Auto Line After Hours - Discussion Summary

Introduction

• Hosts: Rick Wager and Larry Burns
• Special guests: Mark Wakefield (Alex Partners) and Keith Naughton (Bloomberg)
• Topic: Automotive industry changes, particularly in relation to Chinese manufacturers.

Surprise Question

• Chief Engineer Guessing Game:
  • A chief engineer quit on August 15, 1899.
  • Later was involved in well-known vehicle development.
  • Answer: Henry Ford, who left Edison's company to start Detroit Automobile Company, then founded the Ford Motor Company.

The Chinese Automotive Industry

• Market Dynamics:

  • Significant growth and innovation in the Chinese automotive market.
  • Chinese automakers like BYD are leading in EV technology, supply chain, and cost efficiency.
  • Forecast: Chinese automakers could hold 33% of the global market by 2030.

• Legacy Automakers' Response:

  • Need for legacy companies to adapt quickly or risk obsolescence.
  • Emphasized the importance of restructuring and innovating product development processes rather than just speeding up current methods.

Structural Changes Needed

• Shifting Focus:

  • Legacy automakers must rethink their organization and processes to stay competitive.
  • Emphasis on vertical integration and software development.
  • Move towards a model where product development is continuous and agile, decoupled from traditional hardware constraints.

• Labor Considerations:

  • The UAW's role and its influence on legacy automakers' labor costs.
  • Potential for automation and new manufacturing methods to alleviate some labor cost pressures.

Cultural Differences

• Work Ethic in China:
  • Discussion on the 996 culture (9am to 9pm, 6 days a week) prevalent in Chinese startups versus Western work cultures.
  • Implications for productivity and innovation in the automotive sector.

Opportunities for Legacy Automakers

• Leveraging Strengths:

  • Legacy brands still have significant advantages like brand trust and established market presence.
  • Opportunity to innovate in areas such as pickup trucks and specific vehicle segments where they excel.

• Rethinking Strategies:

  • Consider implementing new subsidiary companies to foster innovation without the constraints of current legacy systems.
  • Example: Ford's approach with a Skunk Works model versus GM's integrated approach.

Government's Role

• Industrial Policy in the U.S.:
  • Discussion on government policies affecting the automotive industry and how they compare with Chinese policies.
  • Concerns about supporting innovation versus protecting existing jobs.

Future Outlook

• Market Trends:

  • Predictions for the EV market and the potential impact of government incentives on consumer demand.
  • Importance of adapting quickly to market needs and consumer preferences.

• Potential for Spin-offs:

  • Discussion on whether legacy automakers will start to spin off divisions to operate more autonomously to innovate effectively.

Conclusion

• Recognized a critical moment in the automotive industry marked by rapid change and the need for adaptation.
• Call for legacy automakers to embrace innovation and restructuring to survive and thrive amidst competition.