old game plan, “I need $1.8 billion to bring a new vehicle to market”. In this day in age, that is still a lot of money. No wonder the financial investors have not wanted to play ball in Detroit – innovation is the squeaky wheel that gets funded and that squeaky wheel is not here. For all the acknowledged flaws, maybe we should have let the Viper, Mustang, Corvette, and Prowler management teams run the whole show with a different mandate – and conduct a true restructuring letting them prosecute the plan.

How about trading in the aforementioned build-to-inventory and build-to-rebate business models? How about a build-to-direct-order from a direct customer and distributing directly model? Oh, that’s too difficult. Management has dug in, the union has dug in, the dealers have dug in, and the suppliers have dug in. No can do. Well, they’ve dug quite a hole and here we sit with the President of the United States of America having to personally intervene.

So where are the innovators and leaders? The rumblings have begun…..but not here in Detroit. They have begun on the West Coast, in the Southeast, and to some extent in the MidWest – real entrepreneurs, taking real risk, to change the world. Now, how is it that there are hundreds of thousands of idle automotive workers, retired executives, pink slipped middle management, and underutilized technical resources all up and down Southeast Michigan – and somehow the center of gravity for the 2nd industrial revolution is not here?

You have had entrepreneurs in your ecosystem for decades. The entire dealer network is made up essentially of entrepreneurs. A good portion of your supply chain, from the Tier 1 to Tier 2 to Tier 3 have been led or are still being led by entrepreneurs. You have a number of engineering consultancies and marketing firms led by entrepreneurs. There is even a strong, entrepreneurial spirit found in motorsports.

But why is it that there are no “OEM entrepreneurs” here, willing to stand up for your country? This is your wake up call – to show the world what you’ve got. There are product planners, strategists, project managers, engineers, market analysts, designers, manufacturing feasibility experts, and financial specialists just in this room. Heck, with the talent found within a 5-mile radius of here we could start an OEM right here, right now. You want jobs? Let’s create them ourselves. So what’s the hold up?

SO WHAT IS THE PLAN?
We find ourselves in an absolutely ridiculous situation. Our country has a massive amount of financial talent on the sidelines due to the banking crisis. We have more automotive technical talent on the sidelines than we know what to do with and to add insult to injury, there are billions of dollars sitting on the sidelines looking for deal flow – and hopefully with a better return than the public markets right now. Yet we are stuck in neutral and at best, grinding the gears.

The essence of my proposed solution is that the private and public sector needs to fund 100 new OEM startups over the next 18 months which requires 3 key ingredients to be pulled together:

(1) The Proposal – as I mentioned, you have all the talent you possibly might need right here in Detroit to establish a new OEM. I have complete confidence that a tremendously comprehensive and enticing proposal could be put together with the right leader in place, a skilled team eager to work, and some key supply partners on board. That killer app is sitting in your backyard – that would not only show the country that Detroit is back, but show the world that America is back.

That proposal would be something that would answer the basic questions any early stage investor would ask and bet on. Do you believe in this product proposition? Do you believe there is viable market for the product? And do you trust this team to execute the plan and deliver the business?

(2) Funding – given that we all missed the meeting when everyone decided to dump our monies into effectively 2 sectors, perhaps its time to send out our own meeting notice for deciding we are going to invest in the industrial sector – in earnest. Yes, manufacturing, yes, automotive, and yes – we actually make things that people buy and create real value and real jobs. I would suggest that on average the 100 new OEMs I mentioned are going to ask for about $500 million each over time, which would require a capital pool of $50 billion to get started. And in order for this to work, the public sector at the federal, state, and local level will need to participate completely in line with the private sector.

A $500 million cash call could easily be broken down into $10M from local authorities, matched by $10M from state authorities, and $80M match from the federal authorities leaving $400M to be funded by private sources. Then it would be required to establish actual real-life early stage industrial venture capital firms run by real money managers, venture capitalists, and former automotive and industrial executives with a clear mission – and a huge sign on the front door that says, “We don’t invest in information technology, life sciences, turnarounds, or recapitalizations. We solely invest in automotive and industrial OEMs startups.”

For your reference, one should understand that in a number of cases it takes $200M – $500M to bring a new drug to market. And it takes 7 – 8 years to do it with a massive amount of invention risk. Yet, there are billions of dollars and hundreds of venture capital firms lined up to take that deal knowing that 8 times out of 10 they get it completely wrong and lose all of their money – and when they hit it right they might see 6 times there money back.

What if you had 20% of the capital covered by public authorities to start, you had very little invention risk, you could get to market within 2 – 4 years, you had a tremendous amount of talent to deliver everywhere you look, and your returns, after doing the math, could be significantly more than 6x your money? Does someone want to tell me why is it that we don’t we have some level of industrial policy backed by an appropriate financial infrastructure to do this?

So we need to establish 10 new well capitalized industrial venture capital firms each managing about $4 billion with long-term focused limited partners. Last I checked, there were more than plenty financial experts and tremendously bright people roaming the corridors of Wall Street looking for a new gig.

(3) Political Will and Business Acumen – finding the intersection of political will and business acumen is much more art than science. Without setting off the socialism alarm bells, we need to sit down and have a frank discussion about having a proper industrial policy. I am not looking for outright intervention – what we need is a basic framework in which to operate and a little push in the right direction – to deliver the jobs that all those politicians have been out promising you for decades and have not delivered.

Find me the governor, the senator, the congressman, the cabinet secretary, the financiers, the business leaders, and the entrepreneurs that can work together to bring about the 2nd industrial revolution and I’ll show you the true essence of what America is all about.

LASTLY…
The United States of America is the most powerful and innovative country in the world. We must attack the challenges ahead of us with the same level of American ingenuity and innovation that propelled us through the first industrial revolution. Our country commercialized the $3 trillion worldwide automotive sector and we used to have hundreds of OEMs on US soil – and now we have 3, no 2, no actually just 1 left truly standing. This is not acceptable. We lit this nation with an electrical grid, we tied it together with the telephone lines, we laid rail from east to west and north to south, we won the cold war, we put a man on the moon, and we once dominated the industrial landscape worldwide. Rest assured, we can once again.

This is hard work. It’s easy to say it can’t be done. It is even easier to sit on the sidelines to wait and see what happens. Our country is calling on the entrepreneurs across this country to voice their solutions, act on their solutions, and together, we will make our country what it was always intended to be… a place where freedom rings true.

I would not ask you to do something that I have not done myself. For the last decade of my life, I have been working on that new business model, that new comprehensive solution. Finding that golden intersection between customers, brands, technology, people, finance, politics, and profits. In 2012, when we hit our Start of Production milestone for the Carbon E7 you’ll be able to see the fruits of our labor……and for some of you with a heavy right foot, that first sighting might be in your rear view mirror!

Lastly, let me now tell you what is American. What is American is to innovate our way to freedom, to find the cowboy and maverick in all of us, to match it with technical capability of Silicon Valley, Detroit, and Cape Canaveral, to add the drive, determination, and speed of New York and Chicago, and build upon it with the honest and strong work ethic of the South and MidWest – to build a new America. We are a land of immigrants and we take the best the world has to offer and make it our own. These are the times when pure, raw capitalism, coupled with American inventiveness, political will, entrepreneurship, and optimism, will fix the problem.

My dear Americans, what I am asking you to do is what your country needs you to do. You have the chance to have the second industrial revolution begin right here, right now in Detroit. Seize the moment and make it yours. Fight the good fight and don’t ever, ever surrender. Thank you.

William Santana Li
Chairman and Chief Executive Officer
Carbon Motors Corporation

About Carbon Motors Corporation

Carbon Motors Corporation is a bold, new homeland security company on a critical mission to design, develop, manufacture, distribute, service, and recycle at end-of-life, the world’s first purpose-built law enforcement patrol vehicle.

Carbon Council

Join The Carbon Council and you can provide feedback, make suggestions, participate in contests, surveys, forums, design reviews and more.

» Learn More