Thursday, November 13, 2008

A compelling commentary on the auto industry's situation

For certain commentators who want to see the big three US auto makers go under, here's perspective:

GM's heavy-duty hybrid technology would be far more revolutionary than Toyota's.

The Toyota technology can only be applied to smaller, lighter vehicles topping out at perhaps the Highlander SUV. Such vehicles are only suited to commuting. In contrast, GM's technology (developed with BMW and Chrysler) can be applied to huge vehicles pickups, commercial trucks, and buses.

In other words, the vehicles that consume vastly more amounts of fuel per vehicle, if not in total, than passenger vehicles. And GM leads the pack.

The post also makes a good point: There is a vast support system based on the auto industry, and this will lead to trickle-down effects of the worst order. We need them for now, and the people doing the design and manufacture need help. The suits, not so much.

I think we could be approaching a certain tipping point in automobile manufacturing. As I see it, the big three became the big three because at the turn of the 20th century, the process was so capital-intensive, it could only be accomplished by capital barons with deep pockets. It took massive amounts of money to put forth the type of plant that could produce a car, an order of magnitude worth of money, and once you got a good chunk of the market, it was tough for others to capture enough of the market for themselves for it to be worth the trouble to go through the loans process.

It's still not cheap: my nephew, Tim, is a finance director for a dealership. He said if I was to take my 2006 Pontiac Grand Prix and make it myself, it would cost me roughly $300,000-$400,000 in custom-made parts, compared to the $26,000 I actually paid for it. Youch.

But, guess what? Things are changing (it's deep insight like this that are the reasons I'm a highly-unpaid amateur blogger). Manufacturing processes are becoming more automated all the time. Custom motorcycle manufacturers are almost commonplace. Computer Numerically Controlled (CNC) machines are available by lease to an increasing degree. The abundance of expertise in the manufacture of carbon-fiber means not only new types of cars, but new processes that are available for making a car, and which do not require massive machinery, thus lowering the bar even further. The brothers Magliozzi from Car Talk on NPR did a fun program for public television earlier this year: Car of the Future. Tom Magliozzi visited with a gentleman who had such a prototype SUV built with a carbon-fiber body. It was nothing for Tom to lift an entire body section with two hands, a feat impossible had it been made of steel.

What we are seeing, in my opinion, is the auto industry gradually heading the same direction that we've seen the telecommunications business go: more players becoming increasingly balkanized because the opportunity to get in on the ground floor gets more cost-effective all the time.

HT: Slog.

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