To the Editor:
"Confession's of a Capital Junkie" presented the burning platform of capital inefficiency in a compelling way but did not draw a logical conclusion. It jumped to the simple idea of industry consolidation as the only answer.
In an industry that calculates the unit cost of a nut and bolt to one-hundredth of a cent, that seems like a superficial conclusion.
There are dozens of other ways to improve capital efficiency, and everyone in the industry knows them. Let's look at a few examples:
- Globalization: Sure we have to build plants to serve local markets, and Africa will be the next big step -- but we do not need to spend $1 billion to do it. Wealthy Westerners think big, but cost-conscious Asians think much smaller and more cost-efficient.
- Top-Hat life cycle: There was a time when Mercedes, Volkswagen and Range Rover enjoyed excellent resale values based on long Top-Hat life cycles, but not anymore. Everyone is on the three-to-four-year fad. With an average American vehicle fleet age of over 11 years, why do we do that? If we aim for annual fashion parades, then manufacturing process technology must radically change to make it affordable; $1 million stamping and injection molding dies are not the solution.
- Powertrain fragmentation: This is inevitable over the next decade, but we will eventually focus on the best environmental solutions, and they will probably involve electric motors. Here we have to learn from the domestic appliance industry.
No matter what brand of washer or dryer you choose, you probably do not choose on the basis of who makes the electric motor. Global parts sharing among all automakers is fundamental for future capital efficiency. If the customer cannot see it, touch it, feel it, hear it or smell it, it probably should be globally common.
- Advanced driver assistance systems and autonomous vehicles: There are huge opportunities for big suppliers and Facebook-type valuations for companies like Mobileye. What's in it for the carmakers other than billions in lawsuits that will certainly reduce capital efficiency? Furthermore, customers do not have a clue about the technologies.
Sergio: There are lots of opportunities for capital efficiency other than industry consolidation.
ALAN D. MARTIN