What to do about Detroit.
sethgodin.typepad.com
sethgodin.typepad.com
I was in Detroit last week... I have family there. I also drive a car. And I would rather that the world doesn't melt and the economy thrive. So I'm uniquely qualified to weigh in on the automobile industry.
Which would make me uniquely qualified to weigh in on the intricasies of modern farming since I have family that lives on a farm, went there last week and use dairy products on a regular basis.
On a more serious note, there are some basic economic insights that Seth seems to have completely missed: Some industries are skewed towards a scattered market with a lot of small players. Others are skewed toward a few large players. One of the main factors involved in this is fixed cost vs. variable cost. The automative industry has enormous fixed costs that it has to incur before it has a product that is ready to sell. This is true even if there are suppliers that can deliver most of the parts. Safety regulations alone costs hundreds of million for each model. This fixed cost has to be spread out across however many cars you sell. This is why some industries, such as the automative, semiconductor and aeronautics industries, have a few large players. If you only sell 1000 cars your fixed cost would be a prohibitively high percentage of the final price of the car. So there are a few large players because there are significant advantages to economies of scale.
Other industries, like carpenting, consulting and software don't have high fixed costs before they can go out and sell a product. Which is why there are a lot of small players in these markets.
Seth should stick to marketing.
I just looked at some statistics - I know it's damn lies but - it seems traffic deaths per mile travelled were falling both before and after the US introduced car safety regulations, but before the regulations they were falling faster. Also Wikipedia says the mandating of airbags was controversial because their cost/benefit ratio is extremely high for a safety device. Hope someone more knowledgeable corrects me.
Guess it shows :-)
If it is ever as easy to start a car company as it is to start a Web company, then something is wrong. People can't drive their browsers into each other at 100MPH.
Also, there is no problem with the idea of big car companies. Big companies have increasing economies of scale and can offer significant savings to consumers. A poorly-run big company is a problem, not the size of the company itself.
I consider myself a hacker, but I am a mechanical engineer by training. I've worked in car plants, and I think I'm much more uniquely qualified to speak on this subject than the blog author.
People do not comprehend the kind of cash that a car company needs (and should need) to get into the market. Let me detail the process of producing your car's radiator motor (just the motor!):
- Come up with your awesome motor design (doesn't cost a lot, assuming you and your fellow startup partners are good engineers)
- Draft your designs (draftsmen around here are unionized, and paid a great deal for their work)
- Build a proof of concept. In fact, build several (requires access to a very extensive machine shop, and unless your founders are all exceptionally talented machinists, you have to pay unionized labour more money to get this done)
- Now build several hundred more prototypes. These will go through performance and reliability testing. This will require access to heat testing chambers, sound testing labs, strength testing machinery... you name it. Each of these labs can't really be rented, and cost tens of millions to build and staff. Each piece of equipment needs to be certified by the relevant safety and regulatory body ($$$), and you'll need several people on board full time just to document everything to the minutae required by the same bodies ($$$). Do you know how much a certified laser micrometer costs?
And that's just to get your first working prototype. You're already probably 8-digits invested by this point, and you haven't even yet built out the necessary infrastructure to mass produce your product. By the way, casting a mould for a single part (e.g. your motor casing) costs $200-300K by itself, so moving towards production is not cheap either.
Now multiply that by the tens of thousands of parts in your car.
People (especially software types) simply do not appreciate the sheer, ridiculous amount of effort (and money) it takes to keep them safe. This is also why I'm always wary of cheap goods, because I have seen first hand the difference between well-designed, properly tested products vs. not.
The car industry can never move back towards a tiny-startup model. Sure, there may be room for smaller players, but "thousands of startups" like the web model will never fly, unless you enjoy having your wheels fly off the axle as you drive.
- A 1% failure rate on an F1 car may in fact be considered acceptable, but completely insane in a production car that may sell millions of units a year. F1 drivers, despite all that we can do, also accept a much higher level of personal risk than most other everyday drives.
- F1 cars only have to worry about a single passenger, and due to the controlled nature of the race a more limited number of failure modes... which is to say the scope size of the problem is significantly reduced - and designing for F1 is already non-trivial!
- Carbon fiber is almost impossible to work with on a mass production basis - the nature of the material prevents high-precision parts from being made, which is hell on a production line, but easier when you're hand-building everything
And you're right - it's entirely possible for a limited-size team to build a car from scratch - assuming they had all the parts as it is. It's entirely impossible for them to attempt to build the drive train, engine, all panels, structural parts, suspension, etc etc, from scratch. It's also very difficult for them to afford the sort of testing required to get this car to market.
People (especially software types) simply do not appreciate the sheer, ridiculous amount of effort (and money) it takes to keep them safe. This is also why I'm always wary of cheap goods, because I have seen first hand the difference between well-designed, properly tested products vs. not.
What car do you drive?
- Avoid Pontiacs at all costs. The quality difference between, say, a Sunfire and a Chevy Cobalt is ridiculous. Even "higher end" cars like the G6 are somewhat questionable. Chrysler are built cheap. The radiator motor that I worked on while I was there was timed to stop working after about 4-5 years (brushes in the motor will wear out).
- Avoid anything built in Mexico. This is not a knock against Mexicans, but my company's Mexican plant was completely devoid of precision manufacturing. Where an American plant would laser-guide parts into their fittings, in Mexico they're literally eyeballed (and malleted!). A full 80+ percent of warranty returns were due to parts built in Mexico.
- The high-end Chryslers are actually pretty good in terms of quality, and when I was working there the Ford Fusion was still under development - and based on what I saw (of the radiator design) Ford seemed like they were willing to pay for good parts. A good sign I suppose.
- Nothing beats Mercedes and BMW in quality. You do get something for your money, regardless of what people might say. Whether the cost per unit-quality is low enough for you is your own decision though :) Where GM was running brush motors, BMW runs entirely brushless (e.g. theoretically infinite lifetime, will run as long as your solid state electronics and assemblies hold together), and they're powerful to boot.
The plant didn't make anything for Toyota, Honda, or Mazda at the time, so I can't comment on those.
Were you the engineer who designed radiator shrouds, fans, and motors?
[of course, the fans used to be driven by a belt from the engine ...]
You reduce the diameter of that bolt by 0.01", thinking it'll save the company some money, and be strong enough to do its job, and somebody will later come, assuming the bolts weren't changed, and put more load on it. And then one will snap, resulting in a horrific crash that kills everyone in the car. And then the company gets sued, and pays out millions in compensation, not to mention the guilt of having shoddy engineering kill someone.
Code is no less capable of killing innocent people.
You might think that this sort of bureaucracy stifles innovation, or reduces your productivity - but the fact of the matter is that it saves lives, not to mention documents proper liability, etc etc.
Its also important to remember that other counties and peoples with different world views will have radically different conceptions as to what this acceptable number is.
http://en.wikipedia.org/wiki/Tacoma_Narrows_Bridge http://www.airlinesafety.com/faq/faq9.htm
There are products which lend themselves to 'the long tail'. The repeated failure of niche brands like DeLorean and Bricklin may indicate that cars are not among them.
And when VCs get flush with cash they just seem to fund dumb stuff on a grander scale: http://web.archive.org/web/20000510152036/http://www.pixelon... Too random a process to predict or control.
And honestly, reducing taxes even further in this crises doesn't strike me as a reasonable way to handle a global credit crunch...
As for reduced taxes, I would argue that it seems like the ideal way to combat a global credit crunch. The government has the lowest cost of capital and the lowest default rate (at least the US govt. does). Thus it would be more efficient to leave the extra capital with private citizens and use deficit spending. Of course it would even more efficient to just not have the federal govt. spend as much but then its not like hell is about to freeze over anytime soon.
Opinions are like assholes...no, right now opinions about the economy are like assholes...
these 1000 car companies all made innovations that COLLECTIVELY would make 1 decent car. why the hell would you want to buy a car with 1 or 2 of these critical features? eventually as a market settles, desirable features are consolidated, it's the reason why we don't have 1000 companies making PC operating systems and browsers...
What would be interesting would be if alt-energy cars were classified as a different type of motor vehicle, with a relaxed set of regulations. This would allow for new companies to make them, and for established companies to make them cheaper. Then after the market is established, and many companies have innovated in the industry, then slowly ratchet up the regulations on them. Just a thought.
i'm just saying, evolving further is more attractive than declaring this lineage a failure and going back to knuckledragging. it feels like when these a-hole anarchists think society would be better off if everyone had to defend their property with shotguns instead of having the system of law enforcement and crime-science we have now.