Auto Manufacturers Should Take Cue from Computer Industry
This article was penned by a Syed Rivi, a fellow reader and investor. Syed is one of the founders of AlphaGen Asset
Management and maintains the Private Wealth Management blog. His thoughts on the auto industry are quite innovative and remind me of Clayton Christensen.
Click Here To Read About What Auto Manufactures Can Learn From The Computer Industry
Introduction (Via Private Wealth Management Blog)
Yesterday we learned that Toyota and Honda, who were once the pride of the auto industry, have succumbed to market forces and have joined their US counterparts in asking the government for money. Anyone that has been following the auto bailout story cannot help but feel overwhelmed by the litany of problems affecting the industry – exorbitant salaries, bloated union contracts, excessive dealer networks, lack of fuel-efficient cars, the credit crisis, health-care costs and more.
Since last month’s congressional testimony, the “tone-deaf” auto executives, who flew to D.C in private jets requesting a $34B taxpayer bailout, have not offered a serious recovery plan for the industry. Meanwhile, oil has fallen from $147/barrel to $40/barrel, and is projected to fall further in the coming months. Is selling more fuel-efficient cars when oil is only $40/barrel the road to recovery? Will cutting health benefits really improve productivity? What if these aren’t the real problems but symptoms of the problem?
Additional Excerpts (Via Private Wealth Management Blog)
I believe the fundamental problem with the auto manufacturers is that their business model is obsolete. The auto manufacturers should be reorganized into separate companies specializing in manufacturing different components and systems, much in the same way computer manufacturers are organized. Dell, HP, and IBM (i.e. the big three) all utilize the same basic x86 processor (i.e. the engine) supplied by Intel or AMD, a graphics card from Nvidia or ATI, a hard drive from Samsung or Seagate, all running an operating system from Microsoft or Linux. The result: satisfied customers, falling prices ever since computers were invented, and no one has ever needed a government bailout.
Above all, breaking up the industry giants would eliminate the problem of “too big to fail.” We have an opportunity to change an industry that steadfastly refuses to change itself. In exchange for money, the US taxpayers (i.e. the largest shareholder) should demand a full restructuring of the auto industry so that it is innovative, competitive, and no longer “too big to fail and too inefficient to succeed.”
Click Here To Read About What Auto Manufactures Can Learn From The Computer Industry
