Thursday, December 11, 2008

Car 2.0

The recent turmoil among the Detroit auto manufactures has finally surfaced into a “national crises” with the CEOs of GM, Ford, and Chrysler begging for taxpayer dollars so they won’t have to make tough decisions about the companies they run. I’ve blogged here before about the decades long incompetence of the U.S. automobile leadership. There is a lot of history among the U.S. auto executives with regards to not understanding their markets, ignoring quality, producing poor designs, and many other issues. The so-called "leadership" of the UAW is equally culpable for Detroit’s decline for hiding their heads in the sand for three decades while foreign competition decimated their market share and jobs.

Over the last 30 years, the challenge to Detroit from Japanese, Korean and German manufactures has been about incremental improvement within the realm of how the basic automobile business model works – you build cars people want to buy and your dealer network sells them.

Over the same 30 years, the computer industry has faced a lot more disruption than the auto industry. Many of the companies that helped define various stages of the industry are no longer with us. Think about Digital Equipment Corporation (DEC) whose CEO couldn’t figure out why anyone would want a computer in their home!

What would happen if Detroit faced the kind of innovation and disruption the computer industry has endured? They may be about ready to find out.

Shai Agassi was a software entrepreneur. One of his companies was acquired by German software giant SAP. He soon became an SAP wunderkind, and was poised to take over as CEO of SAP. The incumbent CEO decided to stay in place, so Shai left the company.

Shai applied his computer industry background to the auto industry and came up with a plan to radically change the auto market. His new company -- Better Place – aims to build a standards-based electrical vehicle network comprised of charging stations and automated battery swapping stations where you work, eat, and shop. If you want to have lunch, charge the battery. If you’re in a hurry, swap it. Of course you can charge the battery at your house overnight.

The business model for a Better Place works a lot like the mobile phone industry. The electrical vehicle network provider will subsidize the cost of your car and you’ll pay for what you use, but instead of paying for minutes, you’ll pay for miles. Forget about the traditional auto industry and think about AT&T, T-Mobile and Verizon. Basically, it’s Car 2.0 -- a proven business model applied to a different industry.

Do you think that Detroit could have thought of this with their inbred, hidebound leadership? No way. In fact, GM snubbed Agassi while Nissan and Renault partnered with him.

25 years ago, IBM was run by a lifer – John Akers -- who ran the company into the ground. Lou Gerstner was brought in from outside the computer industry to save IBM. Perhaps, it’s time for someone from outside of the auto industry to come in and help save it.

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