Why the auto industry needs to slow down

I'd like to offer a bit of counterintuitive thinking, at least in terms of technology.

Here it is: The auto industry needs to slow down.

We have arrived at a point where the pace of technological advancement -- how fast automakers and suppliers can make their products better -- has vastly outstripped their own manufacturing abilities to keep up.

This all looks great on paper. After all, how does an executive who wants to keep his or her job say no to a vehicle with the latest advances in safety, performance, handling, connectivity, fuel economy -- really anything that makes tomorrow's cars, pickups and SUVs better than today's?

"Throw in the kitchen sink," says the executive, "and it will help me win market share from my competitor."

So next year's planned minor refresh becomes a billion dollar re-engineering of an entire platform. And, yes, the re-engineered vehicle becomes incrementally more popular when it's introduced, but at what cost?

The planned minor refresh was needed to help amortize the development costs of the original, unimproved vehicle over a longer time frame. But now the executive has added new development costs halfway through the life cycle and has to amortize the cost of the new technology over a shorter run of remaining vehicles by either raising prices or reducing profits.

No matter how the executive chooses to pay for the improvements, he's likely to lose sight of the fact that today's latest-and-greatest technology will become tomorrow's obsolescence. It is the nature of the beast, especially in a dynamic technological environment like the auto industry is concerned.

There are cautionary lessons to be learned in this regard from the makers of personal computers and cellphones.

Such was the pace of technological advancement in these products that, for a while, they had an effective shelf life of maybe months before obsolescence destroyed their value. That caused consumers to stay on the sidelines and wait until they had no choice but to buy, knowing that their electronics would lose value as soon as they made the purchase.

But consumers don't have the financial wherewithal to play catch-up with automobiles like they did with PCs and cellphones. And automakers don't have the profits to toss away millions of dollars in development costs each time engineers make an incremental advancement.

The auto industry must find the discipline to stick to planned product intervention schedules or risk sacrificing their profitability by chasing tomorrow's latest and greatest advancement.

You can reach Larry P. Vellequette at lvellequette@crain.com -- Follow Larry P. on Twitter: @LarryVellequett

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