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Comment by mattmaroon | Hacker News Reader

This is actually kind of stupid and poorly thought out. That thank you ad is just that, an ad. It's an investment. Just because a company's having a hard time doesn't mean it should never advertise. Sometimes it should advertise more.

And the American car companies have figured out what cars people want and at what price range. They were selling SUVs before the rest, for example. The problem is that the other car companies can quickly copy them, and the price range is set by the market, which is flooded with Japanese cars of the same sort. The Japanese can undercut them because of their lower employee salaries.

It's not as if the American car companies can't make a decent car. They just can't make one that doesn't cost $2k more than the Japanese because of their cost basis. No amount of innovation can overcome that.

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No amount of innovation could overcome a labor cost disadvantage? No amount? Ever?

I'm not disagreeing with your main point. But I think you're either selling innovation a bit short or you're being too rhetorical.

Not in the car industry, because the rest will copy any innovation that catches on. I have high hopes for the Chevy Volt, for instance, but I also have no doubt that if demand for it proves significant, Toyota will have a competitor out in 2 years, and they'll be able to price it $2,000 less.

You can't out innovate someone who can just copy you and sell a product just as good for less.

Frankly, Detroit would do well to copy their foreign competitors a bit more often.

Which American car did the Datsun B210 copy? Which car did Porsche's 911 or Mercedes' S-class? Or for that matter, Toyota's Prius?

I see plenty of examples of foreign competition innovating successfully, often at "non-competitive" prices. Detroit's last significant innovation was what? The 60-month car lease? The UAW job bank?

That's silly. All of the auto industry's money is in the middle. Civics, Corollas, Accords, and their competitors. Americans innovate around the fringe in sports cars too. And luxury. They had a hell of a run (albeit brief) with Hummers. Escalades. Mustangs. Etc.

It's just not an innovation problem. It's a cost basis problem.

OK. When Honda started making the Civic and Toyota the Corolla, what American car where they competing against, or copying? (I'll give you a hint: it wasn't a car that was remotely competitive in the small, reliable inexpensive car segment, and probably not one that you'd recognize today as a direct competitor to the first Civic, Prelude, or Corolla. Go drive an '84 Omni and an '84 Rabbit and tell me which is the better car. Or a 70's Chevette and a 70's Civic or Prelude.)

I will grant you that the ur-Mustang was a stroke of genius, reasonbly innovative in the sense of creating visceral demand for a fun and cheap car. Right after the pony cars came the muscle cars, which may have represented the pinnacle of Detroit as measured by getting the country to actually lust after your products, to care about what engine and trim package was in the latest chromed sled to roll down Main Street. Even today, I'm proud to own a 65 hardtop and 66 convertible Mustang, both of which are 5+ years older than I am, and I feel happy to see the smiles of passersby of all ages when they see a piece of proud American history roll by. And that's exactly the problem, the pride is in the history, not the present.

The Mustang and Pontiac GTO debuted over FORTY FOUR YEARS AGO! That's a pretty long drought, and despite their appeal, the C-5 'vette, Fox Mustang, and Hummer (the H1, not that plasticky rebadged Tahoe they call an H3) haven't really hit the same chord, have they? Of those 3, I suspect the vette and H1 didn't make significant annual profits, and almost surely not what Porsche makes on the 911 alone every year, nevermind the significant profits they bank on the Cayenne. (And all 3 of those together, over their entire production run, certainly didn't make what Porsche made this year on VW options alone!)

By way of background, my 3 registered and insured cars are all American; I don't have a huge axe to grind here to justify my own purchases, but as I see it, Japan and Europe are eating Detroit's lunch, and based on my experience with my '96 Jeep, Satan will probably be wearing a winter coat before I buy another new American car. (I do all my own maintenance and help friends maintain their cars, so I see first-hand how my cars and how the Japanese and German competition are engineered.)

FTR, I agree with you that the UAW deal stinks for Detroit. I'm just ALSO unconvinced that if the government paid Detroit $2000 for every car they sold that Detroit would be remotely competitive. So while they have a cost basis problem, that's not their only problem, not by a long shot.

http://www.npr.org/news/specials/gmvstoyota/

In 2005 GM sold about 4.5m cars in the US. At $2k per car, that's $9 billion in extra revenue. That flips them from a $4b loss to a $5b profit.

QED.

I upvoted you, because that's a great point on financial solvency.

However, it doesn't address the long-run problem of how to take back market share from foreign competitors, which is the type of sustainable advantage that I presume Detroit needs in order to thrive.

(I'll also observe that your QED was to a simple P&L equation, not to the thrust of my comment.)

They have strong market share. GM is still #1 here and in the world overall (though just barely). Market share isn't their problem, it's that they have to sell at a loss to maintain it.

The reason Toyota has all but caught up isn't that they're particularly innovative, it's that the Camry can have $2,000 worth of better build quality than the Taurus or Malibu. Same with Corolla vs. Focus.

Japan gets to choose to either build the same cars and sell them cheaper, or build better cars and sell them for the same price. It's hard to win market share in that scenario.

You can't out innovate someone who can just copy you

Unfortunately in Detroit's case it's just you can't innovate.

And besides, that's nonsense, that's what the patent system is for, precisely to prevent someone just copying you after you've invested in R&D.

No, the patent system is there to make innovations available to everyone. Only after the patent expired.

So, what do you do during the 2 years your competition is catching up on that model? Get ahead again, or do nothing and be really surprised when you lose your edge?

I'm not saying labor cost isn't a disadvantage. I'm saying you're treating it like the necessary and sufficient condition for success across the board, which it really shouldn't be. You're suggesting that if you have a labor cost disadvantage, it is intellectually obvious that it's impossible to stay ahead of your competition with advances in other areas (like RnD or supply chain efficiency)?

It's not a disadvantage, it's a massive disadvantage. It's impossible to stay $2,000 ahead of your competition unless your competition is retarded. Toyota and Honda are not retarded.

So we can either wait for them to become retarded (which they may if all of the American car companies vanish) or we can lower our cost-basis and compete on a level playing field.

So there are no innovations left to be made in the portions of the car industry that don't reside directly in the product?

Such as?

And even if so, that wasn't Cuban's argument. He said that Americans need innovate with respect to building cars people want. My point was that they can't do that when every car has to either cost $2k more than a competitor, or have $2k less worth of features. The fact that they choose the latter is why American cars are viewed as being of shoddy quality.

Though their cars have improved, at least according to Consumer Reports, they have left bad tastes in consumers' mouths from past years of sub par performance.

And even if what you're saying is true, they shouldn't be going to the government for free handouts. Their current state (including higher costs from deals _they_ negotiated) is no one's fault but their own. And then to call the American public investors is embarassing.

I wasn't for the bailout. But I still disagree with everything Cuban said. Their sub par performance was due only to their higher cost basis. Americans don't suffer from a lack of quality engineering. Look at Lockheed, Boeing, etc.

Lowering the cost to build a car is the only way they can compete, and that means lowering wages.

Also, calling Americans investors might make them feel some ownership, which might push them toward a Chrysler next time they go to buy a car. People who own stock in companies have been shown to patronize them over competitors by a wide margin. Of course we don't literally own stock in Chrysler, but if they can make us feel that connection, it might factor into a buying decision. It's possibly good marketing. (It's possibly not too though, I'm not sure).

I have to disagree. Americans do suffer from quailty engineering. Look at Lockheed, Boeing, etc. The Joint Strike Fighter costs something like $140 million a plane. Its foreign competition costs somewhere in the range of 40 to 60 million. Oh, and it already has most of the kinks out.

Or take the Apache helicopter, which are still hand built. At current capacity, only about 60 can be built a year. And we're on a war footing. 51% of your tax dollars get shuffled to the DoD. We're fighting and losing two wars.

Chrysler is a private company that couldn't get a loan from the firm that owns an 80% stake in the company. They know better than anyone that its not "labor cost" that's holding back Chrysler, but fundamental inability to run their business in a profitable fashion.

Their higher cost basis is their own fault. Especially with asinine programs like this:

http://mjperry.blogspot.com/2008/11/jobs-bank-cost-big-three...

So people will be coaxed in to buying empirically inferior and more expensive cars? Buying American for the sake of buying American is retarded. The engineering debate can't really be proven one way or the other, but the ratings from places like Car & Driver, Consumer Reports, etc can (even if American cars have improved in recent years).

Employee salaries in Japan aren't that low. I don't know what is a fair comparison but http://www.worldsalaries.org/employment-income.shtml states that is US 30410/42028 vs Japan 25184/29882.

I would say that the bigger advantage that Japan car industry has is that they actually been always innovative, agile and reactive to markets. Hell, the whole "agile method" has some origination from Toyota. US industry has invented and started some markets like the SUV, but except for you guys, almost no-one else in their sane mind in the world buys them.

> The problem is that the other car companies can quickly copy them, and the price range is set by the market, which is flooded with Japanese cars of the same sort.

In minivans maybe, but otherwise, not so much. There are no reasonably priced Japanese "large cars" (Impala, Town Car). There's nothing like the suburban or expedition. Toyota is finally trying for the "large pickup" with the Tundra, but it's a ways from an F-150 and there's still the f-250, f-350, etc.

The domestics problem is CAFE. They have to make cars that they don't make well (small cars) in order to sell the vehicles that they do make well. They don't get to count their imports either.

Avalon for large sedan. Highlander for mid-sized SUV, 4runner for large. I'm not familiar with Honda's lineup at all, or really any other non-luxury vendor, so I can't come up with more.

> The Japanese can undercut them because of their lower employee salaries.

Because they're not burdened by silly deals by unions?

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