Can ICE Manufacturers Survive?

[Doug_G]

The topic title is deliberately provocative, but I feel this is a serious question. My experiences at the Canadian International Auto Show have highlighted a few things.

Many conventional car dealers and salesmen are skeptical, afraid, or even actively hostile to EVs. I've talked to guys selling Volts, and they're keen but often have significant resistance within their own dealership. It's not just that people are afraid of change; I suspect many dealerships are worried that pure EVs will have negligible maintenance. That will undermine the business model of most dealers, as they make all their money on service, not new car sales. And they probably should be very worried about that.

I had one salesman at the show really go at me over EVs. He started out surprisingly hostile - I got him half convinced by the end, but it took half an hour. (That was over lunch - otherwise I'd never have been able to spend that much time with one person.)

Nissan's Ghosn may have a vision for electric cars, but I'm not sure the organization he leads is really on board with it. If he ever leaves, the initiative could stall out. And why haven't they already brought out a bigger pack car (or even an option) based on the Leaf technology? No one seems to be talking about it. Somehow this 100 mile range thing seems to be the received wisdom; in my view 200 mile range is necessary for the general public to accept these cars.

My feeling from all this is the major automakers are going to have a big problem. They need to move their electric cars OUT of their regular dealers, and build new electric-only dealer networks. A separate "brand" like Saturn was. Then the only people who work there will be people who "get" it, who want the products to survive and prosper - and their jobs will depend on just that.

It's very rare for established companies to survive a disruptive change, and that's exactly what EVs are about to become. Sometime in the next decade we will reach a tipping point where the consumer will switch their preferences, and the transition will happen quickly. Rising gas prices - and eventual shortages due to peak oil and booming demand in Asia (not to mention geopolitical risks) - will take care of that. Companies caught without a full product line of EVs will be caught with their pants around their ankles. Big players who are just dipping their toes in the water with weak products will be in big trouble.

In this view, Tesla could become a very major player in the industry - and perhaps essential to the economy.

Thoughts? Plausible?

 

[TEG]

Nissan's Ghosn may have a vision for electric cars, but I'm not sure the organization he leads is really on board with it...

My experience getting a new LEAF from a dealer when they first started getting shipments was mostly one of quizzical uncertainty from their side.
I think the sales guys were intrigued but uncertain if this is something that will "stick". Many of the service people I encountered seemed annoyed that they had to learn about a new tech.
They didn't seem afraid of their jobs going away, but just were like "corporate is sending us these weird cars that need special new procedures, training and equipment."
Making a blanket statement would be wrong on a case by case basis, but I am just trying to give a general summary of what I was observing.
It is a good thing that Nissan is doing this from the top down as a commitment, otherwise I think there would be more resistance down the line.
It isn't like it was with GM (with the EV1) where they were trying to pawn off the product onto some other division, and question if the overall company was really all onboard.
The LEAFs are there in the middle of Nissan's other product lines with the same level of support expected.
As more and more LEAFs are delivered I think it will just settle in to be "just another model" that they get used to, and know how to deal with any special circumstances related to it.
Perhaps, even by now, the novelty and the apprehension is already fading at least for those dealers that have processed a good number of LEAFs by now.

 

[TEG]

And to put it another way - I think we are in for an era of co-existence, not either/or. Gas cars aren't going away tomorrow. The mix will just shift slowly over time. Too slowly for people to panic about in the short term.

 

[NigelM]

Thoughts? Plausible?

Entirely plausible.

Of course, you're also implicitly asking if Tesla's business model is the way to go? I think it is. The big issue for auto makers is not the cars themselves, it's the dealerships. Tesla (Elon?) realized early on that dealerships were not really going to work for Tesla given the generally low service levels required to support EV's. We're moving much more towards seeing a car (hopefully test driving it!:wink and then placing an order for a custom vehicle. And which of us doesn't want the car to be built exactly for us?

On a couple of specifics:

Nissan's Ghosn may have a vision for electric cars, but I'm not sure the organization he leads is really on board with it. If he ever leaves, the initiative could stall out.

The local Nissan dealer here seems to be really "on board with it", maybe it's not universal.

And why haven't they already brought out a bigger pack car (or even an option) based on the Leaf technology? No one seems to be talking about it. Somehow this 100 mile range thing seems to be the received wisdom; in my view 200 mile range is necessary for the general public to accept these cars.

I think this is where Nissan has maybe slipped up. Ghosn had the EV vision, but his marketing people are still thinking in too many niches.

My feeling from all this is the major automakers are going to have a big problem. They need to move their electric cars OUT of their regular dealers, and build new electric-only dealer networks. A separate "brand" like Saturn was. Then the only people who work there will be people who "get" it, who want the products to survive and prosper - and their jobs will depend on just that......Companies caught without a full product line of EVs will be caught with their pants around their ankles. Big players who are just dipping their toes in the water with weak products will be in big trouble.

It's easy to look at the companies in any industry that got left behind because they refused (or weren't fast enough) to adapt, but take a look at marketing strategies for those that did succeed. There are typically 2 categories of winning companies: those that developed ideas in a timely way, and those that bought the ideas (Victor Kiam anyone?)..... There are some (financially) big companies out there that will see Tesla as a prize worth paying just about any price for.

Think Tesla will never be sold? Think Zip2, PayPal.... Plausible?

 

[Doug_G]

I really don't think Elon is anywhere near done with it yet... once the Bluestar and Roadster III are launched, and the company is fully launched, maybe then he'd want to move on. Of course he doesn't need to sell out and move on; he can just become chairman and hire in a CEO to run it.

Even if it is eventually sold, once Tesla reaches that level of momentum, any buyer would have to really pooch it to bring it down. And I rather doubt that would be their plan.

Personally, I'd prefer it remain independent. Other automakers can buy their drive trains; they don't need to buy the company.

 

[NigelM]

Other automakers can buy their drive trains; they don't need to buy the company.

I beg to differ. Tesla are selling (developing) drive trains to/for Toyota and Mercedes but the product license so far restricts those companies to 100 mile range. I think Tesla did this deliberately - Why buy a Model S if you can get a Mercedes EV that will do 300 miles?

Jump forward a year from now and assume the Model S is a big success....Any of the big auto makers (not just the U.S. ones) would snap up Tesla in a heartbeat if the price is right, and some of them will be prepared to get in whatever the price. You said it Doug, it will be their future on the line.

 

[shark2k]

I beg to differ. Tesla are selling (developing) drive trains to/for Toyota and Mercedes but the product license so far restricts those companies to 100 mile range. I think Tesla did this deliberately - Why buy a Model S if you can get a Mercedes EV that will do 300 miles?

Do we really know that though? How do we know that it just isn't these companies wanting to spend more to get the longer range? Or it could just be that because they are doing a conversion getting a longer range without more compromises is (i.e., Focus EV and taking away trunk space). I just never heard that the product license is what is restricting the mile range to 100.

-Shark2k

 

[dsm363]

Can Mercedes or Toyota get around state dealership laws of prohibiting direct manufacturer ownership of dealerships by creating a sub-brand like Saturn?

 

[Joel]

Thoughts? Plausible?

Yes. This is plausible. One word sums up why: technology. Technology rips through an industry so fast it leaves us (in a very short period of time later) scratching our heads, wondering "how did we live before this." I can provide countless examples of "this" technology, but here is one: It took Apple 8 years to become the world's largest music retailer (6 years to become the largest US music retailer). The music industry was a long-established, highly concentrated industry that Apple (and others to be fair) turned on its head in less than a decade. Regardless of industry (music, entertainment, communications, defense, business productivity, etc.), technology changes so quickly, that any established industry leader should have concern when a new/viable technology enters the consumer market.

Jump forward a year from now and assume the Model S is a big success....Any of the big auto makers (not just the U.S. ones) would snap up Tesla in a heartbeat if the price is right, and some of them will be prepared to get in whatever the price. You said it Doug, it will be their future on the line.

If/when Tesla is successful over the next few years, I find it difficult to believe that someone will be able to purchase Tesla. 11 years ago many analysts thought the iPod wasn't a concern to Microsoft because MSFT had enough cash to purchase AAPL. It's difficult to value an organization that has/have a technology(ies) that revolutionize an industry. To predict the future value of Tesla is tough. But, if we're assuming TSLA is successful, it will take more than a King's ransom to buy TSLA a year from now and I don't know if Toyota, Daimler or others will be in a position to.

 

[GSP]

I think the answer is yes. The existing automakers are the best and the brightest, survivors of many brutal shakeouts that bankrupted 98% of their competitors. They have adapted to many paradigm shifts in their industry. They are masters of all the other components in the product, not just the ICE, and they are masters of production, sales, and finance. As mentioned earlier, the change to EVs will be gradual, perhaps similar to fuel injection, which was a niche for many decades.

On the other hand, EVs will be a BIG paradigm shift.

GSP

 

[qwk]

I think the answer is yes. The existing automakers are the best and the brightest, survivors of many brutal shakeouts that bankrupted 98% of their competitors. They have adapted to many paradigm shifts in their industry. They are masters of all the other components in the product, not just the ICE, and they are masters of production, sales, and finance. As mentioned earlier, the change to EVs will be gradual, perhaps similar to fuel injection, which was a niche for many decades.

On the other hand, EVs will be a BIG paradigm shift.

GSP

I hope this post is sarcastic.

When a business needs government intervention every so often to stay afloat, there is little hope.

 

[NigelM]

If/when Tesla is successful over the next few years, I find it difficult to believe that someone will be able to purchase Tesla..

Daimler saw it as a possibility which is why they have a right of first refusal.

 

[hcsharp]

... Other automakers can buy their drive trains; they don't need to buy the company.

Oh yes they do. The major automakers are terrible at innovation and developing new technology. Too big and slow. The reason Toyota bought 10% of Tesla and partnered with them for the Rav4 is because Toyota knew it would take them much longer and cost much more to develop the same car themselves. Daimler had many of the same reasons. Ghosn held an ax over everybody's head at Nissan and they still spent much more than Tesla to develop a car with less advanced technology. Once we get close to the tipping point where people won't put up with ICE cars anymore, Tesla will be a target for just the reasons you mentioned - the major automakers can't do it themselves. I agree that we're better off with Tesla being small and independent, and I fear the day when they are taken over by one of the majors. My biggest fear, to be honest, is that they will be taken over indirectly by an oil company.

 

[GSP]

I hope this post is sarcastic.

When a business needs government intervention every so often to stay afloat, there is little hope.

Sorry, it is not sarcastic. It is a very tough business. You see this of course, as you mention goverments getting involved to avoid bankruptcies. Look at the past business failures in the 20th century. Look at all the failed start-ups. Watch Th!nk and Fisker. Pure economics very likely will result in only 2 or 3 large automakers left worldwide, similar to the Boeing-Airbus duopoly. Survivors deserve credit and great respect. The bailed out ones, much less so.

GSP

 

[Eberhard]

@GSP you wrong, GM failed despite the fact being the biggest. The Quick ones may survive. But i see that new competitors comes from niches like Teslamotors, who are trying to take the business model from a new innovative approach (like tesla did).
I think the old ICE-car makers will fail, because they cannot survive the gap from the transformation ICE to Electric cars. If customers stops to buy the current gasser-models, because something total new will be ready, they may wait 2-3 year with the buy because they cannot sell the current old-fashioned car (or with a huge loss). And thousands of engineers will loose their jobs because they are no longer needed to develop new ICEs or gearboxes.
the paradigm change will comes within a few years like the change from analog to digital cameras.

 

[Joel]

Daimler saw it as a possibility which is why they have a right of first refusal.

Good point.

 

[Dan5]

I think the change will come in 10-20 years. Like many other professions and companies, some fall by the wayside and some move to different professions.
The digital camera as mentioned by Eberhard is a good example.
Another examples is the LP/cassette/CD/mp3 evolution.
Most people hold on until it is inconvenient to maintain/upgrade/costly, with EVs I think the change will come when gasoline stations and mechanics become less and less common .

With regards to current car companies and dealerships, there is too much company inertia for them to "switch gears" drastically in order to compete with the smaller upstart companies as is evidence by the marginal and weak offerings of EVs by the "big" car companies. If you take a snap shot now, the "big" companies that will make it are Nissan, Mitsubishi, and BMW. The others flat out do not have the sufficient technology expertise to design and build EVs as is evidence from their current offerings.

GM (Volt) and Toyota (PHEV Prius) are still is obsessed with having a internal combustion engine.
Toyota is getting the tech from Tesla, Diamler from BYD
Ford designed their EV and placed all the parts under the hood and in the trunk- kind of a WTF moment in terms of design.

You can't sell your product for less if you are competing against someone whose a similar product AND selling you technology to make your product

Smart money says when the smoke clears the top 5 car companies that will remain are Nissan, BMW, Tesla, Mitsubishi, and BYD

 

[dsm363]

I would think one of the Detroit 3 would survive (if only through help from Washington since they wouldn't allow the entire traditional auto industry to go under) and that would probably be Ford.

 

[richkae]

I think the change is going to happen faster than everyone thinks.
Would you buy a car that you knew you couldn't afford the fuel for before your monthly payments are done?
Oh, and it will have zero resale value when your payments are done too.

When that scenario comes to pass, the ICE auto industry implodes.
Of course, the Chinese will still be buying cars, but they won't buy our gas guzzlers in enough numbers to save our auto industry.

 

[Dan5]

I think the change is going to happen faster than everyone thinks.
Would you buy a car that you knew you couldn't afford the fuel for before your monthly payments are done?
Oh, and it will have zero resale value when your payments are done too.

When that scenario comes to pass, the ICE auto industry implodes.
Of course, the Chinese will still be buying cars, but they won't buy our gas guzzlers in enough numbers to save our auto industry.

Good point- if gas hits $6 gallon in the US, that makes the a Mitsubishi MiEV (without tax credits) cost as much as a ICE Corolla in less than a 4 year period

I really don't think any of the "big" three will make it simply because they are too big and need to sell an insane amount of cars just to break even. I think the decrease in big 3 car sales will be too slow for the government to notice, and once they do it'll be too late
I see it happening the same way the paintball industry changed there was a paradigm shift in the late 90's (going from mechanical to electronic).
Back in early 90's the highly respected paintball marker makers were AGD and WORR to the point where there were shops dedicated to modifying them, electropneumatics came along and wiped the mechanical markers out, they were just better to the point where most paintball markers are battery operated now (10% increase in price offers a huge advantage- who wouldn't take it?).

Same thing with electric cars (huge advantage for a small % price premium)