Insanely Great

I, Cringely . The Pulpit | PBS

Looking for improved business models for the personal computer business, Apple CEO Steve Jobs often used to cite automobile makers, though never American car companies. The examples were invariably German. Whether it was the design aesthetic of his Mercedes sedan or Porsche's success at selling high-margin cars as entertainment devices, Jobs could always point to farfegnugen as a way to sell a good car for a great price. So since he thinks about these things anyway, and because the U.S. automobile industry is on the skids and begging for help this week, I find myself wondering what would happen if Steve Jobs were put in charge of any of the Big Three car companies?

It wouldn't be boring, that's for sure, and I'm fairly certain Steve could do a better job than the Detroit executives currently in charge.

When Steve Jobs returned to Apple in 1997, the computer company was in worse shape than some of these car companies. Apple's share price was in the toilet, it had poorly conceived products it couldn't sell, the company was losing money, market share was dismal, and CEOs from John Sculley on had tried without success to find ANY company that would buy Apple. Steve himself had such low expectations for Apple under Gil Amelio that he sold all his new Apple shares shortly after Apple bought his NeXT Computer.

What a difference a decade makes. Today Apple and Jobs are at the top of their game, taking market share from other computer companies while at the same time establishing game-changing new product concepts like the iPod and iPhone. Apple is America's largest music seller (who could have seen that one coming back in '97? Nobody), has no debt, and $22+ billion in the bank. Even at its currently depressed stock price, Apple is worth more than any of the car companies and for good reason: Apple has a future.

What did Jobs do to make Apple such a business success and how would he translate these techniques to a car company? It's not really that hard to imagine.

Back in 1997 Apple had a huge list of products it made or sold, many of them not for a profit. Here is a partial list of Apple products from 1997 courtesy of my friend Orrin, who brought this idea to my attention:

PowerBook
Quadra
Performa
Power Macintosh
Workgroup and network servers LaserWriter laser printers
StyleWriter inkjet printers
Newton PDAs
Displays
External disk drives
Modems
Scanners
Lots of software

And don't forget the Mac clones. Jobs killed the clones, dropped the Newton, and streamlined the Mac product line into what today are four ranges of computers -- personal and professional, desktop and portable. Yes, there are the Mac Mini and the xServe, I know, but nearly all Apple computer sales lie with the MacBooks, MacBook Pros, iMacs and Mac Pros.

Apple quit the printer business entirely and, over time, got out of the business of manufacturing its own computers at all.

The decisions Steve Jobs made in 1997 were that Apple's core competence was in making computers and its future then lay with graphics and desktop publishing professionals who loved the products. While these conclusions may seem obvious, they weren't reflected in the Apple product line at the time. Steve knew the value he had in his product development team, too, which was a clear difference between he and Sculley, Spindler, and Amelio, all of whom had come in varying degrees under the sway of the diabolical product development chief Jean-Louis Gassee.

One advantage of my having written about this industry since dinosaurs roamed the earth is that there are columns about Apple in my archive dating from 1997 that give a sense of what the company, its products and lack of leadership were like at the time. Read them: they are in this week's links. They give a sobering look at how bad things were and show an eery resemblance to the positions of the automakers today.

Look at the American car companies with their many brands that often compete with each other within a single company. It's bad enough competing with Chrysler and GM, but why should Ford be competing with itself? There has been some streamlining over the years (goodbye Plymouth and Oldsmobile) but not enough. There are simply too many models chasing too few buyers. So long Mercury.

The first lesson Jobs learned was that he couldn't build a successful company selling products at a loss. While we can argue that Apple prices are higher than they might be, nobody can argue with Apple's quality or its success at selling those products. So the first thing Jobs would do as head of a U.S. car company would be to eliminate the lines that are showing -- and have long shown -- little or no profit, which today generally means the biggest and the smallest cars. Goodbye Hummer.

Honda is an archetype for this sort of marketing, having a limited line of cars with nothing down at the bottom fighting it out with Kia and Hyundai. A Honda Fit may be inexpensive but it isn't cheap.

There is a lot of conventional wisdom at work in the car business and some of it is completely outmoded. Why, for example, is it so important to have a complete line of cars for every customer age and financial circumstance? That made good sense at a time when America was being introduced to car ownership and a brand could grow with its customers as their financial circumstances and taste in cars changed over time. But the car market is beyond mature today and doing things primarily because it made sense to do so in the era of Henry Ford and Alfred Sloan, well that makes no sense at all.

The business press loves to differentiate between two types of auto executives -- the financial types typified by GM CEO Rick Wagoner and the "car guys" personified by GM vice chairman Bob Lutz (who also did stints at Chrysler and Ford). When the companies periodically lose their way, it's attributed to too much finance and not enough car. But Steve Jobs is something in-between. No large American company in any industry has tighter financial controls than Apple, yet the strength of Apple is supposed to be its design. All this proves is that the finance-versus-car-guy scenario loved by Fortune and Forbes is simply bogus.

It's not that there aren't smart executives at these car companies, but they are shackled with several bad ideas and exist in an unrealistic corporate environment.

Their main delusion is the myth of the complete car line. Apple in 1997 had a tremendous advantage in being clearly a minority player. There was no hope that the Mac OS would topple Windows, but that made chipping away at Windows a tactical effort where significant advances could be made by Apple just concentrating on niche markets. The U.S. automobile makers can't (or won't) do that because again they think they have to make every type of car for every type of buyer. Yet each company IS a minority player; they just pretend that this condition is temporary, but it isn't.

This corporate delusion of majority status has meant that it simply wasn't possible for any of the car companies to take truly radical actions. They can't take big risks on new technology because the downside is perceived as being too big. Yet the effect of this over time has been to virtually guarantee that downside as the companies die from inaction or, more properly, UNDER action.

That's where Steve Jobs' second strength comes into play -- identifying important new technologies. He'd look at the car market and conclude a number of things: 1) it's a no-brainer to embrace dramatic design (no boring cars); 2) performance sells, and; 3) safety and fuel economy are co-equal secondary goals. So Steve's goal for his car company would be to make a limited line of vehicles that were dramatically styled with visibly different technologies from the competitors and were uniformly 20+ percent safer and 20+ percent more fuel-efficient.

That's not so hard to do, either, as I showed last week with my DA-2A example. Or look at XP Vehicles, the company that will sell you an inflatable car that arrives at your house in a box. But embracing these ideas requires the companies do something else that Jobs came to embrace with Apple's products - stop building most of their own cars.

There are two aspects to this possible outsourcing issue. First is the whole concept of car companies as manufacturing their own products. There is plenty of outsourcing of car components. Most companies don't make their own brakes, for example. Yamaha makes whole engines for Ford. Entire model lines are bought and rebadged from one maker to another. But nobody does it for everything, yet that's what Steve Jobs would do.

All the U.S. car companies are closing plants, for example, and all are doing so because of overcapacity. But what would happen if just one of those companies -- say Chrysler -- decided that two years from now it would no longer actually assemble ANY of its own vehicles? Instead they'd put out an RFQ to every company in the world for 300,000 Chrysler Town & Country minivans as an example. Now THAT would be a dramatic move.

And a good one, frankly, because with a single pen stroke most of the overcapacity would be removed from the U.S. car market. Chrysler would have to shut down all those plants and lay off all those people, true, but doing it all the way all at once would change the nature of the company's labor agreements such that there wouldn't be a whimper. When you are eliminating 8 percent of capacity the tussle is over WHICH 8 percent. When you are eliminating ALL capacity, there is no tussle.

So Chrysler reaches out to contract manufacturers in this scenario and you know those manufacturers would fight for the work and probably give Chrysler a heck of a deal. For current models, for example, Chrysler could probably sell the tooling and maybe even the entire assembly plant for a lot more than they'd get from the real estate alone. But that particular advantage, I'd say, would be unique to the first big player to throw in the production towel.

In this scenario, Chrysler becomes a design, marketing, sales, and service organization. What's wrong with that? They can change products more often and more completely because of their dramatically lower investment in production capital. They can pit their various suppliers against each other more effectively than could a surviving car manufacturer. It's what Steve would do.

And Steve would also embrace one dramatic new technology, whether it is electric, hydrogen, natural gas, whatever, but he'd do it in a very Steveian fashion, which is to say exactly the way he did the iPod and iTunes. That is, he'd sell you the car and then sell you whatever is required to fill up the car. This has always been a barrier for the car companies because they couldn't imagine themselves in the business of running electric/hydrogen/LPG stations, while Steve would imagine his company MAKING A PROFIT running just those stations.

Steve would take an existing operation that already had an ideal geographic distribution like McDonald's restaurants. He buy McDonald's or seduce the company into a deal. Then he'd embrace a propulsion technology like advanced electric capacitors -- batteries that could be recharged in less than a minute -- and put charging stations on the drive-through lanes. By the time the electric models were ready for sale he'd have 12,000 charging stations in place to serve them. Would you like fries with that charge?

Is it too late for the Big Three? Ford is the strongest company from what I've seen, but I believe there may be some creative juices in GM, too. Their prototype car the Volt takes hybrid cars to the next level, I just wish they were selling them now because Toyota or Honda will probably beat them to the market with something similar. Another thing Apple does well is product introductions. They very rarely show their hand before they are ready to send you home with one. GM announced the Volt in January of 2007 yet it is still slated for sale by 2011.

Stupid.