GM and Chrysler have laid out their restructuring plans and the car mini-czar, Ron Bloom – recently appointed as Senior Adviser in the Treasury Department, is settling in. The plans call for cutting production, cutting jobs and otherwise downsizing. One of the actions will be for GM to spin off or eliminate the Saturn brand. As I’ve written before, spinning off Saturn is the best course – not eliminating it. Saturn was an experiment in re-designing the industry, which GM never fully backed. I hope there is a far-sighted group of investors out there (they must be far-sighted if they are sitting with enough cash to pull this off right now) who can take over Saturn and make the concept work. The industry – and the US – would be stronger as a result. And the Treasury Department should facilitate that transaction.
A stand-alone Saturn would be one innovation to help the industry and economy. More importantly is the broader set of new products. In a letter to stakeholders, Chrysler CEO Robert Nardelli outlined some of his near term innovation objectives:
• More fuel-efficient powertrains such as the all-new Phoenix V-6 engine
• Gas-electric hybrid technology such as the two-mode hybrid system that will be available on Dodge Ram next year
• The electric-drive program developed by our ENVI group, with the first electric-drive vehicle coming in 2010 and other vehicles to follow
• A changing portfolio mix that will include more small, fuel-efficient vehicles
This is all fine and well — but it only begins to touch upon the massive shift about to occur in the industry. Ever since the internal combustion engine became dominate, the key to success in the auto industry has been control of the drive train technology. Companies that controlled this key element — engine, transmission and differential — reaped the highest value added.
Now that might be changing as transportation technology is changing. Electric motors and battery technology are coming to the fore as the key value added components. Batteries have not been a strength of the US auto industry.
As the Washington Post pointed out in its coverage of the Washington auto show
last earlier this month:
The auto industry has placed its bets on lithium-ion batteries. The batteries are already under the hoods of many of the concept cars at the auto show.
But, while lithium-ion technology is widely used in laptops and cellphones, it has taken years for it to be tested and vetted for use in automobiles. As a result, Asian companies specializing in consumer electronics, such as Panasonic, have significant leads, analysts said. LG Chem beat out A123 Systems of Watertown, Mass., for GM’s battery partnership.
Note that Bolivia is a major source of lithium.
It is not as if the industry and policy makers don’t understand the challenge. As Michigan Senator Carl Levin said last month:
Because the heart of these green cars will be their batteries. As the nation makes a serious push toward greater use of hybrid electric, plug-in hybrid vehicles, and all-electric vehicles, there will be increasing demand for the advanced batteries that will power these vehicles. We must ensure that we can meet the demand for production of these batteries here in the U.S.
The stimulus package includes funds for battery research (see story in Technology Review).
The trick however is not just research but, as Senator Levin said, production. As I noted before, the industry has formed an National Alliance for Advanced Transportation Battery Cell Manufacture. If that group is to make a difference, it will need to move far beyond the research agenda and look toward actual US-based production. That is different from the Semitech model that the group’s founders point to.
It should be noted that the switch to fully electric cars (rather than hybrids) will require a shift in the infrastructure. Hybrids can use much of the gasoline fuel delivery system – fully electric require a different system. Clayton Christiansen devoted a chapter to electric cars as a disruptive technology in his path-breaking book, The Innovators Dilemma. While the market dynamics have changed since he wrote the book in 1997, some of the key elements of his analysis remain.
So the change over is not be easy. Nor is it assured that the current players will remain (if Christiansen is right, they most certainly will not). At some point, the government’s new auto industry task force will have to decide what its mission is: creating a new industry or mitigating the effect of the demise of the old industry. It can do both if it understands the watchword is change. If it simply tries to save the existing industry, it will only fail. True industrial policy is transformative; defensive industrial policy doesn’t work.