Business, Innovation

Detroit Dilemma

11.22.08 | 1 Comment

This week has been stunningly busy, meaning I found it difficult to keep up with first-order responsibilities, let alone first-order obsessions like blogging. Things are starting to lighten up a bit now and I expect to get back to a more regular rhythm of publishing.

Ford’s River Rouge Plant
River Rouge plant, Ford Motor Company

One of the events I’ve been dying to comment upon is the mess in Detroit. The injury is 100% self-inflicted; here is some evidence: Ford won’t sell 65 mpg vehicle in the US.

Yes, the economy is bad. People are still buying things they need and value. What Detroit (as a proxy for GM, Ford, and Chrysler) needs to understand is that consumers neither need nor value their product. That means when the economy turns down, as a discretionary purchase, sales will plummet even more dramatically than their competitors.

Much attention is being paid to cost structure and practices of the auto manufacturers, yes, those need some work. But the crux of the matter is, US manufacturers aren’t producing products the consumer needs and values. Without solving that problem, the cost structure matters only in that it prolongs the slow and painful death of the industry.

Core to this whole situation is a mindset and attitude. While I don’t particularly think the grandstanding around “How did you get to this hearing? In a private jet?” is useful or particularly relevant to the core facts, it is a symptom of a deeper problem.

Imagine that you would like to secure a large sum of money from potential investors, say a $25B loan. Now, imagine that you’re going to be in a public setting where the decision makers will hear the relative merits of the case to provide you the funding. Now, imagine that you show up and your core argument is “I need the money so I don’t go broke – and you don’t want me to go broke because it will affect 10x as many people as just me.” There’s a certain hubris in that assumption that money will be handed over simply because you need it.

As a decision maker for a loan or investment, I’d like to know how the money will be used to create a viable, competitive, and sustainable business that will benefit 10x the number of people who receive the direct funding. Can you imagine any other business going to request money, having flown in on private jets, without any apparent business plan? What’s even more disturbing in some ways is once challenged about the lack of such a plan, they agreed to come back in a couple of weeks with one. If it is so easy to do, why didn’t they come armed in the first place?

This tells me we’ve got a bunch of chuckleheads running Detroit. At least on the Wall Street meltdown there was an investment and return thesis, however flawed it appears to have been in hindsight. These jokers have an attitude of entitlement, are risk averse, and don’t even understand core business tenets sufficiently to know that you show up looking for funding with a business plan!

As much as it hurts to type this sentence, I’m going to follow through. Detroit needs to die. The current instantiation of the auto industry cannot be evolved to the new footing that is required to be competitive in the 21st century. I hope that from the ashes a more responsive, customer-centered, business minded, set of leaders who have the chutzpah to take calculated risk. We shouldn’t fund their continued deterioration. If there’s a compelling business case that can take advantage of their infrastructure, workforce, and brands, then we should consider funding it – provided new, non-chucklehead leadership will take it forward.

1 Comment