By on October 27, 2015

Bob Lutz  Picture courtesy dailytech.com

In wonderful Bob Lutz fashion, the former General Motors head told entrepreneurs in Silicon Valley that making cars is hard.

“I think, like so many Silicon Valley techies, that they believe they are smarter than the world’s automobile business, and that they will do it better,” Lutz told The Associated Press. “No way.”

His argument, in a Readers Digest version: Cars are more dangerous than Walkmen and when you make things that can explode it costs money so beat it, nerds.

Tech giant Apple and Google have already waded into the automaking waters (although we’re not entirely sure how much Apple has yet) within the last five years.

Google’s approach will be to sell its technology to automakers, and probably not build the cars themselves, according to the report.

“We have enormous respect for the expertise of the automotive industry and how big and complex a job it is to manufacture a vehicle,” spokeswoman Courtney Hohne told the AP. “We’ll partner with many different companies to bring this technology into the world safely.”

Lutz told Fox Business last month that margins in the automaking business are much lower:

When it comes to actually making cars there is no reason to assume that Apple, with no experience, will suddenly do a better job than General Motors, Ford, Volkswagen, Toyota, or Hyundai. So I think this is going to be a gigantic money pit …

By the way the electric car market is still miniscule. That just doesn’t make sense.

According to the report, Apple CEO Tim Cook said at an event organized by the Wall Street Journal that the computer giant’s near-term plan for cars were infotainment devices meant to mimic its iPhones.

“What we really want, hopefully in the short term, is we’d like people as they enter their car to be able to have an iPhone experience in their car,” Cook said, according to the AP.

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79 Comments on “Bob Lutz to Silicon Valley: ‘You’re Not That Smart’...”


  • avatar

    Tesla proved that it can be done. Within a decade from scratch to the posh electric Model S is quite a feat I’d say. That’s not the point. The question is with what Silicon Valley will strike out. Interesting in this respect:
    medium.com/@sevehicle/tesla-google-apple-atieva-faraday-future-who-is-gonna-disrupt-4918640ce607

    • 0 avatar
      slavuta

      Ford Model-T proved something. Tesla proved nothing. How many of those you see every day? Not even one per day unless your neighbor has one and you see him going to work in it in the morning.

      • 0 avatar
        redmondjp

        Not where I live. I see at least a half-dozen during my daily commute in the Seattle suburbs. Several times I have been behind a Tesla, and a Leaf is behind me. EVs are very popular here.

      • 0 avatar
        emeshuris

        I live in Los Angeles, electric vehicles are pretty popular here. EV’s have been made for a very long time, 1884 was the first reliable electric car, before the Model T. Also the T did not actually make anything great, they are what revolutionized the assembly line which in turn allowed more people to own them.

        • 0 avatar

          I doubt that any car, electric or otherwise, was reliable in 1884.

          As for the Model T, it wasn’t just cheap. The T was very well engineered by Gene Farkas and Joe Galamb. C. Harold Wills convinced Henry Ford to use high strength vanadium steel in critical applications.

          Yes, the T became obsolete. By 1914 the Dodge brothers, who had been Ford’s primary supplier for the T, started their own car company in part because they wanted to make a modern automobile. Following WWI and into the 1920s, Chevrolet also started taking away market share from Ford. Still, from 1922 to 1926, Ford sold between 1.3 million and 2 million Model Ts a year. Those were the T’s best selling years despite the competition.

          The T was a success because it was a good, reliable car. There were cheaper cars, like the Brush Runabout, which sold well, but the T could stand up to the abuse of the primitive roads in the early 20th century.

          Also, Henry Ford did not introduce the assembly line to automotive production, though it was certainly a factor in letting him ramp up production of the Model T. Ransom Old built cars on an assembly line about a decade before Ford’s introduction of that process in 1913, five years after the Model T was introduced. Ford sold about a quarter million Ts before switching from station assembly to line assembly.

          What Ford did introduce to the process was simplifying assembly down to tasks that minimally trained workers could do. While it increased production, that made working for Henry a mind-numbing experience, resulting in him having to hire over 40,000 people a year just to keep 13,000 on the job, his motivation for raising pay $5/day.

      • 0 avatar
        TOTitan

        I see many Teslas every day of the week in Thousand Oaks CA

      • 0 avatar
        trackratmk1

        Car companies don’t care about either of your views of “success” in the market. The only metric that matters to OEM’s is profit. All the sales volume in the world doesn’t matter if you can’t turn a profit. Supposedly Tesla has 25% margins on the Model S. But the company can’t get in the black.

        The Model T earned the distinction of being the best selling car of all time until 1977, I believe, when the Beetle surpassed it. Enormous volume, enough to set a record lasting decades. But the T was replaced when it was no longer profitable.

        Car companies reach their profit in different ways, and the pursuit of volume is usually good as long as you have margins, not just on the car, but for the entire operation of the company. These are correlated events, but not causal ones.

      • 0 avatar
        nickoo

        I see them every day. It simply depends on where you live. Model S is not intended to be the Model T. Tesla’s Model III is intended to be their “Model T”

  • avatar
    Quentin

    They should listen to Bob. He has a lot of experience with money pits.

  • avatar

    “We have enormous respect for the expertise of the automotive industry and how big and complex a job it is to manufacture a vehicle,” spokeswoman Courtney Hohne told the AP.

    =

    It’s not our our fault you chose such a low-margin business.

    “We’ll partner with many different companies to bring this technology into the world safely.”

    =

    If GM doesn’t buy our software when it is available, they will be left behind by the rest of the marketplace. You need us more than we need you.

  • avatar
    SCE to AUX

    Maximum Bob is both right and wrong.

    The car business is difficult; Tesla has acknowledged that on many occasions, and they’ve also said that building the Model 3 is harder than the Model S due to all the constraints.

    Tesla has succeeded thus far due to its passion, deep pockets, loyal customer base, and cool product. Google and Apple have deep pockets, but I doubt they have the passion, and self-driving cars will not generate a loyal customer base. How much do you care about a train?

    However, Google and Apple may never even build cars; maybe they’ll just produce some augmentation to vehicles that we can’t live without. If they do that – as they’ve proven in the past – then they will succeed.

  • avatar
    Vulpine

    Remember, Lutz is one of the men who helped drive GM into bankruptcy. He’s clearly not as smart as he thinks he is.

    I’d much rather have Preston Tucker making such statements as he tried and failed to buck the establishment. Even so, nearly everything he developed for his Tucker 48 has in one way or another been adopted in all modern cars. Including, for some, steerable headlamps.

    • 0 avatar
      Mr. Orange

      The guy who help give us cars people wanted to actually buy. Exactly how responsible, in percentage terms, would you say he’s culpable for?

      • 0 avatar
        Vulpine

        I wanted to continue loving Saturn. The ’02 Vue was a remarkable vehicle in many ways, including reliability and TOC as were most Saturn vehicles before about ’05. But in choosing to import Opels whole as Saturns and some Chevy and Buick models, they destroyed a brand that had lifelong fans who refused to drive anything else after their first one. In late ’07 I effectively replaced my Vue with a Jeep because it had lost everything that made me love it.

        So no, he is not a guy who helps give us cars people actually wanted to buy; he took away cars people wanted to actually KEEP.

        • 0 avatar

          In my opinion Saturn was destroyed when GM pulled it back into the Mother Corporation around ’95-96. In ’96, They managed to sell nearly 300,000 SLs in ’94 or ’95. In ’96, they took what had been a really cool looking, sporty car (I used to get compliments from women for mine) and made both the styling and the handling bland. After that, the fanhood died down (I was on a Saturn listserve) and when people asked what I drove, I always apologized, saying that the first generation had been really sporty.

          https://www.thetruthaboutcars.com/the-truth-about-saturn/

    • 0 avatar
      Maymar

      GM’s long path to bankruptcy started before Lutz even started working in the auto industry – he just failed to right the course at the last minute.

      Now, he can be a bit of a blowhard that overstates his contributions, but it’s hard to deny that the products he stood behind were more compelling than what came before. Unfortunately, that doesn’t mean they were perfect (the buraucracy of old GM certainly didn’t help), and a few years of okay cars weren’t going to do a 180 on the public’s perception.

      • 0 avatar
        Vulpine

        I won’t argue that, Maymar; I did say he was ONE of them who drove GM towards bankruptcy. My personal grudge is against Wagoner, who killed three of GMs iconic brands. But then, one of them got screwed over in the late 70s when Oldsmobile lost its clear distinctions from the other GM brands and the late 90s when Pontiac became essentially a branch of Australia’s Holden instead of purpose-built Pontiacs. GM increased cost by effectively importing an Australian car rather than saving in engineering costs. The same sort of thing held true with the later import of Opels.
        I don’t have any complaint with the Holdens or the Opels themselves–but neither one really represented what Pontiac and Saturn had become for GM.

  • avatar
    I_S

    “When it comes to actually making cars there is no reason to assume that Apple, with no experience, will suddenly do a better job than General Motors, Ford, Volkswagen, Toyota, or Hyundai. So I think this is going to be a gigantic money pit …”

    Apple has more cash on hand ($203B) than the combined market cap of GM ($55.3B), Ford ($59.2B) and FCA ($19.5B). I’m pretty sure they can afford to dabble in the sector.

    • 0 avatar
      SCE to AUX

      They can afford it, but they may not be good at it.

      Money can’t buy good sense, or passion. This is why celebrities get divorced.

      • 0 avatar
        I_S

        Money can buy both good sense and passion by hiring sensible, passionate individuals and/or acquiring companies run by sensible, passionate individuals.

        Also, ‘money pit’ for GM means something completely different to Apple/Alphabet.

    • 0 avatar
      hubcap

      Apple also has more cash on hand than the combined market cap of Boeing ($99B), Airbus ($47B) and Textron ($11B).

      Maybe it’s a good idea for Apple to dabble in aerospace. Boeing had a hell of a time with the 787 and I’m sure they could build a better A380.

      I’ve been looking at a Cessna TTX. I’d be stoked to buy something similar (but better!) from Apple.

      • 0 avatar
        I_S

        Fair point, but let’s be honest – Bob is really saying ‘please don’t kill our margins, because we know you can’.

        Also, you *should* hold our for the Apple-made TTX! It may cost you double than the current offering, but would be a piece of cake to fly as you only have two buttons in the cockpit, all while providing far superior view through the retina windshield. And while the engine is welded-shut and unserviceable, do not worry – you can upgrade to the newer model the following year, which would fly twice as fast!

    • 0 avatar
      RHD

      I’m pretty sure they could afford to BUY the sector.

  • avatar
    RetroGrouch

    Bob Lutz, the guy that turned the BMW 2002 into the craptastic E21 then churned out decades of garbage in America, hasn’t earned the right to tell me how to wipe dog poop off the bottom of my Chuck Taylors. That revisionist history sack of cat turds probably thinks he saved GM.

    • 0 avatar
      RaptorConner

      Decades of garbage? The E21 wasn’t exactly garbage, neither was the Ford Sierra, or the revolutionary 1983 Thunderbird, or the 1992 Grand Cherokee, or the Dodge Viper, or the LH cars. The 2007 C/K trucks and 2008 Malibu weren’t garbage either.

      I’m honestly not sure what you’re talking about.

  • avatar
    redav

    My business has incorporated many of the philosophies of silicon valley, for example, extreme programming. Some of those things have value to us, but they don’t necessarily work well with physical parts that requires high capital costs, unlike software.

    We have yet to see benefit from the initiative, and we may never see a benefit. If that proves to be universal for applying tech principles to industrial production, then yes, Silicon Valley will fail at producing cars. But maybe they can do it right, and they can break out of the old ways entrenched in the car business. If they can, Detroit is screwed.

    • 0 avatar
      beastpilot

      I’m a hardware guy that just got trained on Agile along with our software team. I asked the trainer “how do you apply Agile to systems where there are 100 day lead times for tooling?”

      The answer was “re-think the way you make things so all prototypes can be done in 7 days. Don’t say it’s impossible”.

      She’s right, it’s not impossible, it’s just 100X the cost.

      I tuned out after that. You can’t develop and test a transmission one gear at a time in isolation like you can software.

      • 0 avatar
        28-Cars-Later

        I’ve been fighting the battle against that lunacy for several years. Agile in practice makes about as much sense as Ob*macare in practice.

        The stories I could tell of its application in pharmacy dispensing equipment which led to disaster and just coincidentally led to the sale of the company four years after its initial application in 2009.

  • avatar
    pragmatist

    What does Apple do? Design a cool product and send the design to China. Then sell it for FAR more than it costs to make. Cars don’t work that way.

    Defective phones, if you’re not blaming the users, are replaced for a few bucks. No one has been killed by a defective iPhone.

    Cars are much different.

    • 0 avatar
      redav

      I don’t see safety as the problem.

      Rather, consumer computers/software don’t have the reliability needed for the automotive world. We see that with CR’s critique on Tesla. By the time they are able to solve those problems, their business model will be a couple products down the line. That & low margin are big reasons for car companies to not follow such a breakneck pace like computers do.

      • 0 avatar
        hubcap

        @redav

        I’m curious. Do you know how much additional programming/testing time would be required to bring consumer computers/software up to automotive standards and which area(s) would pose the most difficulties?

        • 0 avatar
          PeriSoft

          “Do you know how much additional programming/testing time would be required to bring consumer computers/software up to automotive standards..?”

          It’s not so much that as that the whole way you work has to change. It’s not just automotive-vs-tech; it’s hardware-vs-software. You have to completely change the *way you develop*, not just do things a bit differently. Hard real-time is essentially a form of hardware engineering done using code, not just a slightly-more-rigorous type of software engineering. So it’s not so much a matter of saying, “We need to add 30% to the time it takes and we need N more testing hours”, it’s, “We need to completely change everything about how we do development”.

          As an example, that entire last sentence was typed blind because shockwave had crashed and taken down all the interactivity for TTAC in this browser window. That type of problem – the kind of thing utterly endemic to ‘big’ software environments – would be anywhere from “unacceptably disconcerting” to “catastrophic” in a hardware (automotive) environment. And you just cannot continue using the same techniques and standards and methodologies for development if you want to avoid them. You need to do things differently from the ground up; think differently about problems from the ground up. And that’s why, as successful as Tesla is, the idea of companies like Apple and Google doing hardware makes me skeptical, because I know from personal experience in both worlds that transitioning between them is profoundly challenging. Not impossible, but without a perfectly correct chain of management decisions, devastating and uncorrectable failures *will* occur, and that occurance may be years apart from the mistakes.

          • 0 avatar
            Vulpine

            @Perisoft: You do realize that Apple is doing that already with their many different products as compared to their competition. It’s one reason why their machines tend to be 100% more reliable compared to their less-expensive competitors.

          • 0 avatar
            eamiller

            If you think that Apple designs anything to six sigma levels, you’re very very mistaken. Their failure rates are orders of magnitude higher than the minimum required in automotive. They only have to survive the 1 or 2 year (with AppleCare) warranty period. Automotive is designed to 10 years and over 100,000 miles. No way is any consumer electronic device designed that way. It’s a completely different way of designing things.

          • 0 avatar
            Vulpine

            I wouldn’t bet on that, eamiller. While I agree that there may be some variables not currently addressed, that doesn’t mean Apple can’t address them. I’ve seen electronics in existing cars that can’t even survive five years on the road, much less ten and Apple’s devices tend to get abused more than you think by the fact that in one way or another they are in operation 24 hours per day compared to a car’s 1 to 4 hours a day.

        • 0 avatar
          PandaBear

          Taken as an example: the antenna gate of iPhone4 and the bending of iPhone6+ would have been a massive recall in the automotive world due to potential death and resell value drop, and they would be replaced with a completely different phone designed to address these issues, rather than offering a case that prevents antenna shorting or replacing the whole phone if it is bent.

          • 0 avatar
            Vulpine

            Would they, PandaBear? If they weren’t critical for life/safety, I don’t think so. Antennagate was grossly blown out of proportion while Bendgate was physical abuse, not any real weakness in the device itself. Or didn’t you notice that BOTH arguments faded into obscurity inside of 90 days?

            You don’t hear about recalls for infotainment system failures, despite the very poor reliability ratings they give cars, do you? It’s pretty much the same thing. On the other hand, three–count em, THREE–Tesla cars caught fire due to their battery packs getting punctured by road hazards and people were yelling bloody murder, despite the fact that gasoline-powered cars spontaneously burst into flames nearly every day somewhere in the US and you almost never hear about it. It’s nothing but a double standard against something that’s different and often better.

  • avatar
    Acd

    I’m not sure why tech companies have such a fascination with building cars. It is very capital intensive with relatively low margins at around 10%–much lower than their core businesses. It must be a vanity thing because the car business is a great way to lose a lot of money.

    • 0 avatar

      1. The car represents the biggest consumer purchase to most of us.
      2. Consumers are either somewhere or underway; Silicon Valley was primarily in the business of providing services to you when you happen to be at some place static doing your thing; now it can do its “skip ad to continue driving” in some provider issued vehicle when you are between A and B.
      3. Silicon Valley wants to force Detroit into Tier 1 relationships, instead of the way it is now. Detroit still thinks primarily in terms of making and selling cars; hardly ‘the bigger picture’ when it comes to personal mobility… I agree.

    • 0 avatar
      healthy skeptic

      @Acd

      >> the car business is a great way to lose a lot of money.

      You just said earlier it returns 10%. That’s making money, not losing it. In any case, the tech industry can be an even greater way to lose money.

      • 0 avatar
        Acd

        Google is currently running at a 34% profit margin and Apple is at 21.5%–why bother with a 10% business (which is on the high end) that requires a massive amount of investment? Not to mention the cyclical nature of the car business where this quarter’s 1 billion dollar profit can easily turn into a billion dollar loss when the economy goes soft and sales dry up.

      • 0 avatar
        Acd

        The most profitable car companies see margins somewhere in the 10% range during the good times however it is a highly cyclical business. Who was the most recent successful car manufacturing start up? Tesla is the most recent but still can’t make money.

        The one advantage that Apple or Google have getting into cars is that they have so much cash available that they can afford to bankroll a money losing car company for quite a while.

    • 0 avatar
      hubcap

      Any business that’s not run properly is a great way to lose money. Consequently, businesses with much lower profit margins, such as grocery stores, that are run properly still make money.

    • 0 avatar
      Vulpine

      “I’m not sure why tech companies have such a fascination with building cars. It is very capital intensive with relatively low margins at around 10%–much lower than their core businesses. It must be a vanity thing because the car business is a great way to lose a lot of money.”

      Says Ford as they double their profits across the board through a single type of vehicle making scads more profit margin than a mere 10%.

      • 0 avatar
        Acd

        From Automotive News article on Ford’s recent quarter: “North American operating margins jumped to 11.3 percent, from 7.1 percent in the third quarter of 2014.”

  • avatar
    Louis XVI

    “PC guys are not going to just figure this out [how to make a good phone]. They’re not going to just walk in.”–Palm CEO Ed Collegian, three months before the introduction of the iPhone.

    • 0 avatar
      gpolak

      This quote gets thrown around a lot, but I hope you’d agree that there’s a bigger difference between a car and an iPhone, then between an iPhone and a Palm Pilot.

      • 0 avatar
        Louis XVI

        Sure, but the point remains that on at least three occasions (iPod, iTunes music store, iPhone) Apple’s initial efforts were sneered at by folks who said Apple didn’t know what it was doing going into a new, entrenched business. Each time, Apple at the old business’ lunch. I don’t know if Apple will succeed in the car business, but I wouldn’t bet against it, and I *certainly* wouldn’t confidently predict failure based on Apple’s inexperience in the field.

        • 0 avatar
          gpolak

          I never argued the point, just the fact that we’re dealing with apples (ha!) and oranges in this case. In all previous instances Apple operated in the world of consumer electronics.

          What I would like to know is what kind of volume and margin Apple expects. Porsche, the most profitable car manufacturer today, makes about $2B in net revenue. Apple does $40B. If the Apple Car becomes as successful as Porsche, it will literally not be noticed on their balance sheet.

          • 0 avatar
            Vulpine

            We just need to wait and see. Whether Apple builds a full car themselves or instead works with another OEM to build an Apple version of their car could make a world of difference to the automotive industry. It may even come down to somebody like BMW making a 5-series, for instance, in an Apple CarPlay version and an Android version with a corresponding and obvious price differential between them. (Remember, Apple DID tour a BMW assembly plant fairly early on in the rumor records of Apple’s interest in cars.)

            However, if we choose to assume that Apple intends its own vehicle, it is unlikely they’ll be considering a conventionally-powered car. They’ll be looking at either BEV or hydrogen fuel cell in one way or another and even then probably something different from what we’ve already seen. There have been reports on Apple looking at a “hydrogen battery pack” that would make recharging the car as simple as swapping out something the size of a brick. Personally, I think that’s stretching the concept a bit as that “brick” currently powers an iPhone for about a month if I remember correctly, making it still far too weak to offer any kind of range in a car. Drivers want simplicity, not complexity. They want easy, not difficult. They want quick, not slow when it comes to charging.

            Moreover, a purpose-built Apple car would probably see a greatly simplified and intuitive user interface. Too many cars today are so complex that simply trying to do anything but steer and operate the pedals becomes a distraction. The driver has to train himself on how to use the central information console which typically includes climate control and other secondary systems not critical to operating the car but useful in other ways. Where other cars may have a display completely ringed with buttons or a touch-based screen with multiple virtual buttons, Apple will probably find a way to simplify that to the point that you don’t even need to take your eyes off the road to do almost everything. This could be anything from voice to gesture controls maybe even similar to Microsoft’s Kinect or other sensing system.

            Whatever it is, odds are that it’s different enough that it WILL have an impact on future car designs, which Apple has clearly demonstrated with other industries they’ve entered. But you simply cannot write off an Apple concept because it’s out of their perceived “comfort zone”. Apple has more than once proven they can have a massive impact on an industry they supposedly wouldn’t even faze. You don’t know what they’re planning. Neither do I. But I won’t put it past Apple to be a fox in the chicken house, disrupting the whole automotive industry.

    • 0 avatar
      NoGoYo

      And here I thought Palm died out in the early 2000s, I didn’t think they survived to see the introduction of the iPhone.

  • avatar
    Crabspirits

    Cliffs: The Apple secret to successfully entering the automotive sector is to put a really, really cool telephone in one.

    Kill me.

  • avatar
    Felis Concolor

    “. . .we’d like people . . . to have an iPhone experience in their car.”

    That statement might have carried some weight 5 years ago, but now it’s laughable. Just search “Wi-Fi Assist” for the most recent example why Apple’s system now makes Ford’s much-maligned MFT feel nimble and intuitive. Disclosure: I have used MFT/Sync for 3 years now, and have no difficulty with its syntax structure.

    Last to the Swype/Swiftkeys/vector-input text entry party and now hiding their tacked-on features in a deep pit of menu settings; Apple most definitely does not need to enter the automobile arena.

  • avatar
    Chan

    I don’t understand the made-up rivalry between Silicon Valley and Detroit. It’s all in people’s heads because all they recognise is fame. Money does not buy the expertise of a 100-year-old automotive industry and supply chain. History does not buy Apple’s one-year product life cycle, billions of units in worldwide retail sales and deep software expertise. They are apples and oranges, and neither one really wants to be the other.

    The most significant change Apple and Google can bring to the automotive industry in the near term is vehicle intelligence and mobile device integration. Even Google admits that they do not want to produce their own cars.

    Tesla is an anomaly. They hide behind billions in green subsidies and their cars are for 5%er yuppies. Don’t get me wrong, the cars are awesome but you would be delusional to think that they are anywhere near “mainstream.”

    Get anything famous enough and people will start comparing. Sort of like “Star Trek vs. Star Wars battleships, which one would win?”

    • 0 avatar
      Lorenzo

      To reach the top 5% of net worth you need $1.9 million, or an income of $209,000. The price of a Tesla is a little steep at that level. Better make top 1% with a net of $6.8 mil or $521,000 income, but they would skew quite a bit older than yuppies.

  • avatar
    marshall

    The best part about this is the historical echoes:
    * “Apple doesn’t know anything about the music business”
    * “Apple can’t just ‘walk into’ the cell phone industry”

    (to name just two)

    Doesn’t mean that an Apple/Google/whoever car will be a success, but people making such blanket pronouncements about similar situations have been proven laughably wrong in the not-very distant past.

    • 0 avatar
      Chan

      Google has been stating that it wants to partner with automotive suppliers, but what exactly Apple plans to do is still unclear to outsiders.

      To be fair, the cell phone industry was still not mature in the US, at the time Apple’s iPhone debuted. Up until the mid-2000s, mobile phone market penetration in the US was still relatively low compared to other countries.

      The automotive industry is much older and depends very heavily on decades of research and development (materials and manufacturing processes, safety standards, destructive durability testing, etc. that do not apply to throwaway products incapable of deadly velocity). But you are right; anything is possible if the right resources are put to it. Tesla can make an unaffordable electric car while being propped up by subsidies; I guess Apple can make an affordable autonomous electric car robot chef magician. Go big or go home.

  • avatar
    otter

    Silicon Valley to Bob Lutz: “Neither are you.”

  • avatar
    Fred

    I’m reminded of the old joke “If Microsoft made cars”
    http://www.hcs.harvard.edu/pnw/microsoftjoke.htm

  • avatar
    Kyree S. Williams

    Tesla has done a fabulous job. However, the cars still aren’t profitable, and the company could be in some real trouble if one of the major automakers (with deeper pockets) decides that dedicated, high-end EVs are worthwhile. Tesla’s best bet is to keep establishing itself as a desirable niche brand before that happens…and maybe to add some more actual luxury to its cars.

    • 0 avatar
      28-Cars-Later

      Maybe if Saturn had been a true independent and not part of the GM empire it could have issued stock and tried to convince people it could operate without a profit based on its sales too.

  • avatar
    John

    So Bob, just how smart do you have to be to make cars that are recalled for the third time over the same engine fire issue, that the first two recalls didn’t fix?

  • avatar
    turf3

    If computer companies really try to start manufacturing cars (and I suspect the truth is more that they would leverage someone else’s actual manufacturing and insert their computer stuff), I predict they will be very unhappy when they put Silicon Valley’s 35% MG&A costs on the product and start expecting 50-60% gross margins.

    • 0 avatar
      Kyree S. Williams

      Exactly. What sane computer company would venture into the low-profit/high-cost/high-liability realm of auto manufacturing? I think that Apple, Google and Microsoft will supply interfaces and autonomous driving expertise to auto manufactuers…but they’re not dumb enough to actually try making cars.

  • avatar
    turf3

    I think there’s more to it than that. I have not read annual statements of Apple, Google, etc., vs. GM, Ford, Chrysler; but I expect you would find that for all the talk of bloated overhead structures in the auto companies, there’s way more overhead in software companies; which is supported by correspondingly large gross profit percentages. Net profit may not be all that different.

    Software companies have very little COGS in their products. They have high development, marketing, and organizational management costs. They charge a premium for stuff that costs no more to manufacture than stuff they can’t charge a premium for. Auto makers have to pay for all that metal, plastic, etc. What’s the material cost in an i Phone? Maybe $10 or $15. All the rest is IP.

    I think that if software companies had to pay 60% of selling price for physical stuff, they would be unable to support their non-factory overhead. (Note that the analogy for automakers is the selling price to the dealers, not to the public, as dealers are the actual customers.)

    My perspective on this comes from working in a high volume manufacturing business, then moving to a low volume IP-rich business, that was then taken over by a Silicon Valley very-low-volume, very-high-MG&A company. Someone who has actually compared the income statements may be able to refute what I am suggesting here.

    • 0 avatar
      Vulpine

      The fly in your ointment, turf3, is Apple. It is both a software and a hardware company, unlike Google. They do understand the differences and build around them. Apple’s products cost more because they spend more to make them more reliable and durable (within reason) than their average competition. Depending on product, they realize from 20% to 35% profit margin per device.

  • avatar
    wmba

    ““What we really want, hopefully in the short term, is we’d like people as they enter their car to be able to have an iPhone experience in their car,” Cook said, according to the AP.”

    And there’s the problem right there.

  • avatar
    mcs

    I’m surprised there hasn’t been a single mention of what will be the first consumer electronics company to design a major portion of a car and get it to market – LG. They did it by partnering with GM. The car is the Chevy Bolt. This may be the route the other companies take as well. Google partners with other companies for their Nexus phones, so I could see them working with an established auto company for a car.

    http://www.freep.com/story/money/cars/general-motors/2015/10/20/gm-credits-lg-chem-creating-much-chevy-bolt/74278562/

    http://www.engadget.com/2015/10/20/gm-lg-chevy-bolt/

  • avatar
    JD321

    They’re smart enough…they just aren’t “adult” enough.
    Musk is a tax-taker parasite and not a competent businessman.

  • avatar
    mcs

    Bob Lutz, the auto industry version of Rex Ryan.

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