5 ms·

The automotive industry’s value-destroying addiction to capital (2015) [pdf]

50 points by mxschumacher 7y ago

karpodiem 7y ago
Sergio was way ahead of his time, I miss him. Huge FCA fan, really looking forward to all of their upcoming product.
ChuckMcM 7y ago
That is a really amazing look at a part of auto development I've never seen before. I'm wondering if some private equity firm went with it and rolled up 3 or 4 OEMs into a single more cost productive OEM.
- linksnapzz 7y ago
  This is classic Sergio, and it is written as he would see things, as a financier working w/ first-tier automakers. His observations are spot-on, and it's true that half of what you're paying for in the development of a new car are things that are invisible to most consumers. Quick, can you name the company that made the AC system for your car? Things that make carmaking expensive/difficult: 1.) Huge regulatory burden (safety & environmental) on R&D 2.) Low margins (for mainstream cars) 3.) Vast capital requirements 4.) Very vulnerable to consumer confidence 5.) Globally segregated market (much as we might wish it away...) 6.) Mature market If I knew nothing else, this would make carmaker stock unappealing from a growth perspective. If that's the only way you can get more capital, then that's a problem. For a cost-productivity sake, you'd want one or two giant companies that each make one car, but under multiple brands. Then you rely on marketing to tell customers that there's a difference. This would drive down the overhead involved in many manufacturers making different models, and push the growth potential of automaker stock more towards consumer products in general. We sorta had this, in the US, with GM in the '60s and '70s. It was so big it was almost a monopoly...and yet, in the long term, that didn't last. Mostly, for reasons that escaped Fred Donner and Jim Roche back then, and that I don't think Sergio ever grasped. In the end, a global auto oligopoly that answers to Wall St. and to gov't regulators, and to only those two, is going to be bad for consumers in the long term.
  - nordsieck 7y ago
    > For a cost-productivity sake, you'd want one or two giant companies that each make one car, but under multiple brands. Then you rely on marketing to tell customers that there's a difference. This would drive down the overhead involved in many manufacturers making different models, and push the growth potential of automaker stock more towards consumer products in general. The common term for this is "badge engineering" and it doesn't really work long term for the simple reason that there are just too many car enthusiasts who figure out the truth pretty quickly. This problem is compounded by the fact that there is a large overlap between enthusiasts and people who buy more expensive cars.
    - linksnapzz 7y ago
      Exactly. If you were an economist or a banker, you might not get that until it was too late.
  - 7532yahoogmail 7y ago
    How does the Japanese of the 80s and early 90s (before their problems recently) differ from now? JP took some 30pct of the US market in an industry that is/was largely beholden to the same constraints you mention. Honda and Toyota we're good investments then.
    - linksnapzz 7y ago
      They had (have) some advantages that American car companies don't. Those companies are good investments, if you are interested in holding stock for a long time, and have the patience to wait out what is a cyclical market. One of the reasons why GM & Chrysler had to go to the gov't for loans in 2009 was that they literally hadn't enough money on hand to fund operations until normal lending from banks resumed...Ford didn't need a bailout (initially), b/c Mullaly had negotiated for a huge line of credit before the crisis, and Toyota didn't, b/c they were sitting on $50 billion in cash and could pay for operations with that. Wall St. routinely loses its shit when a publicly-traded company accumulates cash like that...that money should go to buying back stock to drive up the price, or returned to the shareholders. Long term contingency planning...not so much. Japanese, OTOH... Likewise, as exporters into the US market, they can depend on a favorable monetary policy at home to make their products look more affordable, and they haven't the sort of labor-management dynamic that has been foisted on the US mfg. industry since the 1930s, either.
- dsfyu404ed 7y ago
  Why do you need a private equity firm? That's basically what FCA has been doing since their inception. They've brought a bunch of brands under one roof, shit canned the products that don't make money (or shoehorned it onto a platform that does make money) and focused on optimizing the money making things for more money while reducing duplication of effort. In the short term it's worked well for them. Whether it's sustainable time will tell.
lowdose 7y ago
The presentation is lacking the words electric and battery. Seems like Fiat Chrysler Automobiles did not see Tesla as competition in 2015. Another headline today report automotive industry is still in shock of Tesla's success(2020). The innovators dilemma is real and confirmed.
- phkahler 7y ago
  >> Another headline today report automotive industry is still in shock of Tesla's success I'm still in shock at Tesla's success. Not that they managed to get where they are, but that they didn't go under. I can't help thinking there are larger forces at work behind the scenes. The other car makers have refused to compete head-to-head with them. EVs seem like something they want to have eventually, but they don't seem to have the will to make it happen.
  - marvin 7y ago
    It's textbook Innovator's Dilemma. Can't cannibalize your existing product. Good idea, but let's do it some other time. The someone else does it instead. Whoops.
  - grecy 7y ago
    > they don't seem to have the will to make it happen. They have litereally hundreds of billions sunk into R&D for internal combusion engines that only made sense because it was going to provide return on investment for decades to come. They also hae hundreds of billions invested into precision tools to cast and machine crankshafts, pistons, exhausts, transmissions and all the other components an internal combustion engine vehicle needs than an EV doesn't. I'm sure there are tons of people working at legacy auto-makers who want to focus on EVs, but it's going to sink them if they try.
  - bsder 7y ago
    > The other car makers have refused to compete head-to-head with them. Because all their profit comes from SUV's. The big auto manufacturers would simply stop producing most of their low end cars if they didn't have to meet fleet efficiency numbers.
advisedwang 7y ago
The detail and comparisons are incredible here. However couldn't you basically apply this to any industry with substantial fixed costs? In this situation you can always save by consolidating so that fixed cost is amortized over more units. What is the "right" level of R&D spend for auto-industry? This analysis assumes it's unreasonably high, but the flip side of this is just that he's pointing a path to higher profit. Although this deck says it's not about "Putting FCA up for sale", this reads to me like it's trying justify consolidation without just saying that it will make more money, so that it can avoid competition-regulation scrutiny.
- jgust 7y ago
  I compare this to two global software teams, 1 in country x the other in country y, who both have the identical charter to massage bits and bytes into a certain shape. Team 1 believes in "The Best Function" approach, and team 2 believes in "The Goodest Function Ever" approach. They've reached an impasse, and the company ends up paying for both. The paper reads as a recommendation that Team 1 and 2 "should just compromise". Great idea, but difficult in practice.
avalys 7y ago
Yawn. The financier CEO of the automaker in one of the worst financial positions, with the lowest R&D spending, oldest product line, and nonexistent EV strategy complains that auto R&D is too expensive and argues the solution is that someone should buy his company. Not impressed.
- mxschumacher 7y ago
  have you studied the most recent balance sheet of FCA? [0] How come you think the firm is in a bad financial position? [0] https://www.fcagroup.com/en-US/investors/financial_regulatory/financial_reports/files/FCA_NV_2019_Annual_Report.pdf https://www.fcagroup.com/en-US/investors/financial_regulator... FCA will merge with PSA towards the end of this year!
- cat199 7y ago
  slide 2: "what this is not about: Putting FCA up for sale"
- 7532yahoogmail 7y ago
  You forgot to read the PDF
nimbius 7y ago
wow. Five years ago? the thunder on the horizon was all the way back in 2002 when Japanese automotive manufacturers began ripping apart the luxury market with Lexus/etc... Lee Iacocca tried to help and really did in a lot of ways, by consolidating Chryslers various drivetrain and option specifications into tighter platforms...i believe at the time his strategy was likened to Taco Bell's toppings. Its exactly what Japanese automakers pioneered for their dive into Luxury. Take an existing platform and powertrain, and "goose" it with a few luxury features. Then, break the bank on marketing (which is all luxury brands really are anyway these days.) switches and buttons for seat options came prewired into the base models, but were built out in the luxury models, so this saved a lot of time and money. regular shocks, coilovers, struts, etc...were swapped for primo, and the seat design was slapped up with leather instead of cloth. you can do this and it does work. Fast forward to 2015 and the auto industry learned bupkis from their crow dinner at congress begging for handouts in 2008. Chrysler basically blocked the memory out entirely, dove hard off the deep end and came out with garbage like the hellcat. Its not even in the top 20 fastest cars, and most importantly its a loss leader with custom engine work, custom drivetrain, custom paint, etc...that is shared by no model. people want reliable cars with good gas mileage and good performance like the Ford Focus and its ST counterpart which were well executed. Ford of course then immediately turned around and wiped out their car divisions entirely under the assumption all americans will drive SUV's and trucks forever. maybe so, but the electric mustang crossover is dead on arrival at sixty grand if its still getting its doors blown off by a used model S with a 'baby on board' sticker. Bureaucrats didnt help this capital addiction either. You could argue this 'ignore the real problems' stuff started in 2008 when boomers in congress shook their fists and demanded Pontiac die, and Buick get to live, when Pontiac was clearly a stronger company with a better offering for customers than Buick who at the time was living off fumes from the Lucerne and Lacross, two virtually indistinguishable cars which were getting creamed by Cadillacs CTS and V platforms that targeted a younger and hipper trend. Pontiac basically prayed at the altar of Iacocca with the G6, the G8, and the Solstice, and their willingness to damn the consequences and innovate was already on display with the Aztek...whereas Buick was still hucking 80's designs around their Lucerne. Look at a 2008 Honda dashboard, then look at a 2008 lucerne dashboard. Buick is alive solely thanks to geriatric politicians.
- 7y ago
csours 7y ago
Disclaimer up front: I work for GM. These are my opinions only and do not reflect my employer etc.. I don't work in corporate planning, but I have some familiarity with vehicle platforms and programs. I see a lot of people commenting on specific OEMs and getting caught up on details. That's not what this is about. This is about the fact that GM has a ~1.5 liter turbo 4 cylinder and so does Ford and so does FCA and so does Volkswagen and so does ... ... ... The specific 4 banger in a vehicle will never be a differentiator for a customer (except in VERY specific cases), so anything you spend on R+D for that engine will not help you get ahead, only to keep up. It's about the fact that developing a engine that no one will ever get excited about still costs a great deal of money, and pretty much every OEM is spending that money. That cost is dragging the whole industry down, and that's why EBIT and Return on Invested Capital is low across the industry (but it may be lower for some OEMs). It's about the fact that ~50% of components may be like that engine that the customer will never get excited about. --- It also talks about how companies are trying to mitigate that by platform sharing, with pictures of a couple from Volkswagen and Toyota. Shared platforms are great for a lot of products, but they don't work so well for specialized products like sports cars or luxury cars. Here's a great video covering GM's plans for their electric car platform (shameless plug): https://www.youtube.com/watch?v=-25fGfjHP5Y https://www.youtube.com/watch?v=-25fGfjHP5Y --- It also talks about how hard this is to do. I know of several instances where this has been done or been tried and it's always been harder and lower payoff than expected. For example, Ford and GM cooperated on the development of a 9 speed (Ford) and a 10 speed (GM). Each company developed their own transmission and then at the end they shared them.
throwaway8291 7y ago
Spot on. As a consumer of a newer generation: I do not care about 90% of the stuff that's in a modern car. I could not care less about the manufacturer. If it drives and is relatively safe and clean, cool. Best case: I do not even need to own a car. The best counterexample for the R&D spree of western automotive can be found in Russia. The Lada Niva is car that is extremely useful and mostly unchanged in structure since inception. People can repair them with their own hands. I wish we had robust clean cars like the Niva in the west as well.
soniman 7y ago
The problem is too many "national champions." Korea alone has two auto companies (Hyundai and Kia). France (Peugeot, Citroeb, Renault) and Italy (Fiat) have their own car companies, even though neither country is known as manufacturing powerhouse. Until those national champions are shut down or consolidated (politically difficult), there will continue to be overcapacity.
- yardie 7y ago
  So that’s never going to happen. You may as well say why build highways when rail is more efficient. Most developed countries will want to have some local manufacturing for national defense reasons. A car plant can be retooled to make tanks, planes, and guns. But if you don’t have one now you wont have it when you need it. Also, r&d consumes a lot of resources. Shared platforms are the way to go. VW outsourced beetle production to Mexico where they continued to produce them even after VW stopped selling them. They were good and cheap enough. Exactly what a developing economy needed.
  - gcbpp 7y ago
    so very wrong. but unfortunately a common misconception in the colonial world we live in. older car models are not made in 3rd world because of some grandiose benevolent plan to bring robustness and cheap cars to the poor pitiful people. older models are usually more expensive to produce, less economical to run, have less confort and everything, and the margins are lower. BUT, the tooling and RD cost is already paid for. so with zero investment (simply shipping what would be scrap metal otherwise) they can extract profits from markets starved of any other offering. And let's not forget they negotiate tax breaks on top, after all they bring jobs to the poor pitiful people.
7532yahoogmail 7y ago
One thing I question is the assessment that what's under the hood is unimportant to the customer ... Now many guys and most wives surely don't care unlike a mechanical engineer until it doesn't work. In the early 90s Japanese cars cost more but consumers saw quality. JP took 30% of the US market as a result. Wouldn't this be better examined in terms of how repair costs factor into customer assessment of car desirability?
purplezooey 7y ago
I don't get the complaint of "hey we have this overlap and it's killing us". This isn't BART. This is an industry. Please do compete, even if it is painful, and lower prices. This is why we have antitrust. You know the industries that were allowed to overconsolidate... do they add joy to your life?:)

50 points by mxschumacher 7y ago

Sergio was way ahead of his time, I miss him. Huge FCA fan, really looking forward to all of their upcoming product.

That is a really amazing look at a part of auto development I've never seen before. I'm wondering if some private equity firm went with it and rolled up 3 or 4 OEMs into a single more cost productive OEM.

linksnapzz 7y ago
This is classic Sergio, and it is written as he would see things, as a financier working w/ first-tier automakers. His observations are spot-on, and it's true that half of what you're paying for in the development of a new car are things that are invisible to most consumers. Quick, can you name the company that made the AC system for your car? Things that make carmaking expensive/difficult: 1.) Huge regulatory burden (safety & environmental) on R&D 2.) Low margins (for mainstream cars) 3.) Vast capital requirements 4.) Very vulnerable to consumer confidence 5.) Globally segregated market (much as we might wish it away...) 6.) Mature market If I knew nothing else, this would make carmaker stock unappealing from a growth perspective. If that's the only way you can get more capital, then that's a problem. For a cost-productivity sake, you'd want one or two giant companies that each make one car, but under multiple brands. Then you rely on marketing to tell customers that there's a difference. This would drive down the overhead involved in many manufacturers making different models, and push the growth potential of automaker stock more towards consumer products in general. We sorta had this, in the US, with GM in the '60s and '70s. It was so big it was almost a monopoly...and yet, in the long term, that didn't last. Mostly, for reasons that escaped Fred Donner and Jim Roche back then, and that I don't think Sergio ever grasped. In the end, a global auto oligopoly that answers to Wall St. and to gov't regulators, and to only those two, is going to be bad for consumers in the long term.
- nordsieck 7y ago
  > For a cost-productivity sake, you'd want one or two giant companies that each make one car, but under multiple brands. Then you rely on marketing to tell customers that there's a difference. This would drive down the overhead involved in many manufacturers making different models, and push the growth potential of automaker stock more towards consumer products in general. The common term for this is "badge engineering" and it doesn't really work long term for the simple reason that there are just too many car enthusiasts who figure out the truth pretty quickly. This problem is compounded by the fact that there is a large overlap between enthusiasts and people who buy more expensive cars.
  - linksnapzz 7y ago
    Exactly. If you were an economist or a banker, you might not get that until it was too late.
- 7532yahoogmail 7y ago
  How does the Japanese of the 80s and early 90s (before their problems recently) differ from now? JP took some 30pct of the US market in an industry that is/was largely beholden to the same constraints you mention. Honda and Toyota we're good investments then.
  - linksnapzz 7y ago
    They had (have) some advantages that American car companies don't. Those companies are good investments, if you are interested in holding stock for a long time, and have the patience to wait out what is a cyclical market. One of the reasons why GM & Chrysler had to go to the gov't for loans in 2009 was that they literally hadn't enough money on hand to fund operations until normal lending from banks resumed...Ford didn't need a bailout (initially), b/c Mullaly had negotiated for a huge line of credit before the crisis, and Toyota didn't, b/c they were sitting on $50 billion in cash and could pay for operations with that. Wall St. routinely loses its shit when a publicly-traded company accumulates cash like that...that money should go to buying back stock to drive up the price, or returned to the shareholders. Long term contingency planning...not so much. Japanese, OTOH... Likewise, as exporters into the US market, they can depend on a favorable monetary policy at home to make their products look more affordable, and they haven't the sort of labor-management dynamic that has been foisted on the US mfg. industry since the 1930s, either.
dsfyu404ed 7y ago
Why do you need a private equity firm? That's basically what FCA has been doing since their inception. They've brought a bunch of brands under one roof, shit canned the products that don't make money (or shoehorned it onto a platform that does make money) and focused on optimizing the money making things for more money while reducing duplication of effort. In the short term it's worked well for them. Whether it's sustainable time will tell.

lowdose 7y ago

The presentation is lacking the words electric and battery. Seems like Fiat Chrysler Automobiles did not see Tesla as competition in 2015. Another headline today report automotive industry is still in shock of Tesla's success(2020). The innovators dilemma is real and confirmed.

phkahler 7y ago
>> Another headline today report automotive industry is still in shock of Tesla's success I'm still in shock at Tesla's success. Not that they managed to get where they are, but that they didn't go under. I can't help thinking there are larger forces at work behind the scenes. The other car makers have refused to compete head-to-head with them. EVs seem like something they want to have eventually, but they don't seem to have the will to make it happen.
- marvin 7y ago
  It's textbook Innovator's Dilemma. Can't cannibalize your existing product. Good idea, but let's do it some other time. The someone else does it instead. Whoops.
- grecy 7y ago
  > they don't seem to have the will to make it happen. They have litereally hundreds of billions sunk into R&D for internal combusion engines that only made sense because it was going to provide return on investment for decades to come. They also hae hundreds of billions invested into precision tools to cast and machine crankshafts, pistons, exhausts, transmissions and all the other components an internal combustion engine vehicle needs than an EV doesn't. I'm sure there are tons of people working at legacy auto-makers who want to focus on EVs, but it's going to sink them if they try.
- bsder 7y ago
  > The other car makers have refused to compete head-to-head with them. Because all their profit comes from SUV's. The big auto manufacturers would simply stop producing most of their low end cars if they didn't have to meet fleet efficiency numbers.

advisedwang 7y ago

The detail and comparisons are incredible here. However couldn't you basically apply this to any industry with substantial fixed costs? In this situation you can always save by consolidating so that fixed cost is amortized over more units. What is the "right" level of R&D spend for auto-industry? This analysis assumes it's unreasonably high, but the flip side of this is just that he's pointing a path to higher profit. Although this deck says it's not about "Putting FCA up for sale", this reads to me like it's trying justify consolidation without just saying that it will make more money, so that it can avoid competition-regulation scrutiny.

jgust 7y ago
I compare this to two global software teams, 1 in country x the other in country y, who both have the identical charter to massage bits and bytes into a certain shape. Team 1 believes in "The Best Function" approach, and team 2 believes in "The Goodest Function Ever" approach. They've reached an impasse, and the company ends up paying for both. The paper reads as a recommendation that Team 1 and 2 "should just compromise". Great idea, but difficult in practice.

avalys 7y ago

Yawn. The financier CEO of the automaker in one of the worst financial positions, with the lowest R&D spending, oldest product line, and nonexistent EV strategy complains that auto R&D is too expensive and argues the solution is that someone should buy his company. Not impressed.

mxschumacher 7y ago
have you studied the most recent balance sheet of FCA? [0] How come you think the firm is in a bad financial position? [0] https://www.fcagroup.com/en-US/investors/financial_regulatory/financial_reports/files/FCA_NV_2019_Annual_Report.pdf https://www.fcagroup.com/en-US/investors/financial_regulator... FCA will merge with PSA towards the end of this year!
cat199 7y ago
slide 2: "what this is not about: Putting FCA up for sale"
7532yahoogmail 7y ago
You forgot to read the PDF

nimbius 7y ago

wow. Five years ago? the thunder on the horizon was all the way back in 2002 when Japanese automotive manufacturers began ripping apart the luxury market with Lexus/etc... Lee Iacocca tried to help and really did in a lot of ways, by consolidating Chryslers various drivetrain and option specifications into tighter platforms...i believe at the time his strategy was likened to Taco Bell's toppings. Its exactly what Japanese automakers pioneered for their dive into Luxury. Take an existing platform and powertrain, and "goose" it with a few luxury features. Then, break the bank on marketing (which is all luxury brands really are anyway these days.) switches and buttons for seat options came prewired into the base models, but were built out in the luxury models, so this saved a lot of time and money. regular shocks, coilovers, struts, etc...were swapped for primo, and the seat design was slapped up with leather instead of cloth. you can do this and it does work. Fast forward to 2015 and the auto industry learned bupkis from their crow dinner at congress begging for handouts in 2008. Chrysler basically blocked the memory out entirely, dove hard off the deep end and came out with garbage like the hellcat. Its not even in the top 20 fastest cars, and most importantly its a loss leader with custom engine work, custom drivetrain, custom paint, etc...that is shared by no model. people want reliable cars with good gas mileage and good performance like the Ford Focus and its ST counterpart which were well executed. Ford of course then immediately turned around and wiped out their car divisions entirely under the assumption all americans will drive SUV's and trucks forever. maybe so, but the electric mustang crossover is dead on arrival at sixty grand if its still getting its doors blown off by a used model S with a 'baby on board' sticker. Bureaucrats didnt help this capital addiction either. You could argue this 'ignore the real problems' stuff started in 2008 when boomers in congress shook their fists and demanded Pontiac die, and Buick get to live, when Pontiac was clearly a stronger company with a better offering for customers than Buick who at the time was living off fumes from the Lucerne and Lacross, two virtually indistinguishable cars which were getting creamed by Cadillacs CTS and V platforms that targeted a younger and hipper trend. Pontiac basically prayed at the altar of Iacocca with the G6, the G8, and the Solstice, and their willingness to damn the consequences and innovate was already on display with the Aztek...whereas Buick was still hucking 80's designs around their Lucerne. Look at a 2008 Honda dashboard, then look at a 2008 lucerne dashboard. Buick is alive solely thanks to geriatric politicians.

7y ago

csours 7y ago

Disclaimer up front: I work for GM. These are my opinions only and do not reflect my employer etc.. I don't work in corporate planning, but I have some familiarity with vehicle platforms and programs. I see a lot of people commenting on specific OEMs and getting caught up on details. That's not what this is about. This is about the fact that GM has a ~1.5 liter turbo 4 cylinder and so does Ford and so does FCA and so does Volkswagen and so does ... ... ... The specific 4 banger in a vehicle will never be a differentiator for a customer (except in VERY specific cases), so anything you spend on R+D for that engine will not help you get ahead, only to keep up. It's about the fact that developing a engine that no one will ever get excited about still costs a great deal of money, and pretty much every OEM is spending that money. That cost is dragging the whole industry down, and that's why EBIT and Return on Invested Capital is low across the industry (but it may be lower for some OEMs). It's about the fact that ~50% of components may be like that engine that the customer will never get excited about. --- It also talks about how companies are trying to mitigate that by platform sharing, with pictures of a couple from Volkswagen and Toyota. Shared platforms are great for a lot of products, but they don't work so well for specialized products like sports cars or luxury cars. Here's a great video covering GM's plans for their electric car platform (shameless plug): https://www.youtube.com/watch?v=-25fGfjHP5Y https://www.youtube.com/watch?v=-25fGfjHP5Y --- It also talks about how hard this is to do. I know of several instances where this has been done or been tried and it's always been harder and lower payoff than expected. For example, Ford and GM cooperated on the development of a 9 speed (Ford) and a 10 speed (GM). Each company developed their own transmission and then at the end they shared them.

throwaway8291 7y ago

Spot on. As a consumer of a newer generation: I do not care about 90% of the stuff that's in a modern car. I could not care less about the manufacturer. If it drives and is relatively safe and clean, cool. Best case: I do not even need to own a car. The best counterexample for the R&D spree of western automotive can be found in Russia. The Lada Niva is car that is extremely useful and mostly unchanged in structure since inception. People can repair them with their own hands. I wish we had robust clean cars like the Niva in the west as well.

soniman 7y ago

The problem is too many "national champions." Korea alone has two auto companies (Hyundai and Kia). France (Peugeot, Citroeb, Renault) and Italy (Fiat) have their own car companies, even though neither country is known as manufacturing powerhouse. Until those national champions are shut down or consolidated (politically difficult), there will continue to be overcapacity.

yardie 7y ago
So that’s never going to happen. You may as well say why build highways when rail is more efficient. Most developed countries will want to have some local manufacturing for national defense reasons. A car plant can be retooled to make tanks, planes, and guns. But if you don’t have one now you wont have it when you need it. Also, r&d consumes a lot of resources. Shared platforms are the way to go. VW outsourced beetle production to Mexico where they continued to produce them even after VW stopped selling them. They were good and cheap enough. Exactly what a developing economy needed.
- gcbpp 7y ago
  so very wrong. but unfortunately a common misconception in the colonial world we live in. older car models are not made in 3rd world because of some grandiose benevolent plan to bring robustness and cheap cars to the poor pitiful people. older models are usually more expensive to produce, less economical to run, have less confort and everything, and the margins are lower. BUT, the tooling and RD cost is already paid for. so with zero investment (simply shipping what would be scrap metal otherwise) they can extract profits from markets starved of any other offering. And let's not forget they negotiate tax breaks on top, after all they bring jobs to the poor pitiful people.

7532yahoogmail 7y ago

One thing I question is the assessment that what's under the hood is unimportant to the customer ... Now many guys and most wives surely don't care unlike a mechanical engineer until it doesn't work. In the early 90s Japanese cars cost more but consumers saw quality. JP took 30% of the US market as a result. Wouldn't this be better examined in terms of how repair costs factor into customer assessment of car desirability?

purplezooey 7y ago

I don't get the complaint of "hey we have this overlap and it's killing us". This isn't BART. This is an industry. Please do compete, even if it is painful, and lower prices. This is why we have antitrust. You know the industries that were allowed to overconsolidate... do they add joy to your life?:)