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.
What drives me absolutely bonkers is the flatly incorrect assumption that Chinese labor (or Indian labor, or the “globalism is always perfect” destination du jour) will always be cheaper than American labor. That just isn’t true. Along with economic growth comes greater expectations for wages and benefits. This exact phenomenon has been seen in India, where Indian tech workers are (naturally enough) coming to expect higher wages in return for their increased productivity and status, and the advantage in hiring Indian call center employees or similar shrinks. But you’ll never hear that sort of thing from people who say they love globalization but act like it only ever moves in one direction.
And, of course, what really chafes is the positive glee with which people greet the notion that America’s manufacturing base is going to become extinct, and along with it any hope for lives outside of poverty for uneducated American workers. It’s absolute delight, among many conservatives, at the thought of the auto industry disintegrating. Oh, they’re politic enough to pretend that they don’t feel that way, but I know joy when I see it. I’m so tired of pretending that there isn’t something in pro-globo conservatism that simply thrills to the collapse of decent wage-paying jobs for working class Americans. The adamant and enthusiastic claim that American manufacturing is going to permanently die, and along with it a way of life for uneducated Americans, is not made by people who aren’t emotionally invested in its being true, and I’ve had it with pretending that it is. You can call me shrill, I don’t care. I’ve read far, far too much celebration of the death of the auto industry masked as “telling it like it is” to be moved.
— Freddie · Dec 1, 07:59 PM · #
PC’s seem an infelicitous example. Does it mean that every car that’s not an iCar will ship with the same engine, and will be plastered with stickers announcing who made the transmission. Let’s pick a different industry model.
— Matt Frost · Dec 1, 08:13 PM · #
Arrington waves his hands at Toyota, but I think he completely neglects the real problem for his thesis, which is that Toyota makes cars in the United States. He can think vertical integration is a bad idea, but Toyota could be non-vertically integrated, while factories in the United States still make cars to sell here.
Also, the weird thing about the Apple comparison is that just a few months ago he said Apple was flailing, because, get this, it had problems with customer satisfaction. Yet now Apple is such an important model business that companies in entirely different industries have to be like Apple. In general, I think Arrington is the type of pundit who exists solely to create noise and a reaction, who just doesn’t care if he has a consistent or well-thought out view on things.
— Justin · Dec 1, 08:15 PM · #
Michael Arrington says that:
Really?
Actually Nissan, Honda and Toyota make a lot of money manufacturing cars in America. And I believe that several cars were manufactured in that low-wage mecca of Germany last year. Even the British auto industry, which has followed something like the model he prescribes, still make a lot of cars, they just don’t have have British car company names.
It’s true that over time a lower and lower proportion of the population of the US will have manufacturing jobs, but that’s a long ways from the claim made here.
— Jim Manzi · Dec 1, 08:19 PM · #
How popular are American cars overseas? They’re not anywhere near prevalent as other America goods and services are in the global marketplace.
— Ali Choudhury · Dec 1, 08:30 PM · #
Well, since we’re chafing, Freddie, what really chaps my ass is that the domestic left takes no responsibility in the departure of American manufacturing. Between the environmental regulations, unions, unfriendly governments, high taxation and an unmotivated work force, why the hell should a company locate in the US?
But maybe that’s a caricature, kind of like yours.
— Klug · Dec 1, 09:28 PM · #
And if our cars are all built in China, where will our tanks be built when we get into a war with China?
— Steve Sailer · Dec 1, 11:10 PM · #