A shake-up for the US Auto Industry

Elon Musk of Tesla Motors was right that Silicon Valley can shake up the car industry, but maybe his view didn’t go far enough.

Tesla planned to take on the big 3 and recreate the US auto industry only went as far as designing an innovative product and creating demand for that product, things the big 3 have been somewhat unable to follow-through on recently.
However, where Musk didn’t go far enough was in his non-innnovative plan of creating his own manufacturing capacity.

Though lots of blame can be placed on US Automakers management teams for the current state of the US auto industry and requests for a bail-out, the biggest issue is simply that the Big 3 have been unable to build cars that people want to buy.

With the exception of the SUV market, US auto manufacturers have struggled to capture the audience and following which European or Asian manufacturers have garnerd, and even in the SUV market, competitors were able to take significant market share once they tooled-up to the growing demand for these types of vehicles.

There has been talk of breaking-up GM into it’s distinct brands. This would allow smaller companies to fail without having disastarous effects on the economy.

However, simply breaking up the brands doesn’t go far enough. Going a step further puts the US Auto industry into an opportunity position, rather than just struggling to survive.

The opportunity is to not only split the Big 3 into their component brands, but to split the manufacturing and logistics into a completely seperate company.

This creates an architecture in the auto industry of brands becoming design, engineering and marketing firms while the manufacturing sector focuses on solely manufacturing and the logistics involved in that.

Tesla and Fisker, just two new US based brands looking to take on the big 3, make the case for outsourcing manufacturing.

Tesla suspected to be in financial difficulty itself, has spent an enourmous amount of time and money tooling up for manufacturing, and is in preperations to build a new manufacturing facility in California.

Fisker signed a deal with Valmet Autotive of Finland to build the the Fisker Karma sedan. Valmet currently builds the Boxster and Cayman for Porsche.

 A redesign of the architecture of the auto industry, and seperating design/engineering from manufacturing could breath new life into the US auto industry and improve the abilities of market forces to drive the auto industry.

Strenghts

1) moderate disruption to manufacturing sector - retool for more flexible production if necessary

2) minimal disruption to external contractors

3) reliance on manufacturing and logistics expertise to direct future manufacturing capabilities

4) improved manufacturing quality as manufacturers will compete for contracts rather than just be handed the design

 

Weakness

1) lack of current agility in manufacturing capabilities

 

Opportunities

1) Lower impact of brand failure

2) manufacturing becomes a competitive market in it’s own right

3) lower barrier to entry for car companies - start-ups can purchase manufacturing capacity

4) agile manufacturing creates a more competitive and adept marketplace

5) market opportunities for growth in alternative fuel/energy sources

 

Threats

1)poor manufacturing quality reputation for North American auto makers.