Howes: Tough auto game challenges Silicon Valley stars

Daniel Howes
The Detroit News

Of all the things Detroit’s automakers should not be in business to do, gloating is at the top of the list.

They’ve closed too many plants. They’ve cut too many jobs. They’ve lost too much market share. They’ve destroyed too much capital. They’ve disappointed too many investors to claim the high ground in just about any meaningful phase of the global auto industry.

Notwithstanding record North American profits, especially at General Motors Co. and Ford Motor Co., that’s not likely to change anytime soon. Until, that is, they can prove their restructured businesses capable of weathering an inevitable slowdown, reinvesting in core products and parrying the competitive threats posed by Silicon Valley and the coming mobility revolution.

And yet, it’d take some iron discipline in the Motor City not to crack the tiniest of smiles at some of the news issuing from America’s new Masters of the Universe. Apple Inc., touted not too long ago as the cash-rich behemoth destined to disrupt the auto industry, too, is said to be scaling back its automotive ambitions. And Elon Musk’s Tesla Motors Inc. this week confirmed on its website that the electric carmaker’s compact Model 3 is not likely to reach customers until “mid-2018 or later.” That’s assuming two things ol’ Musk has shown some difficulty controlling:

First, that production of the eagerly anticipated model starts as promised by “mid-2017.” And, second, that some of the 400,000 would-be customers who each plunked down $1,000 deposits don’t ask for a refund to go buy one of the electric Chevrolet Bolts. They begin to hit some showrooms as soon as later this year.

If two things are likely to test Tesla’s enviable brand equity with consumers, they’ll be the long wait for its comparatively affordable Model 3 and a strong launch of the Michigan-built Chevy Bolt. Guess building cars, and doing it right copy after copy, are proving more difficult, more fraught and more capital intensive than that may look from the West Coast.

Wall Street would thrash traditional automakers for such loose affiliation with production timetables and investor commitments, as more than one executive has pointed out in recent years. But investors apply different rules to New Economy companies — or do they?

In this business, getting a product to market on schedule still matters. Getting a much-anticipated electric car to consumers that would sell for less than $30,000 (after federal incentives) and would go more than 200 miles on a single charge would be large step forward in the mobility movement. Huge, actually.

In that, GM is poised to take that first step. It has a 50-state Chevy distribution network; Tesla does not (thanks, in part, to tough franchise laws in states like Michigan, natch). Its Bolt boasts an EPA-certified range of 238 miles; Tesla’s Model 3, the only other electric to exceed the magic number of 200, goes 215 miles on a single charge.

GM’s Bolt is set to be in the market for at least 18 months before the Model 3 is available through Tesla outlets. Why? Partly because the Detroit automaker’s leaders have a long (though not perfect) record of launching new vehicles when they say they will; Tesla does not.

Second, what tech executives and their investors are doing speaks louder than what they’re saying. Despite a period of (much-deserved) denigration of Detroit and its failed past, the Masters of the Universe are managing expectations down because they’re coming to terms with what auto industry insiders know.

The business of building cars and trucks in the high-cost United States — not applying new technology and assembling it in, say, China for sale here — remains a highly capital-intensive business with comparatively low margins. No wonder Detroit wants to play in the tech-driven mobility space; it needs the fatter margins and new revenue streams.

There is no room for complacency. GM and Ford, to name two, are making noticeable strides in efforts to quicken and energize corporate cultures famous for being sclerotic, slow and self-satisfied. They aim to emulate aspects of what makes Silicon Valley the world’s epicenter of innovation and a magnet for young talent.

Detroit has a long way to go. GM’s launch of the Chevy Bolt, its investment in Lyft Inc.’s ride-sharing business and its acquisition of Cruise Automation are clear markers of an old company moving in new directions. The same goes for Ford’s expanding presence in Silicon Valley and creation of its own mobility unit.

But this is not a sprint. It’s a long game that will shape the industry for decades to come — a game Detroit needs to show it can play to win. Others surely are because that’s what they do.

(313) 222-2106

Daniel Howes’ column runs Tuesdays, Thursdays and Fridays. Follow him on Twitter @DanielHowes_TDN, listen to his Saturday podcasts, or catch him 3 and 10 p.m. Thursdays on Michigan Radio’s “Stateside,” 91.7 FM.