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Carrying out the self-imposed death sentence on GM, Chrysler, and Ford (a.k.a. the Detroit 3) has been delayed for now, but can they get a Presidential Pardon? Unfortunately, it doesn't work that way. While this government bailout buys them time, they need a plan to go forward.
The Detroit 3 had more than 30 years to generate a great plan. That's what got us to this point today. Some plan, eh? Giving them a few more weeks isn't going to generate an eureka in the Detroit boardrooms.
Similarly, they had and blew billions of dollars. Giving them another $13.4 billion to blow is throwing good money after bad if they do more of the same.
Will the fear of almost going bankrupt smarten them up? They have had numerous "moments of truth", crisis after crisis, over the last 30 years. This self-inflicted wound is just more of the same.
So what's going to make this time any different? That's the $13.4 billion dollar question. Besides a coup d'etat, followed by competent leaders who do a wholesale change in management philosophy, direction, and effective implementation; I don't know.
What I do know is that the Detroit 3 won't be saved by making more cars.
Global warming says we already have too many cars. Dwindling oil reserves and the "soon to start rising again" price of energy says we need a better way.
There has been massive pre-selling of many years worth of future sales in the car markets by 0% financing, deep discounted prices, and all-out saturation marketing. The market is saturated with new cars. Enough already! For the most part, everyone who needed a new car has recently bought already.
The median age of cars on the US road is now 9.2 years, up dramatically from 7.5 years median age just 10 years. As the OEM's build better and better cars, the market shrinks. The cumilative number of cars a person needs in their lifetime is dropping every year as reliability and longevity of cars improves.
Radial tires last twice as long as the old bias tire technology. When Michelin invented the radial tire in 1942, they knew the world would be buying half as many tires if everyone was converted. When you sell tires, and new technology threatens to cut the market in half, you have to think twice before you go down that road. Fortunately, Michelin decided to do what was best for their customers, and went ahead with developing and selling the radial tire. It worked for Michelin. Can the Detroit 3 benefit from similar daring?
What's the largest consumer of oil in the US? Transportation consumes 68%, and is the single largest consumer of petroleum oil. The purchase of oil is one of the largest transfers of wealth out of the US and into foreign hands. The burning of that oil as diesel and gasoline creates huge amounts of pollution and GHG (Green House Gasses). Can we afford (in $ and pollution) a huge, government subsidized push to put a new car into everybody's driveway? True, new cars are less polluting and more fuel efficient than older cars, but an internal conbustion engine is only 30% efficient. More of the same is going into the past, not the future.
I think the N. American automotive industry needs to re-invent themselves.
Once upon a time, there was a manufacturer of shoe polish. The company fell on hard times during a recession, so they started giving away a free small brush with every can of shoe polish. The customers liked the brushes more than the polish, so the company dropped the polish and went into manufacturing brushes. Many years later, another recession came along. To boost sales of their brushes, the company decided to give away a stick of chewing gum when the customers bought their brushes. As you may have guessed, the customers liked the gum more than the brushes, so the company dropped the brushes and focussed on making chewing gum. When the 1929 crash came, the chewing gum company was one of the few to launch national advertising programs for their chewing gum. Because of this, they grew dramatically, and are a leader in their industry today (Wrigley Chewing Gum). They weren't afraid to re-invent themselves, and earned the right to survive.
Can the Detroit 3 do the same?
I may be wrong, but I believe if the Detroit 3 stay exclusively in cars, they will continue to wither till they're nothing but a shadow of their former selves, and probably won't last another 10 years, with or without monthly blank cheques from the government.
So what are the Detroit 3 to do? Where will they go?
I learned many years ago, when you have one problem, look for other problems. Then try and develop one solution that solves 2 or more of the problems simultaneously. Win-win-win solutions have huge gains and huge driving forces pushing you towards the finish line.
Let me add some more clues. Seventy-six (76%) of all electricity is consumed by buildings (homes, offices, etc.). Grid electricity is generated at 38% to 42% efficiency, the rest is rejected as heat and pollution into the air and water next to the generating plant. Very wasteful. Once the electricity leaves the generating plant, 9% to 15% more is wasted as resistance in the wires, transformers, and switchgear. That makes our current electrical generating & distribution system about 30% efficient.
Some think the Chevy Volt, a plug-it-in vehicle that has a range of 40 miles is the salvation. The current technology for battery chargers, batteries, and drive motors are about 65% efficient. Combining this with 30% efficient electricity delivered to the garage where the Chevy Volt is plugged in gives us an over-all cycle efficiency of 19.5%. As I said before, the internal combustion engine is 30% efficient. Again, we're going in the wrong direction. Some may say the Chevy Volt isn't a home run, but at least it gets us to first base. I disagree. Electricity is very convenient, but very expensive, and very wasteful. The use of electricity needs to be minimized in all countries, not expanded further.
So what is the future for the Detroit 3, and other OEM car makers around the world?
I suggest that they make a hard right turn and enter the building heating business with MCHP (Micro Combined Heat and Power).
A large percentage of Japanese homes have an internal combustion engine that generates electricity and heat. These machines use the very best of technologies, with catalytic converter, electronic ignition, on-board computer, heat recovery, and electric power controls and filtering.
If excess electricity is generated, it is pushed back to the grid for the use by others. Unlike windmills, MCHP can be installed just about anywhere on the electrical grid without upgrade to the grid.
About 33% of the fuel energy (ie. from natural gas, diesel, gasoline, or propane) is used to generate electricity. The rest is given off as heat. The heat can be used to generate DHW (Domestic Hot Water), which is 25% of a home's total energy consumption. Alternatively, the heat can be used for space heating, which typically consumes 57% of a building's total energy consumption. Small MCHP units will generate 1,200 watts of electricity from a machine the size of a small bar fridge. Large MCHP systems are the size of a standard refrigerator, can generate 60 kW, and 10 of these can be daisy-chained together for a total power output of 0.6 Megawatts.
MCHP has an overall efficiency of up to 94%, as good as or better than the most energy efficient condensing furnace, but unlike a furnace that consumes electricity from the grid, MCHP also generates electricity for use inside the building, or for export to the grid.
Almost all of the technologies that the Detroit 3 have developed (and are very good at) would be used in the design and manufacturing of MCHP units.
North America has a big problem in our stock of buildings. It may seem hard to believe, but there was no thermal insulation required by the building codes prior to 1950's. Many of these buildings are very thermally inefficient. Same with the systems used to heat them. We need wholesale upgrade of our old buildings. Furnaces wear out after 20 years and have to be replaced. We have a need, but insufficient capacity in the industry to do a wholesale replacement program.
Our economy, as is the world's, is in tatters. We need jobs and projects to re-vitalize the nation.
I think we can combine these all together into one gigantic project. WIn-win-win.
Phase I: A government program needs to be defined to subsidize the design, purchase, and installation of energy efficient space heating and DHW systems for all buildings in N. America, and the thermal insulation upgrading of all buildings. The program is announced now, and applications can be submitted to reserve your spot, but it can't start until Phase II is ready. The people sign up, pay their deposit. Specialists visit, help the people pick the best solution. The number and type chosen is forwarded to Phase II so they know what to design and build in advance.
Phase II: Any and all companies that want DOE (Department of Energy) funding to develop the necessary technologies and products for use in Phase I can submit an application. For the next 3 months, a spot is reserved at the front of the application line for the Detroit 3. After that, it's first come, first served.
Once the technology is designed, tested to meet DOE requirements, it can be matched to those who signed up under Phase I.
All of the technologies developed in this program will be automatically available for licencing at a reasonable fee by all other participants, thereby avoiding patent and intellectual property gridlock. There will be multiple deadlines and milestones with full disclosure at each stage, so if you fall behind, you have a chance to catch up along the way; avoiding one big winner and many losers.
If you don't work hard, or are incompetent, your DOE funding is eventually cut. Keep screwing up, you will be barred from the Phase I government funding for installation of your proposed solution.
Can the Detroit 3 survive under this demanding but fair development process? Boeing has their Skunk Works. Maybe the Detroit 3 can learn a few thinks from them, NUMMI, and their years of manufacturing excellence to excel in this environment. If not, they deserve to die as soon as possible as hopeless and hapless dinosaurs.
Phase III: Crews of tradesmen are trained and prepared to install the equipment. This may be an excellent opportunity for UAW members who are willing to leave the assembly line behind. There training is completed at the same time Phase I and II are completed.
Phase IV: The systems are installed all across N. America at a rate that can continue in a sustained manner. It would be crazy to go at break-neck speed, where we get the entire country upgraded in 5 years but the systems wear out in 20 years, so everybody would have to go on Unemployment Benefits for the next 15 years, awaiting the wearing out of the initial systems. Instead, if we convert just 5% of the building stock every year, it will take 20 years to replace everything the first time, and then the systems that were first installed are ready for replacement/refurbishment.
That's enough to get you thinking.
So, what do you think? Will it work? Is it the right priority? Is it feasible? Are their overwhelming risks that I missed? If not, when do we get started?
General Motors Corp. and Chrysler LLC will get $13.4 billion in emergency government loans in exchange for substantially restructuring their businesses, President George W. Bush announced.
The Detroit 3 had more than 30 years to generate a great plan. That's what got us to this point today. Some plan, eh? Giving them a few more weeks isn't going to generate an eureka in the Detroit boardrooms.
Similarly, they had and blew billions of dollars. Giving them another $13.4 billion to blow is throwing good money after bad if they do more of the same.
Will the fear of almost going bankrupt smarten them up? They have had numerous "moments of truth", crisis after crisis, over the last 30 years. This self-inflicted wound is just more of the same.
So what's going to make this time any different? That's the $13.4 billion dollar question. Besides a coup d'etat, followed by competent leaders who do a wholesale change in management philosophy, direction, and effective implementation; I don't know.
What I do know is that the Detroit 3 won't be saved by making more cars.
Global warming says we already have too many cars. Dwindling oil reserves and the "soon to start rising again" price of energy says we need a better way.
There has been massive pre-selling of many years worth of future sales in the car markets by 0% financing, deep discounted prices, and all-out saturation marketing. The market is saturated with new cars. Enough already! For the most part, everyone who needed a new car has recently bought already.
The median age of cars on the US road is now 9.2 years, up dramatically from 7.5 years median age just 10 years. As the OEM's build better and better cars, the market shrinks. The cumilative number of cars a person needs in their lifetime is dropping every year as reliability and longevity of cars improves.
Radial tires last twice as long as the old bias tire technology. When Michelin invented the radial tire in 1942, they knew the world would be buying half as many tires if everyone was converted. When you sell tires, and new technology threatens to cut the market in half, you have to think twice before you go down that road. Fortunately, Michelin decided to do what was best for their customers, and went ahead with developing and selling the radial tire. It worked for Michelin. Can the Detroit 3 benefit from similar daring?
What's the largest consumer of oil in the US? Transportation consumes 68%, and is the single largest consumer of petroleum oil. The purchase of oil is one of the largest transfers of wealth out of the US and into foreign hands. The burning of that oil as diesel and gasoline creates huge amounts of pollution and GHG (Green House Gasses). Can we afford (in $ and pollution) a huge, government subsidized push to put a new car into everybody's driveway? True, new cars are less polluting and more fuel efficient than older cars, but an internal conbustion engine is only 30% efficient. More of the same is going into the past, not the future.
I think the N. American automotive industry needs to re-invent themselves.
Once upon a time, there was a manufacturer of shoe polish. The company fell on hard times during a recession, so they started giving away a free small brush with every can of shoe polish. The customers liked the brushes more than the polish, so the company dropped the polish and went into manufacturing brushes. Many years later, another recession came along. To boost sales of their brushes, the company decided to give away a stick of chewing gum when the customers bought their brushes. As you may have guessed, the customers liked the gum more than the brushes, so the company dropped the brushes and focussed on making chewing gum. When the 1929 crash came, the chewing gum company was one of the few to launch national advertising programs for their chewing gum. Because of this, they grew dramatically, and are a leader in their industry today (Wrigley Chewing Gum). They weren't afraid to re-invent themselves, and earned the right to survive.
Can the Detroit 3 do the same?
I may be wrong, but I believe if the Detroit 3 stay exclusively in cars, they will continue to wither till they're nothing but a shadow of their former selves, and probably won't last another 10 years, with or without monthly blank cheques from the government.
So what are the Detroit 3 to do? Where will they go?
I learned many years ago, when you have one problem, look for other problems. Then try and develop one solution that solves 2 or more of the problems simultaneously. Win-win-win solutions have huge gains and huge driving forces pushing you towards the finish line.
Let me add some more clues. Seventy-six (76%) of all electricity is consumed by buildings (homes, offices, etc.). Grid electricity is generated at 38% to 42% efficiency, the rest is rejected as heat and pollution into the air and water next to the generating plant. Very wasteful. Once the electricity leaves the generating plant, 9% to 15% more is wasted as resistance in the wires, transformers, and switchgear. That makes our current electrical generating & distribution system about 30% efficient.
Some think the Chevy Volt, a plug-it-in vehicle that has a range of 40 miles is the salvation. The current technology for battery chargers, batteries, and drive motors are about 65% efficient. Combining this with 30% efficient electricity delivered to the garage where the Chevy Volt is plugged in gives us an over-all cycle efficiency of 19.5%. As I said before, the internal combustion engine is 30% efficient. Again, we're going in the wrong direction. Some may say the Chevy Volt isn't a home run, but at least it gets us to first base. I disagree. Electricity is very convenient, but very expensive, and very wasteful. The use of electricity needs to be minimized in all countries, not expanded further.
So what is the future for the Detroit 3, and other OEM car makers around the world?
I suggest that they make a hard right turn and enter the building heating business with MCHP (Micro Combined Heat and Power).
A large percentage of Japanese homes have an internal combustion engine that generates electricity and heat. These machines use the very best of technologies, with catalytic converter, electronic ignition, on-board computer, heat recovery, and electric power controls and filtering.
If excess electricity is generated, it is pushed back to the grid for the use by others. Unlike windmills, MCHP can be installed just about anywhere on the electrical grid without upgrade to the grid.
About 33% of the fuel energy (ie. from natural gas, diesel, gasoline, or propane) is used to generate electricity. The rest is given off as heat. The heat can be used to generate DHW (Domestic Hot Water), which is 25% of a home's total energy consumption. Alternatively, the heat can be used for space heating, which typically consumes 57% of a building's total energy consumption. Small MCHP units will generate 1,200 watts of electricity from a machine the size of a small bar fridge. Large MCHP systems are the size of a standard refrigerator, can generate 60 kW, and 10 of these can be daisy-chained together for a total power output of 0.6 Megawatts.
MCHP has an overall efficiency of up to 94%, as good as or better than the most energy efficient condensing furnace, but unlike a furnace that consumes electricity from the grid, MCHP also generates electricity for use inside the building, or for export to the grid.
Almost all of the technologies that the Detroit 3 have developed (and are very good at) would be used in the design and manufacturing of MCHP units.
North America has a big problem in our stock of buildings. It may seem hard to believe, but there was no thermal insulation required by the building codes prior to 1950's. Many of these buildings are very thermally inefficient. Same with the systems used to heat them. We need wholesale upgrade of our old buildings. Furnaces wear out after 20 years and have to be replaced. We have a need, but insufficient capacity in the industry to do a wholesale replacement program.
Our economy, as is the world's, is in tatters. We need jobs and projects to re-vitalize the nation.
I think we can combine these all together into one gigantic project. WIn-win-win.
Phase I: A government program needs to be defined to subsidize the design, purchase, and installation of energy efficient space heating and DHW systems for all buildings in N. America, and the thermal insulation upgrading of all buildings. The program is announced now, and applications can be submitted to reserve your spot, but it can't start until Phase II is ready. The people sign up, pay their deposit. Specialists visit, help the people pick the best solution. The number and type chosen is forwarded to Phase II so they know what to design and build in advance.
Phase II: Any and all companies that want DOE (Department of Energy) funding to develop the necessary technologies and products for use in Phase I can submit an application. For the next 3 months, a spot is reserved at the front of the application line for the Detroit 3. After that, it's first come, first served.
Once the technology is designed, tested to meet DOE requirements, it can be matched to those who signed up under Phase I.
All of the technologies developed in this program will be automatically available for licencing at a reasonable fee by all other participants, thereby avoiding patent and intellectual property gridlock. There will be multiple deadlines and milestones with full disclosure at each stage, so if you fall behind, you have a chance to catch up along the way; avoiding one big winner and many losers.
If you don't work hard, or are incompetent, your DOE funding is eventually cut. Keep screwing up, you will be barred from the Phase I government funding for installation of your proposed solution.
Can the Detroit 3 survive under this demanding but fair development process? Boeing has their Skunk Works. Maybe the Detroit 3 can learn a few thinks from them, NUMMI, and their years of manufacturing excellence to excel in this environment. If not, they deserve to die as soon as possible as hopeless and hapless dinosaurs.
Phase III: Crews of tradesmen are trained and prepared to install the equipment. This may be an excellent opportunity for UAW members who are willing to leave the assembly line behind. There training is completed at the same time Phase I and II are completed.
Phase IV: The systems are installed all across N. America at a rate that can continue in a sustained manner. It would be crazy to go at break-neck speed, where we get the entire country upgraded in 5 years but the systems wear out in 20 years, so everybody would have to go on Unemployment Benefits for the next 15 years, awaiting the wearing out of the initial systems. Instead, if we convert just 5% of the building stock every year, it will take 20 years to replace everything the first time, and then the systems that were first installed are ready for replacement/refurbishment.
That's enough to get you thinking.
So, what do you think? Will it work? Is it the right priority? Is it feasible? Are their overwhelming risks that I missed? If not, when do we get started?
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