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Weekly Column

Saving Detroit: It's the Cars, Stupid

Status: [CLOSED] comments (190)
By Robert X. Cringely
bob@cringely.com

My first car was an Oldsmobile, a red 1966 convertible I wish I still owned today. It was big and heavy yet somehow managed to average 18 miles per gallon in an era when gasoline cost 35 cents. Detroit and the U.S. automakers ruled the world when that car was built, yet now the companies say they are on the skids, bleeding money and headed for bankruptcy. What happened? And what can we do -- if anything -- to save an industry that for a century defined our nation as well as our youth? I have some ideas.

Whatever the mechanism of their demise, the car companies did it to themselves. They love to blame labor agreements, pension plans, and health plans for their precarious financial situation, yet didn't the companies negotiate and sign those deals in good faith? Surely the down-the-road financial burdens were calculable at the time. Is it that we're living longer than expected, rather than expiring early like Pinto gas tanks? Maybe that's part of it, but to blame the unions for good negotiating is worse than forgiving the companies for bad. And what does it matter? The real issue at hand -- and the only one that really matters -- isn't who to blame or even whether or not to save these specific companies, but how to get me a really sweet ride. That's because the only way the U.S. auto industry is going to survive in any form is by making cars so cool that we'll stand in line to buy them even in a global financial crisis.

It's the cars, stupid.

My hobby is building small airplanes and one of my favorites is a Davis DA-2A, winner of the Outstanding New Design contest in 1966, the same year my Oldsmobile (and my current Thunderbird convertible) was built. That little Davis can teach us a lot about cars.

I didn't build my DA-2A, but I am rebuilding it right now and know it intimately. My Davis is an all-aluminum two-seater with an 85-horsepower engine. The engine was built in 1946, the plane in 1982, and the whole thing cost under $4,000 at the time, though today I have more than that invested in the instrument panel alone. The plane weighs 625 lbs. empty, 1125 lbs. loaded, has a top speed of 140 miles per hour and can travel about 600 miles on its 24-gallon fuel tank.

Why can't I buy a car like that?

Imagine if we took the basic design parameters of my DA-2A and applied them to a modern automobile. The new design would have to carry two people and luggage, have an empty weight of no more than 625 lbs. and use an 85-horsepower engine. With a loaded weight of 1125 lbs., the car would have a power-to-weight ratio comparable to a Chevy Corvette and be just as quick -- probably even faster than the airplane's 140 mph. Driven only 20 percent over posted speed limits as God intended, the car would easily get 50+ miles per gallon.

Who wouldn't want to buy one?

At the heart of manufacturing is the simple concept of buying raw materials in volume at a low price per pound and selling manufactured products at retail for a high price per pound. The eventual retail price per pound is determined by the marketplace and ideally it ought to be high enough for the manufacturer to make a profit. The very light weight of our DA-2A car analog suggests that it ought to be inexpensive to buy, but maybe all that means is we have to look beyond the car industry to bicycles.

Car buyers and bicycle buyers approach retail pricing from completely different directions. Car buyers, whether they think about it this way or not, traditionally try to buy cars that cost the least on a per-pound basis. Do some research on the Internet and you'll see that luxury cars, whether we are talking about a Cadillac SUV or a big Mercedes sedan, tend to cost about $10 per pound; mid-range cars cost about $6 per pound; and economy cars cost about $4 per pound. Manufacturers prefer luxury cars because, given the same profit margins, they make vastly more gross profit on a fancy car than they do on an entry-level car. This pricing bias is part of what is working against Detroit right now.

Bicycles are different. Bicycle buyers, whether they are conscious of their behavior or not, try to pay the MOST per pound rather than the least. A lighter bike is always a better bike and a more expensive bike. Cheap bikes from Wal-Mart tend to cost about $2 per pound, nice bikes from a bike shop cost about $20 per pound, and top-of-the-line racing bikes cost about $200 per pound which, interestingly, is about the same per-pound cost as a top-of-the-line Ferrari or Aston-Martin.

So the trick to turning around the U.S. auto industry is to make car buyers adopt the values of bicycle buyers, which implies the willingness to pay $20 per pound of final product. The way to achieve that goal is by building cars that are both affordable at $20 per pound and EXCITING TO DRIVE.

Under this formula, the car version of my DA-2A would cost $12,500, making it broadly affordable. Yet with 6061 aluminum alloy selling in volume for around $1.60 per pound, there ought to be plenty of profit in there for the companies.

Detroit doesn't understand that.

Just as the price point bias tends to push manufacturers toward heavier cars, so do consumer buying habits and even government regulations. Trucks overtook cars in the 1990s as America's most popular vehicles and that wasn't some grand plan from General Motors or Ford, it just happened. The companies were grateful of course -- ecstatic even -- because trucks were already profitable on commercial sales alone so the consumer truck boom came with almost no additional fixed costs. Trucks were INCREDIBLY profitable and heavy.

So were SUVs. When I was a kid there were Chevy Suburbans and Jeep Cherokees, but I didn't know anyone who owned one. SUVs grew out of the truck boom and were yet another Detroit windfall, this time finding a way to charge $10 per pound for a truck. Wow!

Government regulations began pushing car companies down the path of inefficiency with the passage of the Clean Air Act in 1967. Cleaning the air was a legitimate goal but the way Detroit went about complying was not. First they installed air pumps to force complete combustion of exhaust gases IN THE EXHAUST, not in the engine where power could be produced. To make this work reliably they had to richen the fuel mixture to ensure that there was enough unburned gasoline in the exhaust to burn with the air introduced by the air pump.

Am I the only one who sees problems with this approach? To lower exhaust emissions reliably over the average 100,000-mile life expectancy of a car, the companies deliberately used more gas, hurting gas mileage. What did they care, right? Gas was 35 cents per gallon. But the companies were already on a slippery slope.

In 1972 the companies were forced to reduce compression ratios to accommodate unleaded fuel. Again the reason was laudable but the reaction was not. The lower-compression engines were less efficient, so to get performance back you had to buy a bigger engine -- paying the same amount per pound but buying more pounds. Detroit liked that.

Catalytic converters came along in 1975, and again required richening the fuel-air mixture for proper operation over the 100,000-mile vehicle life.

I'm not arguing here against environmental regulations but against the way they are frequently applied. This happens in other fields, too. Your cardiologist will recommend barbequing to reduce fat while your oncologist prefers frying to reduce carcinogen exposure. Either way you are still going to die.

For 40 years we've had a succession of slight product modifications to accommodate new automotive regulations in generally the wrong ways. The car companies fought against airbags because of the cost, not because of any safety issue. Their safety bias was always toward the heavier vehicle even though statistics show big SUVs are actually less safe than smaller cars. This was simply because they wanted to sell more pounds of car to make more money.

Technical innovations are a hard sell in Detroit because most of them fail. Even my idea of a light weight yet powerful car was tried before in the Crosley Hotshot of the late 1940s -- reason enough, many car execs would say today, to not revisit the concept.

Detroit has made poor use of new materials because they tend to cost a lot per pound. The companies could use smarter designs that required fewer pounds, but then the door might not slam with that solid sound and what if people didn't buy. Remember the Edsel?

Remember the Edsel indeed. All the Edsel had going against it was ugly design. In every other sense it was just another car with an engine in the front and drive wheels in the back. The Edsel didn't fail because it was too radical, yet that's how it is remembered.

The leaders of the Big Three U.S. car companies have about six weeks to come up with a way to save their companies. THEIR jobs (the CEOs) are toast, but the companies can be saved. All it takes is a little smarts and a lot of guts to come up with faster, smarter, more efficient cars that are uniformly 50 percent lighter than the models they replace.

I would have suggested they consult Leeon Davis, designer of the DA-2A and many other remarkable airplanes, but Leeon died earlier this year. He could have helped a lot, I know it.

Comments from the Tribe

Status: [CLOSED] read all comments (190)

Another comment from another friend at Chrysler.

---------
Comments that crack me up include:
1- They have to build cars that people want to buy.
- GM has far greater US market share than any other company, including Toyota and Honda.
- Through October, GM, Ford, and Chrysler held 47% of the US market, while the Japanese makes held 40%.
- If the issue was that people didn't want their products, then explain why more people in the US buy GM products than any other?
BTW, I'm not contending the Detroit 3 don't need to make product improvements, they do! However, that isn't the cause of the current automotive crisis.

2- The Japanese are better run companies.
- Toyota's worldwide profit forecast for the 2nd half of the year is down $5.7Billion from the first half.
- Honda CEO Takeo Fukui on Nov. 6 said the Japanese government should intervene to weaken the yen.
- Each 1 Yen drop vs. the US Dollar equals $450 - $500 million profit to Toyota.
- Japan has far more to gain by manipulating their currency downward than the US, since the US market is much larger than theirs.
BTW, I'm not contending the Detroit 3 are better run than Japanese competition, they are not. However, management isn't the cause of the current auto crisis.

3 - US automakers fought safety regulations, i.e. the airbag.
- Chrysler led all automakers, including Toyota and Honda, making airbags standard equipment.
However, I don't agree that automakers not wanting to add substantial cost to the vehicle is poor management. Front airbags original purpose was to protect "unbelted" occupants, yet they added over $1,000 to the cost of the vehicle when introduced. Its obvious safety was a low priority for the customers who refused to use seat belts, not the automakers.
BTW, I'm not contending forcing autos to have front airbags was all bad. It eventually led to side airbags, which are a very good thing.

Sven Svenson | Dec 10, 2008 | 11:20PM

One factor not mentioned: I wonder if the Davis DA-2A could manage a 35mph front impact with a "survivable" rating. I am not an expert, but I understand that cars in the USA must meet these "survivable" crash ratings.

The resulting safety cage and bumper and crumple zone come at a price: extra mass, which means poorer milage.

Maybe we need a new class of auto which does not carry the heavy safety requirements? Maybe not permit this new vehicle class from traveling on interstates? Just a thought.

Peter M | Dec 12, 2008 | 6:09PM

Sven, you crack me up. GM is behind Toyota in market share and has been slipping for years. The big 3 did lobby against seat belts and airbags for years, once they were forced to add them, then they made a big deal about having them.

GM and Chrysler are walking dead. The layoffs will happen regardless of spending other people's money on them or not. Ford has a chance. This has been coming for decades and we should let Chap 11 handle it.

jmcnamera | Dec 12, 2008 | 8:29PM