Categorized | economy

One More Reason to Let The Big Three Go Bankrupt

I can’t say it any better than Mitt Romney did in the November 19 NY Times, and he should know, because making desperately sick companies into mightily profitable ones is what made him a gazillionaire. Money quote:

Detroit needs a turnaround, not a check.

In all the discussion about the GM, Ford, and Chrysler bailout, one significant piece of the puzzle has been ignored: where is the industry itself heading? Is the current car economy of giant manufacturers the right business model for a post-gasoline and, later, a post-carbon automobile market? You could argue that the bankruptcy and shrinking of the major manufactures – not just the American car-makers, but many foreign ones as well – is a necessary prelude to innovation rather than its sine qua non.

All economists, business specialists, and people who value their own opinion highly on this matter (which is just about everyone who can read), assumes that the economic structure underlying automobile manufacture is de facto the right structure for inventing, producing, and marketing post-gasoline and post-carbon automobiles.

But the current manufacturing structure is best for a world in which the only “operating system” for automobiles is the gasoline internal combustion engine (or some variant thereof, like a hybrid drive train). The assumption is that the post-gasoline and post-carbon automotive world will also be a one (or two) “operating system” world, say, natural gas internal combustion/hybrid engines, or hydrogen fuel cell engines, or strictly battery/electric engines.

But the correct model may be something more like a multiple operating system world. And not just the chaos preceding the final adoption of one and only one operating system. The post-gasoline and post-carbon automotive world will probably look a lot like the computer world of multiple interlocking pieces and constant innovation driven across myriads of companies. It may very well be that the post-carbon world will be one of constant innovation and multiple solutions introduced at a blinding pace (“the singularity of the car,” why not?).

Realize that when the automobile was first introduced, it was manufactured by start-ups and small businesses. Bicycle manufacturers. Carriage manufacturers. The most important technological innovations happened in this environment.

In a constantly innovating, multiple “operating system” automobile environment, the market would not be trending to a single type of car, but mixing and matching innovations. The top-down, two-billion-dollars-to-develop-a-car manufacturing model may not be right, but a much looser, innovation-based set of small manufacturers. In this kind of world, the major car manufacturers would be something more like clearing houses. All significant research and development would happen among smaller manufacturers; Detroit would just assemble cars to specifications given by the consumer. “I want a Ford Taurus with a hydrogen internal combustion engine in combination with an electric motor and solar panel top.” “I, however, want a biofuel diesel engine.”

The parts of a car would be like the parts and software of a computer. The major manufacturers would be something more like Dell (which simply assembles stuff it buys from other folks) and the market potential of innovations would be driven on their own merit.

If this is the right economic model for the post-gasoline and, ultimately, the post-carbon automotive world, then at some point the major manufacturers have to start to shrink into their role. If more of the added value of an automobile is in its technological innovations, the folks who are going to drive those innovations – entrepreneurs – will be capturing more of the dollars as well.

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5 Responses to “One More Reason to Let The Big Three Go Bankrupt”

  1. Amy says:

    What Can we common Poeple do about the Bailout? Nothing.. we just have to wait and see if the company comes up and develops new cars and prototypes to please the americal consumer

Trackbacks/Pingbacks

  1. [...] December 6, I posted Another Reason to Let the Big Three Go Bankrupt, where I suggested that the business and economic model the large car companies are based on may [...]

  2. [...] I discussed in a previous post, “One More Reason to Let the Big Three Go Bankrupt,” we don’t know that the best industrial model for a post-gasoline world might look [...]

  3. [...] configuration of the auto industry and the opportunities available to far-sighted entrepreneurs here and here. Here’s the main thrust of the argument: But the current manufacturing structure is [...]

  4. [...] missed opportunities, and I’m still not convinced the GM bailout helps the industry retool for a post-carbon economy, but the current bailout is starting to look more like what Mitt Romney prescribed in a November 13 [...]


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