Auto Sector: Saved for Now, what's next?

[Glenn Black]

Re: Auto Sector: Saved for Now, what's next?

http://www.mckinseyquarterly.com/An_...esilience_2276

Andy Grove, former leader of Intel, is proposing the retrofit of millions of US cars at a cost of $10,000 each, with a 10 year payback. Intel used to make batteries.

Cars have a median life of 9.2 years before the retrofit, over which we must depreciate their original purchase price. Adding $10,000 for a battery retrofit to their cost means huge depreciation. If you retrofit a 5 yr old car, how long do you extend its life? Little, I think. In fact, you may be shortening it.

Batteries proposed by Grove are Li-ion, but little or no production capacity or technology exists in western world today; its all in Japan, China, Taiwan, etc.

I cannot support this proposal. It's wrong headed for the above reasons.

Electric may be good for ultralight, small commute vehicles. Hybrids make good sense. Toyota got the 10 year jump with Prius when GM canceled their E-1 design flop. Bought off by Big Oil?

Fuel cells have efficiencies of 36% to 45% (hydrogen to car drive electricity). If you combine the production of the electricity by the public utilities, that is then used to make electrolytic hydrogen, that has to be compressed & delivered to fuel stations, then loaded into the car, we have an overall efficiency as low as 17%.

A modern diesel engine gives 22% efficiency, and is therefore better today, and will be for decades to come.

One hope is fuel cells that burn hydrogen peroxide. Using an enzyme from horse radish (where do these scientists come up with this stuff ?? Was he eating a roast beef with mayo & horseradish sandwich, and dripped some on his electrode experiment?) they have achieved an overall electrolytic efficiency of ~171% (ie. both the anode and cathode produce hydrogen peroxide, so you get 2 peroxides for every electron flowing [ie. 200% efficient], then lose some of them for a net efficiency of 171%). Still at test tube stage.

70% Peroxide has been used in missiles & rockets for propulsion, and is a very powerful fuel, and has better characteristics than hydrogen gas or liquid. Can be easily pumped like gasoline. Spills bleach everything, then turns to water; not bad for the environment, better than gasoline's effect on water table. This is the fuel for the future.

Invest now. You heard it here first. Remember me in your will, or send me your royalty donations for leading you to the pot of gold.

[FRED]

Re: Auto Sector: Saved for Now, what's next?

I have to wonder if $1.50 a gallon gasoline buys them a lot more time and breathing space than $13B - $17B of taxpayer "loans"?

If GM can't sell the Hummer [division] they will certainly keep selling Hummers. And their chances of continuing to play that game, at least for a while longer, have been greatly enhanced with the fall in gasoline.

About 30 years ago, as a Mech Eng graduate, I went through the GM interview process all the way to a job offer, that I subsequently declined. The two main reasons for that decision were: 1) a perception that there was a remarkably insular culture in the management ranks of the company; and 2) an observation that almost every senior technical position in the corporation was filled by a graduate of General Motors Institute (GMI, now known as Kettering University) which at that time was funded by GM. Condition 2 probably contributed to 1, but regardless it seemed to me that a non-GMI graduate, like me, would have difficulty advancing in the company. I am in agreement with you that today's difficulties are at least partly rooted in circumstances that go back decades.

EJ writes in:

How much do you want to bet that there are dozens of competent, entrepreneurial, creative managers buried four layers deep in GM bureaucracy who might stand a chance at running truly innovative division of GM as a separate company? Split GM up into three or four companies under Chapter 11. One or two will prosper, the others will not.

[Scott4139]

Re: Auto Sector: Saved for Now, what's next?

Considering at a typical meeting there are still two or three times more people sitting there than needed, you could probably split the employees in half and still run the company as is.

But honestly salary's probably been split in two in the past 15 years anyway. There's been a lot of consolidation as the company incorporated all their global resources and reduced redundancies.

Probably true of the plant folks too.

[GRG55]

Re: Auto Sector: Saved for Now, what's next?

EJ writes in:

How much do you want to bet that there are dozens of competent, entrepreneurial, creative managers buried four layers deep in GM bureaucracy who might stand a chance at running truly innovative division of GM as a separate company? Split GM up into three or four companies under Chapter 11. One or two will prosper, the others will not.

GM is still an enormous company. It would be astonishing if there weren't competent, creative managers within its ranks. Especially given its global reach and multi-national workforce.

I'd add that GM, contrary to apparent popular opinion, actually does make some very good products [my wife owns one of them], something I have tried to point out in a few posts where I have argued the vehicle manufacturing divisions [and the UAW] are not the sole, nor primary, reason for that corporation's current troubles. It couldn't make and market the product it does without competent people throughout the vehicle manufacturing organization. And I certainly do not disagree with the idea of breaking it up and let 'em run them.

However, GM wasn't for me more than 30 years ago, as I have explained. And I am quite confident that the same dynamic that I observed first hand in Big Oil during the long decline of the '80s and '90s, has also played out in the Big 3 automakers. These companies have been shrinking their vehicle manufacturing for years...fewer plants, fewer distinct models, even the elimination of whole product lines such as Oldsmobile.

The most entrepreneurial, ambitious, creative people usually do not stick around an organization that is steadily shrinking, experiencing wave after wave of "restructuring", instead of growing. Even if their own jobs are secure, such managers get no joy and enthusiasm from a resume packed with expertise in "downsizing", "rightsizing", or whatever the latest management consultant buzzphrase is for firing your staff. They leave. And try to find a place where they fit in, someplace where they can feel they are creating something instead of shrinking it, someplace where they might contribute to growing a business. Believe me I know. And I am dead certain that I've written nothing here that you didn't already know as well EJ [this post is really directed at anyone who is in this situation, perhaps for the first time given the extent of this downturn, and has not done anything about it yet...just like the cockroach theory of fraud, there is never just one restructuring in a company].

It would be interesting to know how many of the real movers and shakers [the ones that champion a program from concept to reality, sometimes at personal career risk, in a corporation] behind, say, the ill-fated EV1 program at General Motors are still in the corporation, now that 5 years have passed since they terminated that effort.

[Glenn Black]

Re: Auto Sector: Saved for Now, what's next?

Yes, this may have merit. When AT&T or Standard Oil was broken up, it was hell & costly, but it worked for the most part.

Along what lines should be best to break up GM?

Car lines (Pontiac, Hummer, Saturn)? Geographical regions? Individual plant sites (similar to Magna)? Vertical integration? Functional (Assembly, dealers, engineering, etc.)? Other?

If there is a problem in one area (eg. Engineering) it can cascade through the entire organization. According to the Rule of Three and Four, in a competitive efficient market, market share is divided up among 3 suppliers, with the largest having no more than 4 times the market share of the smallest. So each function should be divided into three parts, who will evolve to this sizing over time based on their capabilities. They would all quote on the job, the winner is the lead player, and they would hire the other 2 as sub-contractors, while the others get the best of the three ideas & plans.

Should the workers receive/buy stock in their plant, as well as the umbrella organization GM? Should each plant own shares in their supplier and their customer plant (upstream and downstream). Should they all be on their own, everyone for themselves?

Complex situation? Who has better ideas?

[Scott4139]

Re: Auto Sector: Saved for Now, what's next?

IMHO the place to be in automotive is the suppliers. Way more freedom and opportunities.

The real movers and shakers are on the truck side.

[Glenn Black]

Watching your Baby Die

I'm sure its tough watching your baby (EV1) die.

I was talking to a guy from Bud Automotive a while ago who worked so hard to design, build, & ship the frames for the EV1, then the word came down shortly thereafter to destroy all parts, tools, blueprints, etc. Pretty sad.

I agree that people tend to drift off after an experience like that.

[Glenn Black]

Suppliers or OEM's

In the Old West, Scouts and Pioneers took the arrows, the farmers got the land.

When railroads were being built, it was the steel rail suppliers who made a killing. Railways came & went, but everybody had to buy the rails.

Same for biotech, etc.

Difference is cutting edge vs. bleeding edge.

Unfortunately somebody has to be the OEM. It's a tough, thankless job most of the time, fraught with risks, but when you have a winner, you win big. The trick is to develop a solid process that creates winners, one after another.

Chrysler was always known for excellent engineering. GM was known for...?
I think GM, in my jaded peep hole view, was known for mega projects and spending lots of bucks when a little bit would have been great.

Does GM have what it takes to continue to produce a string of winners?

[Scott4139]

Re: Auto Sector: Saved for Now, what's next?

break up GM??? Not sure where you are going with this. GM is a global company with a local problem. Who do you think engineers the mini/small cars, small/mid cars, RWD cars, small trucks?
Answers: Daewoo, Opel, Holden, GMBrazil.

Car lines only matter for dealerships, with the exception of Cadillac - it's just styling and marketing.

[Scott4139]

Re: Suppliers or OEM's

Chrysler and excellent engineering - never heard that one before.

GM has the best global footprint of any auto company - bar none.

String of winners? Where, here in USA? Half their sales are ROW.

The defining question for all the global marbles is whether the GM global model wins or the Toyota global model wins. Nobody knows yet, it's too early to say. Maybe they both win and all others line up with one or the other.

[Scott4139]

Re: Watching your Baby Die

I drove the EV1 out at DPG several years ago. Interesting ride to say the least!

This was a science project only.

[Scott4139]

Re: Just give me one more hit of that cheap gas...

Well if the government dictates it -they're doomed. There's a reason Toyota built a big truck plant in Texas, Nissan built one in Tennessee - that's what people wanted. They still do - take a look at the best selling vehicles for 2008 - not a Prius.

If you want small car sales in USA, import the European model of fuel taxes. That's the only way. But don't expect to get elected with that platform.

[Scott4139]

Re: Auto Sector: Saved for Now, what's next?

Giving Ford credit here is like saying your neighbor who took out a 150% LTV equity loan on his house then lost his job was a genius.

But give Mulaly credit he hocked everything for cash while there was a market.

[GRG55]

Re: Auto Sector: Saved for Now, what's next?

Car lines only matter for dealerships, with the exception of Cadillac - it's just styling and marketing.

Isn't that one of their problems? Decades ago used to be one could start out in life and buy a decent value-for-money proposition with Chevrolet, and aspire, as one went through life, to step up to be an Oldsmobile or Buick owner, or even a Cadillac, if one were successful.

Now they all flog the exact same thing except for the grille and tailights - except Cadillac, which somehow to its credit has managed to avoid the bland, jelly-bean on wheels styling that afflicts most everyone else, especially Toyota/Lexus.

[Scott4139]

Re: Auto Sector: Saved for Now, what's next?

yes, exactly. This is one good reason for the structured bankruptcy - to deal with the dealership franchises who would sue if they tried to cut models. Certainly a strong case could be made to keep only Chevy and Cadillac, maybe Buick here in USA. Overseas it's more complicated - China values the Buick line highly. Opel is a strong brand in Europe as is Holden in Australia.