

What to do about Detroit. - ph0rque
http://sethgodin.typepad.com/seths_blog/2008/11/what-to-do-abou.html

======
mixmax
This is ridiculous.

 _I was in Detroit last week... I have family there. I also drive a car. And I
would rather that the world doesn't melt and the economy thrive. So I'm
uniquely qualified to weigh in on the automobile industry._

Which would make me uniquely qualified to weigh in on the intricasies of
modern farming since I have family that lives on a farm, went there last week
and use dairy products on a regular basis.

On a more serious note, there are some basic economic insights that Seth seems
to have completely missed: Some industries are skewed towards a scattered
market with a lot of small players. Others are skewed toward a few large
players. One of the main factors involved in this is fixed cost vs. variable
cost. The automative industry has enormous fixed costs that it has to incur
before it has a product that is ready to sell. This is true even if there are
suppliers that can deliver most of the parts. Safety regulations alone costs
hundreds of million for each model. This fixed cost has to be spread out
across however many cars you sell. This is why some industries, such as the
automative, semiconductor and aeronautics industries, have a few large
players. If you only sell 1000 cars your fixed cost would be a prohibitively
high percentage of the final price of the car. So there are a few large
players because there are significant advantages to economies of scale.

Other industries, like carpenting, consulting and software don't have high
fixed costs before they can go out and sell a product. Which is why there are
a lot of small players in these markets.

Seth should stick to marketing.

~~~
oldgregg
Good point on industry dynamics, but I'm pretty sure he was being tongue in
cheek.

~~~
mixmax
you're most probably right, I just got pretty pissed at reading such a broad
sweeping post by a guy that has no idea what he is talking about.

Guess it shows :-)

------
rewind
"I'd spend a billion dollars to make the creation of a car company turnkey.
Make it easy to get all the safety and regulatory approvals... as easy to
start a car company as it is to start a web company."

If it is ever as easy to start a car company as it is to start a Web company,
then something is wrong. People can't drive their browsers into each other at
100MPH.

Also, there is no problem with the idea of big car companies. Big companies
have increasing economies of scale and can offer significant savings to
consumers. A poorly-run big company is a problem, not the size of the company
itself.

~~~
potatolicious
And this is why hackers should not make comments on mechanical and electrical
engineering. Especially web hackers - who have absolutely no regulatory (nor
moral, usually) concerns when it comes to the safety and reliability of their
products.

I consider myself a hacker, but I am a mechanical engineer by training. I've
worked in car plants, and I think I'm much more uniquely qualified to speak on
this subject than the blog author.

People do not comprehend the kind of cash that a car company needs (and
_should need_ ) to get into the market. Let me detail the process of producing
your car's _radiator motor_ (just the motor!):

\- Come up with your awesome motor design (doesn't cost a lot, assuming you
and your fellow startup partners are good engineers)

\- Draft your designs (draftsmen around here are unionized, and paid a great
deal for their work)

\- Build a proof of concept. In fact, build several (requires access to a very
extensive machine shop, and unless your founders are all exceptionally
talented machinists, you have to pay unionized labour more money to get this
done)

\- Now build several hundred more prototypes. These will go through
performance and reliability testing. This will require access to heat testing
chambers, sound testing labs, strength testing machinery... you name it. Each
of these labs can't really be rented, and cost tens of millions to build and
staff. Each piece of equipment needs to be certified by the relevant safety
and regulatory body ($$$), and you'll need several people on board full time
just to document everything to the minutae required by the same bodies ($$$).
Do you know how much a certified laser micrometer costs?

And that's just to get your _first working prototype_. You're already probably
8-digits invested by this point, and you haven't even yet built out the
necessary infrastructure to mass produce your product. By the way, casting a
mould for a single part (e.g. your motor casing) costs $200-300K by itself, so
moving towards production is not cheap either.

 _Now_ multiply that by the tens of thousands of parts in your car.

People (especially software types) simply do not appreciate the sheer,
ridiculous amount of effort (and money) it takes to keep them safe. This is
also why I'm always wary of cheap goods, because I have seen first hand the
difference between well-designed, properly tested products vs. not.

The car industry can never move back towards a tiny-startup model. Sure, there
may be room for smaller players, but "thousands of startups" like the web
model will never fly, unless you enjoy having your wheels fly off the axle as
you drive.

~~~
paddy_m
I'm not disagreeing with you, but what about F1. F1 is the most expensive form
of motorsport, yet every year, every team builds a completely new chassis, and
models to compete in the next season. F1 cars have to go through destructive
crash testing too. It costs anywhere from $60M to $400M a year to run an F1
team. They are building highly complex machines with carbon fiber and exotic
metals. If they can do it efficiently on smaller budgets (look at the smaller
teams especially, Force India, Williams, Scaudro Toro Rosso, Super Aguri), how
different would it be to build a car prototype out of metal using conventional
construction?

~~~
potatolicious
The main differences are that:

\- A 1% failure rate on an F1 car may in fact be considered acceptable, but
completely insane in a production car that may sell millions of units a year.
F1 drivers, despite all that we can do, also accept a much higher level of
personal risk than most other everyday drives.

\- F1 cars only have to worry about a single passenger, and due to the
controlled nature of the race a more limited number of failure modes... which
is to say the scope size of the problem is significantly reduced - and
designing for F1 is already non-trivial!

\- Carbon fiber is almost impossible to work with on a mass production basis -
the nature of the material prevents high-precision parts from being made,
which is hell on a production line, but easier when you're hand-building
everything

And you're right - it's entirely possible for a limited-size team to build a
car from scratch - assuming they had all the parts as it is. It's entirely
_impossible_ for them to attempt to build the drive train, engine, all panels,
structural parts, suspension, etc etc, from scratch. It's also very difficult
for them to afford the sort of testing required to get this car to market.

------
patrickg-zill
He is right about the effect all those regulations have on innovation. I
remember too, about 10 years ago talking with some programmers from a major
car company, they had to fill out 17 pages of documentation in order to change
a few lines of code in their system.

~~~
potatolicious
And this is precisely the way it should be. Everything when it comes to cars
has to be meticulously documented.

You reduce the diameter of that bolt by 0.01", thinking it'll save the company
some money, and be strong enough to do its job, and somebody will later come,
assuming the bolts weren't changed, and put more load on it. And then one will
snap, resulting in a horrific crash that kills everyone in the car. And then
the company gets sued, and pays out millions in compensation, not to mention
the guilt of having shoddy engineering kill someone.

Code is no less capable of killing innocent people.

You might think that this sort of bureaucracy stifles innovation, or reduces
your productivity - but the fact of the matter is that it _saves lives_ , not
to mention documents proper liability, etc etc.

~~~
Prrometheus
I would like to see a cost/benefit study of such onerous regulation. "It saves
lives" is a cop out justification the same way "for the children" is. Costs.
Benefits. Calculate you some, or get out of the way.

~~~
noonespecial
It so true though, that it bears nearly continuous repeating. As a society, we
have to make a choice. How many fatalities are we willing to accept per
million vehicle miles? The answer can't be zero unless we want no cars at all.
The _onerous regulations_ are how we as a society choose that number. Are the
regulation always efficient? No. But they are how we choose.

Its also important to remember that other counties and peoples with different
world views will have radically different conceptions as to what this
acceptable number is.

------
tom_rath
If you have thousands of cars from hundreds of car companies your local garage
will have parts for a dozen of them.

There are products which lend themselves to 'the long tail'. The repeated
failure of niche brands like DeLorean and Bricklin may indicate that cars are
not among them.

------
bsaunder
I agree completely! Spend money encouraging innovation and solving tomorrows
problems, not keeping the existing oligarchies on life support. Congress
should be considering investments and negotiating term sheets like VCs (but
they won't).

~~~
newt0311
Wrong. Congress shouldn't be investing at all. Seriously, the returns when
congress invests and when private investors invest are so drastically far
apart that I am continuously left wondering how congress can convince voters
to let it continue.

~~~
DaniFong
Well, there is one way around that; let congress invest in VC's with
historically high returns, but don't let them place the onerous restrictions
on the money that usually surrounds public funds (labor laws, oversight,
documentation through the ying-yang), instead merely restricting to an area of
investment.

~~~
newt0311
Better option: Reduce taxes so that money can be invested _by the people who
earned it._ Radical huh.

~~~
DaniFong
You'd also have to reduce qualified investor laws.

And honestly, reducing taxes _even further_ in this crises doesn't strike me
as a reasonable way to handle a global credit crunch...

~~~
newt0311
You don't need to be a qualified investor to invest in the general economy.
Banks, mutual funds, and a dozen other easily accessible instruments willingly
do that for you.

As for reduced taxes, I would argue that it seems like the ideal way to combat
a global credit crunch. The government has the lowest cost of capital and the
lowest default rate (at least the US govt. does). Thus it would be more
efficient to leave the extra capital with private citizens and use deficit
spending. Of course it would even more efficient to just not have the federal
govt. spend as much but then its not like hell is about to freeze over anytime
soon.

------
ph0rque
I know Seth Godin often gets bashed on HN for lack of insight, but I think
this post is surprisingly insightful.

~~~
potatolicious
Insightful to the layman, but to any (traditional) engineer worth his salt
it's just crazy talk.

~~~
ph0rque
I consider myself a traditional engineer, at least a traditional 21st century
engineer... by insightful, I meant the "food for thought" insightful.

------
thomasmallen
Gee, we're sure fortunate to have the sage Mr. Godin to lead us in this fog of
uncertainty. His decades of experience in marketing will surely guide us
through this industrial misfortune.

Opinions are like assholes...no, right now opinions about the economy are like
assholes...

------
lutorm
Whether or not he knows what he's talking about, he didn't mention the _other_
advantage of having a more diversified gallery of manufacturers: none of them
would be "too big to fail". Yeah, there's economy of scale, but that has to be
weighed against putting all our (collective economy's) eggs in a few baskets.

------
ram1024
uhm. is he saying he wants to buy a car that's surprisingly innovative with
its heated wing mirrors but lacks another company's life saving side collision
impact distribution lattice?

these 1000 car companies all made innovations that COLLECTIVELY would make 1
decent car. why the hell would you want to buy a car with 1 or 2 of these
critical features? eventually as a market settles, desirable features are
consolidated, it's the reason why we don't have 1000 companies making PC
operating systems and browsers...

~~~
jaf656s
You might not, but maybe some people would. That's where innovation comes in:
finding a mix of features so people choose what is important to them at
different price points. What doesn't work doesn't sell, and then back to the
drawing board. Many people drive motorcycles, after all.

What would be interesting would be if alt-energy cars were classified as a
different type of motor vehicle, with a relaxed set of regulations. This would
allow for new companies to make them, and for established companies to make
them cheaper. Then after the market is established, and many companies have
innovated in the industry, then slowly ratchet up the regulations on them.
Just a thought.

~~~
ram1024
it just seems to me that he's trying to re-evolution something that has
already evolved.

i'm just saying, evolving further is more attractive than declaring this
lineage a failure and going back to knuckledragging. it feels like when these
a-hole anarchists think society would be better off if everyone had to defend
their property with shotguns instead of having the system of law enforcement
and crime-science we have now.

