Here's the deal: You give me $25,000, and I'll pay you $50 a month for a long time.
That deal is crazy, right? You would never even cover your interest payment at that rate.
Well, that idea was launched at last week's automotive electronics extravaganza in Detroit, Convergence 2000. And the media and others took it seriously. Why?
It was put forward by one of the emperors of the new economy, Scott McNealy, chairman and CEO of Sun Microsystems Inc.
McNealy, son of former American Motors sales executive Bill McNealy, told the assembled automotive engineers and executives that automotive companies should think about giving away the car so they can capture the revenue stream of Internet access, entertainment and all that good stuff. Think of it as the cellular phone business, he said: The service provider gives away the phone to get the monthly service bill.
McNealy may not have been 100 percent serious. But because he's an emperor, his audience took him seriously. Alas, the emperor is as naked as a jaybird.
This notion of car-as-cell-phone might make it into popular mythology, like the possibly apocryphal quote attributed to Bill Gates: 'If General Motors had kept up with technology like the computer industry has, we would all be driving $25 cars that do 1,000 miles to the gallon!'
This led to the equally famous response: 'If GM had developed technology like Microsoft's, we would all be driving cars with the following characteristics:
'1. For no reason at all, your car would crash twice a day.
'2. Every time they repainted the lines on the road, you would have to buy a new car,' and on and on.
Said McNealy: 'In our view, the automobile is nothing but a Java browser with wheels.' (Note to General Motors: Think twice before hiring Scott McNealy as a brand manager.)
To keep McNealy's ideas out of popular wisdom, let's return to reality.
A little plastic cell phone is no Jeep Grand Cherokee or BMW 540. It's not even a Chevy Cavalier.
For those who can't tell the difference, here's a primer:
The chief reason most people buy cars is to get from here to there, sometimes in style, sometimes not. That's a car's intrinsic value, not as a platform for Internet access and satellite radio.
A cell phone has no value apart from delivering information services.
A car costs $20,000 or $30,000. A cell phone may cost a few hundred bucks. Do the math on financing $20,000 at 10 percent. You'll need a monthly payment of about $165 just to cover your interest payment. You don't collect anything for Internet, phone, radio, navigation or other services till the 167th dollar, and the consumer isn't going to do that. UBS Warburg recently concluded that few customers ultimately will pay more than $15 a month for telematics services.
It is true that auto companies are trying to capture more of the downstream revenue, just as they now capture some of the retail financing revenue. But assuming an extra $15 or even $50 a month from half of the owners of your cars, it's still a pittance compared to the price and financing of the car itself.
GIVE THEM COOL CARS
At last January's Detroit auto show, Ford Motor Co. showed some homely cars that demonstrated all the cool computer hookups you could stuff into a car. Unfortunately for Ford, the people wanted to see cool cars. Cars matter to people, bring them joy and romance. Cars help some people define themselves.
Ford's new Thunderbird is no browser on wheels.
Well, too many in the auto industry suffer an inferiority complex relative to the Silicon people. So they politely took in McNealy's cosmic insight from the West Coast.
But even if cars weren't also dream machines, the first two weeks in Econ 101 should show the bald fallacy of the proposal.
Coincidentally, the day after McNealy's speech, I got some junk mail from Worldcom Wireless, identifying me as 'among a select few chosen' to get a $135 cell phone for just $39.95, in exchange for signing up for an expensive per-minute phone plan. If they had offered me a PT Cruiser, I'd have snapped up the deal.
Let's not let the car-as-cell-phone analogy slip into automotive mythology.
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