The auto companies everywhere except Tesla are so far behind.
Lived in Detroit most of my life. When discussed, the big 3's problems get brushed away irrationally.
But it's worse than the future catching up with the auto companies. I feel like the execs don't even know how to market to their customers.
Comparing Mary Barbra's unveiling of the Bolt to Elon's Model 3 was night and day. Elon had a teleprompter but he spoke like a normal guy about things he and I am interested in.
On the other hand Mary's speech was stiff and read word for word. They used early 90's cutting edge graphics in the background at one point. They talked about the history of GM which no one cares about. It felt like it was directed at share holders not customers.
A lot of ideas about how to run a car company will change. I'm not sure the big 3 will make it.
Well, the big 3 are all currently profitable, so they have that going for them. I'm not sure how Tesla is going to make it as they continue to overpromise, underdeliver, and hemorrhage money.
I do agree with you though that Tesla is far better at marketing.
Tesla has had repeated success raising money by going to the financial markets, so, it appears that enough fools are willing to invest to sustain them until now and for a while longer.
And the Big 3 have had big success in getting large near zero interest rate loans and liens of liquidity provided by tax payers directly and the issuance/sales of t-backs on behalf of tax payers. Financially speaking, the shenanigans of Tesla and the Big 3 aren't too dissimilar…
This isn't true. Ford actually took out a bigger loan than GM. In fact, Ford still owes the government over $6 billion when the other automakers have repaid their debts.
Even more scary for Detroit, once the American public figures out Tesla is actually more American made than the big 3 they will feel no guilt in buying Teslas instead. This is especially the case if we start losing a bunch of coastal areas and the big 3 look apathetic about their role in global climate change.
The infrastructure/economies of scale to make that profitable don't exist yet, but Tesla is working at setting them up. Elon Musk: "Model 3, our smaller and lower cost sedan will start production in about 2 years. Fully operational Gigafactory needed."
1. Tesla doesn't really give a crap about owning the entire market. If their competition causes the big 3 to build low cost zero-emissions vehicles, then Tesla has fulfilled their part of Elon's goals towards saving the world. Basically, putting a stake in the heart of the internal combustion engine and putting automotive economies of scale behind battery and energy storage development.
2. Cheap cars have awful margins, only worth playing in at scale. SUVs on the other hand are hideously profitable. The sport SUV has been the savior of BMW and Mercedes over the past decade, with high margins versus their cars. Porsche got in on this and built an SUV, now Lamborghini is too, margins are just too good to ignore.
Tesla's pursued an Intel-like tick-tock strategy, where they shoot at the high end to make money and get performance knowledge (Roadster, Model X) and with the cash reserves take their next model downmarket (Model S, Model 3).
>Tesla doesn't really give a crap about owning the entire market. If their competition causes the big 3 to build low cost zero-emissions vehicles, then Tesla has fulfilled their part of Elon's goals towards saving the world.
Elon might not care, but as a publicly traded company Tesla is not going to say 'Mission Accomplished' and close up shop.
Lower cost is still not interesting to Detroit unless it's well south of $50k. About the only thing they have in that price range is the Corvette, and I don't see Corvette buyers jumping to an alternative.
> Right, but the USA bailout of the auto companies seems to have been a good bet. Hundreds of thousands of jobs were saved, and the companies bounced back and paid off their debts, and the USA was able to sell its stake in GM at a profit.
According to a link in the article the government lost over $9 Billion. I live in Metro-Detroit, saw plant closings, saw waves of dealerships close, watched whole car brands die, got my hours cut and watched delayed work hurt a lot of people around here.
Just because GM and Chrysler go into bankruptcy sans the gov doesn't mean all those jobs disappear. Yes, GM and Chrysler would take a cut (which happened anyway) but I think they'd also get reorganized better at the very least.
From what I've heard the reorganization that took place was not nearly enough. Chrysler has a mandate on the minimum number of workers needed for some contracts. This leads to situations where Chrysler is paying for 4 people so 1 person can put in half a day at a 3rd party supplier. I have stories for days.
The real tragedy in all this is a new better company could've started in Detroit. Instead, due to Zombie GM and Chrysler continuing to dominate the market, all the automotive engineering talent is slowly migrating to Silicon Valley.
While we are on the issue of Detroit and automakers here's a topical scene about some collective bargaining of jobs at an auto supplier, from the well-made documentary, Detropia [1]
I had to laugh at that, too. US auto companies will be bailed out or forced into mergers exactly as often as they fail. The government can't afford to assume pension obligations for all those retirees.
Because the auto companies are far, far behind on software and, now in comparison to Tesla, hardware.
I was told by a GM employee in their tech center in Warren, they have COBOL running in VMs on modern servers whose terminal screens get scraped into excel spread sheets. This is one of many examples I could give you. I could literally spend hours telling you the horror stories. It's government levels of inefficiencies and leadership has little or no visibility into the system.
Everyone in Metro-Detroit knows of the problems in the auto industry. The leadership lacks vision and workers find their niche and retire hoping to do the same things with maybe a promotion to management. There is not a constant drive, at least in the software side of things, to constantly improve and learn like in there is in Silicon Valley.
The above is applicable to GM and Ford. Chrysler, on the other hand, is a whole other level of screwed. There's a reason they've been bailed out 2 times by the government and now bought/merged by a foreign car company, AGAIN.
Apple, Google, Tesla and Uber will crush all but a few existing automakers, around the globe, and leadership has just now come around to acknowledging the threat. The regular Metro-Detroiter has no idea.
> Because the auto companies are far, far behind on software and, now in comparison to Tesla, hardware.
It's a good thing that Apple is a software company.
> Apple, Google, Tesla and Uber will crush all but a few existing automakers, around the globe, and leadership has just now come around to acknowledging the threat. The regular Metro-Detroiter has no idea.
Of those four, only Tesla has actually produced cars that can be sold to the general public. Tesla is a 13 year old company. It has well known reliability problems, and it is supported by a luxury-only price point and market. It's market share is sub 1%.
That is exactly my point. Apple could, if they wanted, start from scratch and it will take 10 years absolute minimum before they are even remotely relevant. Or they could buy an existing car manufacturer with actual market share, and in the course of 2-3 years make it extremely profitable, and in 3-5 years make it into something Apple would be willing to put their logo on. Starting from scratch might be reasonable when you are talking software, but building an automotive company takes decades.
It doesn't even have to be Fiat Chrysler or domestic for that matter...any existing automaker with more than 20 years experience could be on the table when you have $200B in cash on hand. They could buy BMW for ~$50B or Daimler for ~$70B. Hell, they could buy Toyota at ~$175B.
> Apple could, if they wanted, start from scratch and it will take 10 years absolute minimum
> but building an automotive company takes decades
> Tesla is a 13 year old company.
Like you said, Apple has $200 billion. That can buy some speed but Apple doesn't have to rush.
Tesla did. From Tesla's founding to the first Model S being delivered took 9 years and they did it with under a billion dollars. They also spent time proving electric cars were viable with the Roadster and secure more funding. Apple doesn't need to take this first step.
So a crappy guess would be 5-7 years to make a car. This is not worth the risk of spending $40-70 billion, especially when you can get away with spending $2 billion and get better results than Tesla.
My main point was the auto companies are so bogged down with legacy (legacy software, legacy manufacturing, legacy thinking, legacy costs, legacy habits, legacy dealerships) that starting from scratch is the better option, even if it does take 10 years.
> and in the course of 2-3 years make it extremely profitable, and in 3-5 years make it into something Apple would be willing to put their logo on.
What your suggesting is, essentially, to unravel 50-60 years of legacy. People have tried and failed. This isn't just a company like GM, a massive institution in its own right, it's all the 3rd party suppliers. I think you're underestimating the work required, even if you assume no worker revolts.
I also don't think Apple wants to manage or take on the liability of car divisions from around the world.
Quality in auto manufacturing is an iterative process. It took well over 20 years of Deming's iterative process improvement to bring Toyota's production quality up to the standards of GM in the 1970's...as pathetic as those standards were. It took 40 years of protectionist subsidies, tariffs, and hundreds of billions of dollars in Korean government investment to get Hyundai to the standard where they could actually export their cars without being laughed at.
Tesla has taken 13 years to ramp up production to 55k per year, and that was even after lucking out with a down-on-their-luck Toyota manufacturing division complete with experienced management and auto workers getting dropped from Toyota's production portfolio. You hold them up as a standard for progress, but they are literally a toy car company. Ford started producing cars in that quantity in 1911. 20 years from now, Tesla will still be paying high priced consultants with global manufacturing experience for their experience building cars at scale. Tesla will no doubt succeed if they can keep up that pace, but they have an extremely long road ahead before they can even compete with Nissan or Hyundai in the US in terms of production capacity, reliability, and production costs.
That legacy culture that you deride has another name: knowledge and experience. The same Tech-industry "we can do it better than you with no domain expertise" arrogance is exactly the reason why Silicon Valley hasn't made any dents in Health Care, Finance, or Energy, despite the untold billions that their VCs have dumped into those exact industries.
In the 80's people were still designing cars on paper on top of desks the size of a kitchen table. Imagine pulling out an eraser or creating a fresh copy manually if your drawing was too messy. It was so ... damn ... slow. People got paid to drive from one side of Metro-Detroit to another delivering a large cylinder of drawings.
> to bring Toyota's production quality up to the standards of GM in the 1970's
Now cross an OCEAN and do that.
Things get exponentially faster and everyone around the world is now talking to each other instantly. Its hard not to learn from other car manufacturers.
> even after lucking out with a down-on-their-luck Toyota manufacturing division complete with experienced management and auto workers getting dropped from Toyota's production portfolio
This is a failing on Toyota's part and a successful use of this talent on Tesla's. It's a sign of things to come. Not unlike Apple's hiring of A123 System's battery engineers from Detroit or Uber's hiring of Carnegie University PHD students out from under a GM funded research project.
> You hold them up as a standard for progress
Yep. ICE powertrains are complicated, expensive, more prone to wear, need more maintenance and are part of an epidemic global problem. The only sticking point of Tesla's plan is the expensive battery. They're working on that too.
And they are a standard. GM just copied them. From the huge battery at the bottom of the car to Model 3 sticker price on the Bolt. Tesla is now setting the standard.
> but they are literally a toy car company
We all gotta start somewhere. In one sentence you talk about how it took one company 20 years, another 40 years. In comparison what they've done in 13 is pretty spectacular.
> Tesla has taken 13 years to ramp up production to 55k per year
Do you mean to start a company, build the Roadster to prove it could be done, attract capital then eventually sell 55k cars? Because that's way more impressive than buying a factory in 2010 and hitting that goal 5 years later, which is still really impressive.
And why are you only shitting on them? In only 3 years of producing the Model S, its the 2nd best selling large luxury car. They did this with 0 ads and 0 dealerships with 0 dealership ads. Everyone in this country knows GM, Ford, Toyota and Mercedes. They get slapped in the face constantly with TV ads. I wouldn't be surprised if less than 10% of the country knew about Tesla. They only have room for growth.
> That legacy culture that you deride has another name: knowledge and experience.
Good point. I mean bad legacy. To be successful you have to understand what to ditch (ICE powertrains and SOAP protocols), have the guts to ditch it, and know what to hold onto (rubber wheels and robotics). Automakers are not ditching bad legacy fast enough. As of 5 years ago GM was running COBOL and probably still is. I'll bet you $100 Tesla isn't.
> is exactly the reason why Silicon Valley hasn't made any dents in Health Care, Finance, or Energy, despite the untold billions that their VCs have dumped into those exact industries.
All 3 of those industries are heavily regulated and mostly hard problems. Until recently, Silicon Valley has mostly been focused on low hanging fruit. Starting a website is easier than starting a bank due to the shear amount of compliance.
The reason the VCs are dumping tons of money into these spaces is due to their difficulty. Facebook needs money when they buy data centers a few years in, finance needs money right away.
> but they have an extremely long road ahead before they can even compete
Big things like starting a car company take time. Now add Google, Uber and Apple into this mix. There all in the same place but without the COBOL. In fact innovation and ditching bad old ideas are in their blood and Detroit is still running SOAP and COBOL.
Lived in Detroit most of my life. When discussed, the big 3's problems get brushed away irrationally.
But it's worse than the future catching up with the auto companies. I feel like the execs don't even know how to market to their customers.
Comparing Mary Barbra's unveiling of the Bolt to Elon's Model 3 was night and day. Elon had a teleprompter but he spoke like a normal guy about things he and I am interested in.
On the other hand Mary's speech was stiff and read word for word. They used early 90's cutting edge graphics in the background at one point. They talked about the history of GM which no one cares about. It felt like it was directed at share holders not customers.
A lot of ideas about how to run a car company will change. I'm not sure the big 3 will make it.