Sources: WSJ.com: Michigan is Singing the White-Collar Blues; Reuters.com: Silicon Valley Warning: Detroit Still Doesn’t Get It; WSJ.com: For One Former Chrysler Manager, Cleaning Toilets Will Have to Do.
The Big Three, North America’s three largest automakers, have seen better days. General Motors, Chrysler and Ford once held dominant positions in the auto industry’s marketplace and now are all relying on substantial government assistance to avoid total collapse. Both General Motors and Chrysler have been through bankruptcies and have received sixty billion dollars of federal money in that process. Ford, while not sinking to the level of bankruptcy, has reached out to the government as well, relying on future assistance of at least six billion. As these companies continue to squirm under the present economic strain, industry leaders from other business sectors are weighing in on the situation.
Silicon Valley venture investors, individuals or firms who channel money and expertise into small rising star companies, are speaking out against the auto industry’s dated business model, conveying their beliefs through capital investments in companies that are focusing the greatest amounts of effort in auto-innovation and reform. The belief is that to be competitive on the world stage, Detroit automakers need to start over and completely overhaul their business model, making continuous technological innovations the focus rather than a focus. Automotive companies that are finding support from these investors have made the focus of their business advances in technology such as electric car innovations and battery charging production stations, rather than innovations in car design and attractiveness.
Even if the Big Three heed the advice of these investors, it will be awhile before the smoke clears. The Big Three have eliminated almost 30,000 jobs since the end of 2006. Despite the three billion dollars in trade-in incentives that have come their way, sales remain down 28 percent. On a more fundamental level, Michigan’s unemployment rate has reached 15.2 percent, up from 9.6 percent in November of 2008. In Detroit, that rate has soared to 17.7 percent, which makes Detroit the metropolitan area with the highest jobless rate in the U.S. Because most of the job loss has been white-collar (jobs that require a minimum level of education and consist of mainly office work as opposed to blue-collar labor jobs), many people who formerly held management positions in Big Three companies now find themselves working at jobs that they are overqualified for, if they are working at all.
Discussion Questions:
1) At what point does innovation translate into something too risky to buy into in a conservative spending regime?
2) What is an example of a sector that has a proven business model that could serve as a guide for the Big Three?
3) Are consumers likely to respond to business innovations like electric cars versus an aesthetically pleasing design?
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1 comment:
nice article, just found your blog and I am anxious to check it out.
not quite in the order you mentioned but:
With regard to #3, you seem to have a disconnect between technology innovations and aesthetics? I think rather than them being mutually exclusive we should think of them together because somebody is going to build a very advanced car that is also very beautiful. I think the Prius looks very cool.
#2, I think the aircraft industry and in some ways some gov't contracting structures could be a very smart way for Detroit to focus on design and innovation because rather than trying to make money on designing AND building they set up fixed fee contracts with primes and subs, like many gov't contracts, so extensive assembly is done out of house. I know parts are already done this way but this could be expanded. Manufacturing operations can sign mutually exclusive contracts so the big three aren't open to a prime manufacturer building Saab designs instead of Ford and vice versa. If Tesla et. al are going to reach scale they will need, if they don't already have, contracts of this type to secure large scale manufacturing operations at a fixed fee and price in their design overhead above that to sell a branded car. That would provide us with much more nimble automotive design companies that aren't concerned with the ramifications of having large scale manufacturing cutbacks during big swings in demand. Presumably, the advances in design (ie efficiency) would bring demand back to a higher, better level.
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