WUOMFM

Silicon Valley learns that building a car is not as easy as it looks

Oct 22, 2016

Detroit should not be in the business of gloating.

Its automakers have closed too many plants and cut too many jobs. They’ve lost too much market share and destroyed too much capital. They’ve disappointed too many investors to claim the high ground in the global auto industry.

That image is not likely to change until they successfully weather an inevitable slowdown. The industry also needs to parry the competitive threats posed by Silicon Valley, the coming mobility revolution and the battle for young, tech-savvy talent. Could Detroit be holding its own?

This week, Lear Corporation opened its Innovation Center in Detroit’s Capitol Park. The move is a bold statement by the global auto supplier. It thinks it can attract the talent it needs to compete with both foreign rivals and tech hotshots on the West Coast.

The good news for Detroit is that the arc tracing the auto industry’s future, and its intersection with the tech sector, are not fixed. They’re still bending as executives on all sides reconcile business models, investor expectations and technical reality.

This is no time for complacency, whatever the news coming from America’s new Masters of the Universe. Apple, said to be predestined to disrupt the auto industry, is scaling back its automotive ambitions. And Elon Musk’s Tesla Motors this week confirmed its compact Model 3 electric car is not likely to reach many customers until “mid-2018 or later.”

Rule No. 1 in the car business: don’t take customers’ deposits – 400,000 customers at a thousand bucks a pop – if you can’t deliver when you say you will. Rule No. 2: there’s always a competitor waiting to steal those customers. In this case, it’s General Motors new electric car – the Chevrolet Bolt.

If two things are likely to test Tesla’s enviable brand equity, they’ll be the long wait for its Model 3 and a strong launch of the Michigan-built Chevy Bolt. Guess building cars and doing it right copy after copy are more difficult and more capital consuming than they look from the West Coast.

Wall Street would thrash traditional automakers for such loose connection to production timetables and investor commitments. But investors apply different rules to New Economy companies — or do they?

Getting a product to market on schedule still matters. Getting a much-anticipated electric car to consumers that would sell for less than $30,000 and go more than 200 miles on a single charge would be huge step forward for GM.

What tech executives and their investors are doing speaks louder than what they’re saying. The Masters of the Universe are managing expectations down because they’re coming to terms with what auto industry insiders know well:

The business of building cars and trucks in the high-cost United States still is a highly capital-intensive business with comparatively low margins. That’s why Detroit wants to play in mobility — it needs the fatter profits.

This is a long game that will reshape the auto industry as we know it – and Detroit needs to play to win. You can bet others already are.

Daniel Howes is a columnist at The Detroit News. Views expressed in his essays are his own and do not necessarily reflect those of Michigan Radio, its management or the station licensee, The University of Michigan.