HEAVY Post... 
On a plane over the holidays, I sat next to a couple from the Detroit area. He worked as an engineer for Ford Motor Company. German by birth, he drives a Volkswagen diesel. (During our conversations, he noted that clean diesel engines are the way to go for fuel economy.) He had many interesting things to say about cars and about the auto industry. Many are repeated in the press.
On the top of the list was something I had recently wondered about Ford. He said that Fords new CEO, Alan Mulally, gets it, and that they have started to see the results in the last two months. Mulallys previous position was as head of the commercial aircraft division at Boeing, which is why I thought he might actually have some talent. In 2003, there were serious questions in my mind about Boeings balance sheet and income statement because of the post 9/11 shock. I heard stories of jets parked in the desert in a graveyard in Arizona and had some difficulty understanding why Boeing wasnt being dragged down by its commercial business. I wondered whether they were playing games with their accounting. Mulally turns out to be a large part of the reason that Boeings commercial business pulled through.
The man on the plane suggested that Ford will, if it gets til 2010, start to show a turn around. He said the management at GM still doesnt get it. The other reason I noted that Mulally seemed, from afar, to get it is that during the opening salvo of requests to Congress, he asked for a lot less than the other executives. I guessed this was because he thought he could make it on less. I drew this inference not just from his request simplicter but also from the fact that the Ford family (Bill Ford) has a strong, vested interest in seeing the company survive and thrive. Bill Ford is not going to let an economic collapse destroy generations of work, if he can help it.
This, in round about fashion, brings me to where I wanted to start in this missive.
I bought an iPod Touch and started to use it today. It is quite simply awesome. Really. Its a little laptop in your hand. 25 years ago, I bought an apple computer for law school. It had less memory than this computer does in 1/50 of the space. I can listen to music, of course, but can also surf the web and download all sorts of applications (Scrabble, for example, which I view as quite cool to have in my pocket). It is really quite stunning when you think about it. When I left college, my paltry music collection filled a box. I now have more albums on something that weighs about as much as 3 or 4 vinyl albums.
From which I draw an inference. American motor companies can do it, with two caveats. We obviously have the ability here. I dont buy the cost excuses (except to say that those problems can be solved). Every other country seems to have thriving motor companies, or many do. Germany has VW, BMW and Mercedes. Japan has Toyota, Honda, and Nissan. France has....well, ok, they have lots of nuclear power plants but horrible cars. (Do you think if they knew how to get from here to there quickly, the Germans would have rolled over them so quickly in May 1940??)
My two caveats are this. First, its not cool to work for an automobile company any more. Its cool to work for Adobe, or Apple, or even Microsoft. And I strongly suspect that the best American minds these days can be found in Silicon Valley - not just because of the money, but also because it is cool to be able to have an impact.
So you say, well, there are lots of bright minds. More than Silicon Valley needs. Yes, ok, I agree. But it also is not cool to own an American car. The last American car that I think was cool to own (and not anymore especially) was the Corvette at about the time I was in high school. In the 1970s, the Cadillac was more or less king. Now its a relatively small market. Everyone wants a BMW or Mercedes or the like. It just isnt cool.
In making this point, the iPod itself is a prime example. When I bought my first one in 2001, two Quicken customer service people were in my office for an interview about how I used Quicken. I showed them my iPod, and they were more interested in it, than our interview. One said, they sure how to make great user interfaces, in typical Silicon Valley geek fashion. And Apple did. And has continued to improve the product. To look at my 2001 model, which still works fine, youd think it was a museum piece. Apple dominates the MP3 market now. I think they are the second leading reseller of music in the US. There are in fact better MP3 players out there than the standard iPod (say in terms of playback quality, price) but everyone wants to be cool.
It is this problem that I think has undermined the American automobile industry. In my view, it is a preference for a foreign car, not because of any reason other than that it is cool. (In reverse, this is why you see American companies dominating the truck market. No self-respecting cowboy or farmer wants to drive a Toyota truck, no matter how well built. No, youve got to have a Ford F-150 or a GMC Sierra. Quite seriously. Folks from the heartland dont want some foreign - read sissy - truck parked outside their farmhouse.) Why did the beef outlet call itself Omaha Steaks, and not Atlanta Steaks? To state the question is to answer it. With the auto companies, when disposable American personal disposable income grew so much that even those near the poverty line have color television, a microwave, and cable television (luxuries or non-existent in my youth -- as Charlie Munger puts it, we are awash in wealth), foreign cars were going to replace American cars because foreign cars are in general more cool.
I wish Mulally all the luck in the world. I bought a small amount of Ford stock last week, a calculated bet. But in truth I dont believe that the American car companies are viable in the long run mainly for this reason. In fact, Ive long thought that all the reasons assigned for the current sad state of their businesses are really quite beside the point. The fundamental problem the companies face is that American cars are not perceived as cool - its deeply embedded in the American psyche and probably precedes the 1970s in its origins. Its the one competitive disadvantage that cannot be surmounted.
Not even Steve Jobs is going to fix that. Not even.
On a plane over the holidays, I sat next to a couple from the Detroit area. He worked as an engineer for Ford Motor Company. German by birth, he drives a Volkswagen diesel. (During our conversations, he noted that clean diesel engines are the way to go for fuel economy.) He had many interesting things to say about cars and about the auto industry. Many are repeated in the press.
On the top of the list was something I had recently wondered about Ford. He said that Fords new CEO, Alan Mulally, gets it, and that they have started to see the results in the last two months. Mulallys previous position was as head of the commercial aircraft division at Boeing, which is why I thought he might actually have some talent. In 2003, there were serious questions in my mind about Boeings balance sheet and income statement because of the post 9/11 shock. I heard stories of jets parked in the desert in a graveyard in Arizona and had some difficulty understanding why Boeing wasnt being dragged down by its commercial business. I wondered whether they were playing games with their accounting. Mulally turns out to be a large part of the reason that Boeings commercial business pulled through.
The man on the plane suggested that Ford will, if it gets til 2010, start to show a turn around. He said the management at GM still doesnt get it. The other reason I noted that Mulally seemed, from afar, to get it is that during the opening salvo of requests to Congress, he asked for a lot less than the other executives. I guessed this was because he thought he could make it on less. I drew this inference not just from his request simplicter but also from the fact that the Ford family (Bill Ford) has a strong, vested interest in seeing the company survive and thrive. Bill Ford is not going to let an economic collapse destroy generations of work, if he can help it.
This, in round about fashion, brings me to where I wanted to start in this missive.
I bought an iPod Touch and started to use it today. It is quite simply awesome. Really. Its a little laptop in your hand. 25 years ago, I bought an apple computer for law school. It had less memory than this computer does in 1/50 of the space. I can listen to music, of course, but can also surf the web and download all sorts of applications (Scrabble, for example, which I view as quite cool to have in my pocket). It is really quite stunning when you think about it. When I left college, my paltry music collection filled a box. I now have more albums on something that weighs about as much as 3 or 4 vinyl albums.
From which I draw an inference. American motor companies can do it, with two caveats. We obviously have the ability here. I dont buy the cost excuses (except to say that those problems can be solved). Every other country seems to have thriving motor companies, or many do. Germany has VW, BMW and Mercedes. Japan has Toyota, Honda, and Nissan. France has....well, ok, they have lots of nuclear power plants but horrible cars. (Do you think if they knew how to get from here to there quickly, the Germans would have rolled over them so quickly in May 1940??)
My two caveats are this. First, its not cool to work for an automobile company any more. Its cool to work for Adobe, or Apple, or even Microsoft. And I strongly suspect that the best American minds these days can be found in Silicon Valley - not just because of the money, but also because it is cool to be able to have an impact.
So you say, well, there are lots of bright minds. More than Silicon Valley needs. Yes, ok, I agree. But it also is not cool to own an American car. The last American car that I think was cool to own (and not anymore especially) was the Corvette at about the time I was in high school. In the 1970s, the Cadillac was more or less king. Now its a relatively small market. Everyone wants a BMW or Mercedes or the like. It just isnt cool.
In making this point, the iPod itself is a prime example. When I bought my first one in 2001, two Quicken customer service people were in my office for an interview about how I used Quicken. I showed them my iPod, and they were more interested in it, than our interview. One said, they sure how to make great user interfaces, in typical Silicon Valley geek fashion. And Apple did. And has continued to improve the product. To look at my 2001 model, which still works fine, youd think it was a museum piece. Apple dominates the MP3 market now. I think they are the second leading reseller of music in the US. There are in fact better MP3 players out there than the standard iPod (say in terms of playback quality, price) but everyone wants to be cool.
It is this problem that I think has undermined the American automobile industry. In my view, it is a preference for a foreign car, not because of any reason other than that it is cool. (In reverse, this is why you see American companies dominating the truck market. No self-respecting cowboy or farmer wants to drive a Toyota truck, no matter how well built. No, youve got to have a Ford F-150 or a GMC Sierra. Quite seriously. Folks from the heartland dont want some foreign - read sissy - truck parked outside their farmhouse.) Why did the beef outlet call itself Omaha Steaks, and not Atlanta Steaks? To state the question is to answer it. With the auto companies, when disposable American personal disposable income grew so much that even those near the poverty line have color television, a microwave, and cable television (luxuries or non-existent in my youth -- as Charlie Munger puts it, we are awash in wealth), foreign cars were going to replace American cars because foreign cars are in general more cool.
I wish Mulally all the luck in the world. I bought a small amount of Ford stock last week, a calculated bet. But in truth I dont believe that the American car companies are viable in the long run mainly for this reason. In fact, Ive long thought that all the reasons assigned for the current sad state of their businesses are really quite beside the point. The fundamental problem the companies face is that American cars are not perceived as cool - its deeply embedded in the American psyche and probably precedes the 1970s in its origins. Its the one competitive disadvantage that cannot be surmounted.
Not even Steve Jobs is going to fix that. Not even.