The Apple of Autos

Why is there no iPod of cars? For one thing, as Michael Arrington notes, Apple doesn’t actually make iPods.

The best way forward for the automotive industry is to rip itself apart and start doing things sensibly, like the PC industry does. It won’t make any one company more stable, of course. In fact, it means competition will regularly drive companies at every point in the process out of business. But none of those companies will be in a position to drive our economy south if they do go out of business. Someone better will just take their place.

Does this mean our cars will be built in China? Yeah, it does. There’s no avoiding that. U.S. workers are just paid too much to build cars any more. Detroit may become the center of the car design world, with highly skilled and highly paid workers designing the iPod of cars, but the parts will be built elsewhere, and assembled elsewhere.

What does it mean to do things sensibly?

Vertical integration kills real research, because every company is doing their own work. With personal computers, every component has a vibrant and competitive market that drives innovation, quality and cost control. The big PC brands just design the final product and outsource the actual building of it.

This reminds me of an excellent business book from a years back, The Only Sustainable Edge: Why Business Strategy Depends on Productive Friction and Dynamic Specialization. Li & Fung, the supply chain managers to beat, have had an extremely hard time recently. But fundamentally the Li & Fung approach has a lot to recommend it: all subcontractors are required to have lots of other clients, the idea being that this will give the subcontractors an opportunity to learn from them. “Productive friction” — think of it as interbreeding — happens when Reihancorp picks up new tricks from Salamco that it then applies to its work with Morshedvision. This productive friction is a lot less likely if everything happens within the stultifying confines of ReihanMorshedSalamInc., a firm destined for the ash-heap of history.

Interestingly, a number of very smart people, like New America’s Barry Lynn, have expressed a lot of skepticism re: the Li & Fung model, and more broadly about a world of just-in-time supply chains. I don’t share all of their concerns, but it is certainly true, as the financial crisis reminds us, that this economic latticework can come undone pretty easily. I think the hope is that we will devise new financial instruments and production processes to mitigate these risks.