An interview with Ossi Oikarinen, Technical Director at Team Rosberg, a 30-year veteran of motorsport, Formula One TV presenter and deep insider.
We cover Formula One and DTM touring car racing from the point of view of business models, jobs to be done and technical innovations. We touch on many other fine points.
This is a good one.
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On continental road trips, joys of rear wheel drive, diesel engines and autobahn speeds, pilgrimage to Porsche and BMW’s brand meccas.
How to understand the world through toy cars, from Matchbox to Hot Wheels, Siku, Majorette to Tomica.
Jim returns to the business of car distribution with an Alfred Sloan quote:
“Between 1923–29 the leveling of demand for new cars logically resulted in a change of emphasis in the industry from production to distribution. On the sales end that meant a change from easy selling to hard selling. Dealer problems of an entirely new nature began to arise.”
We consider car dealer data and discuss the “channel stuffing” origins of state franchise regulation. Horace reminds us that the current auto industry is constructed around production and distribution.
We close by reflecting on Apple’s routing around now defunct computer retail channels via its highly successful stores, just 13 years ago.
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Notes:
Hot Wheels Majorette Matchbox Solido Tomica
NADA: 2013 State of the Industry Report
WardsAuto 2014 US “MegaDealer 100”
Francine Lafontaine and Fiona Scott Morton: State Franchise Laws, Dealer Terminations, and the Auto Crisis.
(Inventory) is “fundamentally evil,” and he has been known to observe that it declines in value by 1% to 2% a week in normal times, faster in tough times like the present.
“You kind of want to manage it like you’re in the dairy business,” he has said. “If it gets past its freshness date, you have a problem.” This logistical discipline has given Apple inventory management comparable with Dell’s, then as now the gold standard for computer-manufacturing efficiency.
Jim shares the joys of two recent rural road trips. The changing landscape, from discarded bank buildings and big box stores to a lack of traffic on these roads offers an opportunity to reflect on the atrophying auto eco-system.
Horace notes the behavior changes leading to reduced use of autos. Alternatives, including bicycles, public transport, walking and car sharing services can be used to move atoms in a more efficient and environmentally friendly manner.
Jim reflects on Ford’s $1,500,000 facility subsidy to a small town car dealership – in a community that lacks a grocery or clothing store. Perhaps the growing American use of “subprime” auto loans to “move the metal” explains the bricks and mortar strategy.
Horace counters that people are figuring out ways to get things done without moving atoms.
We marvel – again – at the industry’s glacial pace of change and contrast the auto industry’s tiny volumes to smartphones and personal computers.
We conclude with a look at today’s youth culture and consider the sense that driving is for old people.
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Notes:
Why do we need a new gas tax? Wisconsin DOT Counter DOT
Small towns may have no grocery or clothing store but a car dealership
American subprime lending is back on the road
From time to time at Asymcar, we have discussed the Henry Ford production system, made plain via River Rouge.
“In 1932 Edsel Ford, the son of Henry Ford and president of the car company that bears the family name, and William Valentiner, the director of the Detroit Institute of Arts, commissioned Rivera to paint two murals for the museum’s Garden Court.
Soon thereafter Rivera and his wife, painter Frida Kahlo, arrived in Detroit and began studying and photographing the Ford automotive plant on the Rouge River. The factory so fascinated and inspired Rivera that he soon suggested painting all four walls of the Garden Court. Ford and Valentier agreed and soon Rivera’s commission was expanded.”
Don Gonyea: Detroit Industry: The Murals of Diego Rivera
Diego Rivera’s Detroit Industry Murals
Wikipedia: Detroit Industry Murals.
A Detroit visitor will enjoy a slow walk through the Institute of Arts and nearby Greenfield Village.
The emerging electric car supply chain looks rather different.
We explore the strategic and tactical considerations behind BMW’s i sub-brand. Why did BMW attach a new BMW sub-brand to a new powertrain rather than using another brand, like Mini? The answer helps explain how innovations and brands inter-relate and how incumbents can attempt to absorb what is potentially non-sustaining.
We consider the pros and cons of innovation within an operating business – “intrepreneurship” – compared with creating an autonomous enterprise for the “new new thing”. Horace contrasts BMW i with General Motors’ failed Saturn experiment and notes that today, GM offers a mainstream plug-in car through the long serving Chevrolet brand and sales channel.
We consider the burden that regulation, girth, cycle times, legacy practices, financialization and strategy taxes place on incumbents.
Finally, we look at what it takes to cross over the line which separates the device-based nice-to-have infotainment options from the must-have driver and ownership assistants that will inevitably find home in these devices.
Long bets have always fascinated me.
I considered BMW’s long bet while driving the i3 recently. The car’s dynamics such as acceleration and handling are in a different league from the Prius, which I have sampled as a rental and taxi mule. Crucially, BMW has preserved their traditional 50/50 weight distribution. The car seemed to be well built, though it does exhibit a few “1.0” indicators *.
That said, I applaud BMW for making two long product bets:
1. Composites: SAE International and Composite world’s look at the i3 are worth reading.
2. Modular construction: “Life” and “Drive” modules and production process videos: part 1, 2 and 3.
The conception, gestation and launch of BMW’s i models (i3 and i8 have been announced) represents a rather radical change in design and manufacturing from the legacy 1,2,3,4,5,6,7, M and X models. Such initiatives require consistent leadership, vision, great people, capital and ultimately a successful business model.
The transition to modular cars and changing customer experiences will not be simple for the traditional manufacturers.
Asymcar 10 discussed some of the challenges associated with endless line extension (see “BMW Tosses Salesmen for ‘Geniuses’: “Impatient with 20th Century Dealerships”, “physical environment is not capable of handling the product portfolio”) as illustrated below:
Much as the Apple Store redefined the retail experience, Tesla’s direct sales model and the looming growth of car sharing services will ultimately force BMW and others to rethink their traditional dealer franchise business. That is a tall task. That said, some traditional dealers may see the writing on the wall, particularly the implications for their service and parts revenues that simplified e-vehicles hold.
Perhaps it was the Prius that spurred BMW to launch the i models. Maybe Tesla. Possibly cultural changes such as the growing organic food movement, urbanization and the decline in driving. Nevertheless, the scope and scale of the i project is impressive.
* My 1.0 notes (and I do not wish to minimize in any way the technical achievements represented by the i3, particularly the production process):
I did not have an opportunity to try the i3’s iPhone (and Google Play) app. Ideally, the owner should be able to operate all aspects of the car (short of driving) from the app. Further, the “owner” should be able to download the entire driving and service experience and share that with potential buyers along with service representatives.
I’ll digress a bit and suggest that auto manufacturers will rue the day that they decided not to make software experience a core competency. I am not suggesting the the car companies do it all, rather that they focus on the essentials and make the owner’s experience paramount. The software, or metadata interface is the likely path into the game for car sharing and other value extraction services. (see also Ford said to drop Microsoft for Blackberry’s QNX)
BMW’s iDrive joins the i3 party. The interior materials and finish are nicely done and I found the front and back entry/exit door design to be interesting. I then turned my attention to the driver interface.
One can imagine the planning meetings where a variety of interior experience scenarios were discussed, fought, battled and likely not settled. Ulimately, BMW’s iDrive made the cut, perhaps with blood on the floor, which meant bringing along nearly 15 years worth of evolution (some might say “technical debt“) along with a return to more interface buttons. That just does not seem to fit the i3 ethos, particularly in a car that broke the BMW exterior styling mode. Compare the Tesla Model S (admittedly more money) approach (image) and the i3 (image).
I would not be surprised to see a radical change in the 2.0 release.
Skeuomorphism (wikipedia):
The introduction of a “new new thing” presents the creator with a choice, “burn the ships” or bring along some of what users might have known before. In the i3’s case, I found two choices interesting and perhaps unsurprising.
1. The energy input location mimics legacy petrol and diesel cars.
2. Two driver pedals: an accelerator and brake. The accelerator pedal worked well accelerating and braking. (Tesla discussion)
Watching this long bet (7MB PDF) play out will be fascinating and fun.
** Those interested in learning more about the GM EV1 will find Asymcar 8 interesting.
The orthodox vs. the unorthodox: Tata, Tesla and Toyota. Why might an asymmetric competitor lose and a symmetric competitor win?
We begin with Tesla and Apple. We continue with aluminum vehicles and re-visit information asymmetry as Horace exploits it to buy a Mercedes on eBay.
We talk about car APIs (Aux input jack and ODBII).
Jim muses on the risks used car buyers face from eye-watering transmission costs to the parallels between iPhone mules and American citizens recently prosecuted for flipping new German cars to buyers in mainland China.
A brief discussion considers the perils of endless line extension up and down the market, perhaps fueled by financialization.
We close by considering the track record and business models of recent “disruptive” entrants from Toyota’s Prius to Tesla and the Renault (Dacia) Logan.
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Notes:
Horace and Jim discuss shopping online for used cars and how and why the value of cars disappears so quickly. The conversation drifts into information asymmetry, the declining interest in auto maintenance and the perpetual closed-loop auto information model. We hypothesize on the impact of the coming self-monitoring and awareness of the lives of vehicles. Finally we ask whether the dysfunction in the industry is the cause or the effect of the ancient integrated factory model and the sustaining auto eco-system incentives that impede transformation.
Finally, we note Gordon Murray’s iStream vision and the deal with Yamaha.
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Notes:
via ALG’s Brand Pricing Score,”depreciation ranking” and 14th annual residual value awards.
KBB Best Brands 2014.
US used car retailer Carmax annual reports and KMX stock information: bloomberg google.
The Market for ‘Lemons’: Quality Uncertainty and the Market Mechanism. Wikipedia. bing duckduckgo google
Tap or click for a larger version. Data via @thebenpulman.
Quite a change from what was once a pure sports car company. Presumably, the trend will continue as the Macan “Life, intensified” looms.
Might Apple’s fashion hiring (YSL and Burberry) or Virginia Postrel’s “The Substance of Style” inform our analysis of the results illustrated above?
Richard Marks, a battle-hardened veteran of the electric vehicle wars, joins Horace and Jim in Asymcar 8.
Our exploration considers the lessons of General Motors’ EV1 and subsequent conversion initiatives. We charge into the organizational, distribution and regulatory dynamics that sustain the long-serving Henry Ford production system. We reflect a bit on Tesla’s use of this century old production model.
Richard galvanizes the conversation with a description of his EcoV concept. The disruptive potential of its modular design, impressive economics and off the shelf components sparks a look at potential urban markets, from delivery vehicles to car sharing services.
We close with a discussion of the investment and distribution climate for disruptive vehicles such as the EcoV.
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