TOPICS > Economy

Even in Tough Times, Innovation Flourishes

September 10, 2009 at 6:46 PM EDT
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Despite the recession, one Boston-based company is creating new technology that could redefine the auto industry.
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JIM LEHRER: Finally tonight, a story about innovation in the auto industry, even in these tough economic times. NewsHour correspondent Tom Bearden has our Science Unit report.

TOM BEARDEN, NewsHour correspondent: It was not your typical Friday evening summer barbecue. This one was staged by a brand-new car company, and offered a welding demonstration and door prizes for a standing-room-only crowd of car enthusiasts.

Local Motors, located in a Wareham, Massachusetts, industrial park, believes it can succeed in an industry that has already consigned carmaker John DeLorean and brands like Studebaker and Oldsmobile to the ash heap of history.

The company says it has a unique approach to designing automobiles that starts with the corporate Web site. Anyone can submit drawings of cars designed for use in specific parts of the country. Other participants on the site then vote on their favorite designs, and the eventual winner gets a cash prize.

JAY ROGERS, chief executive officer, Local Motors: What are the primary colors of Local Motors’ business?

TOM BEARDEN: Jay Rogers, who went to school in mechanical engineering, to Iraq as a Marine, and to Harvard for an MBA, is the CEO and founder of Local Motors.

JAY ROGERS: We integrate with the community before any car is even chosen. And what we do is we go to the community and we say, “Here’s an idea: We’ve talked to customers who also come to our Web site, part of our community, that say I want a car for the Pacific Northwest, I want a car for desert, you know, living in San Diego, Phoenix, Mexico, that kind of thing. I’d like a car for south Florida.

TOM BEARDEN: How many cars can you make in a place like this?

JAY ROGERS: You can make, with 60 gentlemen, about 1,200 chasses.

Micro-factories

TOM BEARDEN: Local Motors' manufacturing plants are also innovative. Rogers wants to build 20 so-called micro-factories that would look something like this all across the country, each serving a regional market.

JAY ROGERS: Micro-factory means micro-production, which means several thousand units over the course of a year in a local area that employs local people. The footprint looks about 80,000 square feet, which is sort of like a small Home Depot, if you will, and employs about 50 people inside, all from the local area across a range of jobs. So, effectively, you make, you sell, you service. It's like putting a factory with the dealership.

TOM BEARDEN: Their first offering will be the Rally Fighter, a sort of off-road sports car designed both for the freeway and for racing in the desert. The Rally Fighter was designed by Sangho Kim, a design student who lives in Los Angeles.

It must be fairly rare for someone your age to get the chance to design a car that somebody might actually build.

SANGHO KIM, auto design student: I would say that's almost impossible. As a student, even your professional designer, it's really hard to get your design chosen and get built in production. But as a student, it's more than impossible to be doing this, and this is more happy to do this, and I'm so excited about it.

TOM BEARDEN: After the community selects a design, Local Motors will build the body out of tough carbon fiber composite material and then mount it on a standardized chassis built from parts purchased from outside suppliers.

Is there a certain level of production in terms of numbers of units that you have to reach to make this profitable?

JAY ROGERS: This is a golden question that everybody wants to know, and I think that basically what Local Motors as a business has focused on is being able to produce sub-500 units a year in order to be able to be profitable. And that will be very shocking to some people, in terms of thinking. But when you dig down under the level, what we do and what we don't do explains how we get there. So we've made very stark decisions. Local Motors does not build taillights, brakes, axles, engines, parts that go in the car.

TOM BEARDEN: In fact, the Rally car will be powered by a BMW engine. Rogers also wants to produce a car-building and -buying experience, where customers actually visit the micro-factory and take part in the process.

An Ikea for the auto industry

JAY ROGERS: We feel that regionalization, when you talk about putting up a car company, is exactly where we're aimed. And the difference is, when you have a dealership, a dealership is typically within 10 minutes or 20 minutes of a person.

When you have an Ikea, for example, an Ikea is the kind of thing where people will drive up to four or five hours to go buy their furniture and have the experience. We're much more like Ikea. We're a destination for you to go to. And so it's the type of thing where servicing the country needs to be done in sort of four- or five-hour rings, as opposed to every 20 minutes away.

TOM BEARDEN: Local Motors is selling reservations for the Rally Fighter right now. It's priced at $50,000, but Rogers says the company hopes to produce more models and make them more affordable within the next few years.

Challenges to success

PHILIP GOTT, auto consultant, IHS Global Insight: And one of the interesting things about this car, Tom, it's a V-6.

TOM BEARDEN: Philip Gott has been analyzing the automotive industry since 1975. He's the director of automotive consulting at IHS Global Insight, an international economic analysis and forecasting firm.

On this day, he was evaluating and test driving a new Chevrolet Camaro that had just been delivered. Gott says that, with General Motors and Chrysler having been forced into bankruptcy, Local Motors might have more of a chance than they would have had a few years ago, but he's still skeptical.

PHILIP GOTT: Their business model is to go for the mainstream, middle-class customer. The investment required to do that is very, very high. I mean, the investment in Saturn, that was a whole new car company. An entire plant in Springhill, Tennessee, was built.

It has its own engine unique to the Saturn, its own transmission unique to the Saturn, a manufacturing process for the engine that was unique, you know, a unique body chassis design with plastic body panels on basically a steel space frame, very, very high investment. Ultimately, it failed.

TOM BEARDEN: Is that what the future holds for Local Motors?

PHILIP GOTT: That's what the odds would say.

TOM BEARDEN: So you're not optimistic?

PHILIP GOTT: I'm not optimistic. I admire their spunk.

TOM BEARDEN: The history of the car business is littered with people who tried to start car companies and failed. How do you know you're not going to be one of them?

JAY ROGERS: Well, I think if you didn't have a healthy skepticism about your ability or a healthy respect for your ability to fail that you probably would be fooling yourself.

I was a Marine for seven years in active duty and combat. And if I didn't go to battle every day scared, I would have been scared for myself that I might have been making bad decisions.

We have a good idea. We are executing well so far. That gives me confidence at the end of the day that we'll end up with a good result. But nothing is a foregone conclusion.

TOM BEARDEN: Local Motors plans to stage a big coming-out party for the Rally Fighter in Las Vegas this November.