Driving into Oblivion

Ford is a text book example of innovation: it pioneered standardized vehicle design and low cost mass production. Unfortunately this was 80 years ago. These days Ford and its Detroit brethren, GM and Chrysler, are a pathetic bunch. Lack of innovation, misguided trust that gas-guzzling SUVs would pay the bills, investment in lobbying rather than fuel-efficient solutions and an overburdened healthcare and pension burden brought these companies down. This is not sudden death. Detroit has been in steady decline for the last couple of years, even before oil hit a high of $150 a barrel and the financial markets froze.

Thomas Friedman gives the following advice: “Any car company that gets taxpayer money must demonstrate a plan for transforming every vehicle in its fleet to a hybrid-electric engine with flex-fuel capability, so its entire fleet can also run on next generation cellulosic ethanol. Lastly, somebody ought to call Steve Jobs, who doesn’t need to be bribed to do innovation, and ask him if he’d like to do national service and run a car company for a year. I’d bet it wouldn’t take him much longer than that to come up with the G.M. iCar.”

In other parts of the world there are car companies that have made innovation a core value. The obvious one is Toyota. Since the eighties, Toyota and Honda have rapidly moved up the value chain and manufactured ever increasingly sophisticated and targeted products. The Toyota Corolla remains one of the world's most popular cars and its Lexus brand stands out among the luxury makes. When the Japanese car companies first competed with the Americans the focus was on low cost, high quality cars. They started innovating feverishly. Toyota’s operational innovations are the stuff of legends and concepts like Kaizen and Just-in-time delivery have made inroads into the larger manufacturing world. The next level of innovation was the introduction of “architected cars” with modular engineering designs and componentized production, allowing the company to create families of car models that fit closely with the needs of different market segments and quickly adjust to changing customer requirements. Their cars were customized to the pocketbooks and road systems of the countries they sold into. Finally, new business models focused on “co-creating”, close cooperation with a limited number of suppliers, who are involved from the early stages of design to production. Toyota was the first to understand that hybrid technology was both an important market statement and a major step towards cleaner, lower CO2 cars.

Last year Tata of India introduced the Nano. At the same time they acquired the luxury Jaguar and Rover brands. The Economist says “At $2,500 the Nano is not just very cheap; to be so cheap it also has to be very clever.” The main effort went into design. Out-of-the-box thinking and a highly iterative process finally delivered what is probably the most modular car in the world. Each of these modules can easily be assembled from kits, which lowers the cost of distribution and maintenance. Like Toyota, Tata worked closely with its supplier and urged them to follow the same “Gandhian”, frugal engineering techniques. You don’t need to be a clairvoyant to predict that Tata will be the next Toyota.

Unless Detroit starts focusing on fuel efficient cars, modular designs and make the move from being a car company to a transportation company, we are wasting our tax dollars. Pouring more fuel in the tank is like putting fuel on the fire. The fact that GM and Ford's CEOs used their private jets to fly to Washington to beg Congress for $25Bn in loans tells you enough about the mindset of the leadership of these companies. Let Chapter 11 do the job, fire the senior management and restructure the car companies to innovative, global companies, following the examples of Toyota, Honda and maybe Tata.