A Roadmap for Saving Detroit
President Obama announced today that he will appoint a panel to oversee reform of the auto industry. Whatever path they choose to rescue Detroit, technology will light their way.
Lost in the recent debate over the federal loans to the domestic automotive industry is how essential it is to maximize the billions of dollars being invested by the domestic manufacturers and suppliers on advanced technology and innovation to create the vehicle of the future. If we let the Big 3 die, our country’s future economic competitiveness will be diminished. The Japanese, Koreans, Chinese, Indians, Germans and others will continue making massive investments, mostly in their home markets, and will leapfrog us.
The technology to create electric- or hydrogen-powered vehicles—that are more efficient and operate with much lower or no emissions—is within reach, and at costs that are increasingly competitive.
After nearly a century, all of the fundamentals of the automotive industry are in play. The internal combustion engine powered by readily available and low-cost fossil fuels could very well be reaching its natural end. The technology to create electric- or hydrogen-powered vehicles—that are more efficient and operate with much lower or no emissions—is within reach, and at costs that are increasingly competitive. Electronics and electric systems to enable vehicles to drive themselves, prevent crashes, and increase vehicle density so more cars can travel faster through our congested roadways can also become a reality. This is no longer science fiction!
To make this transition will require significant investment in technology, infrastructure, retailing, and manufacturing—all that can accrue to benefit the U.S. economy and create a powerful new economic engine that results in growth, high paying and productive jobs and the formation of vital new enterprises.
But the forces of inertia are great and not to be underestimated—not just in the U.S., but everywhere. We have existing petroleum refineries, gas pipelines, fueling stations, and dealers that will be slow to walk away from billions of dollars of sunk capital investment. We have a corn lobby that stands in the way of eliminating the tariff on imported sugar so we can use more productive sugar-based ethanol as a transition solution. We have a power grid that today that is not smart enough, large enough, or clean enough (especially in its use of coal-fired power generation) to power electric vehicles in large numbers.
We are not moving fast enough to accelerate the development of key core technologies that are essential for this transformation to achieve scale economies quickly. Uncertainty associated with wild gyrations in fuel prices greatly inhibits sustained investment in renewable energy alternatives. Tax and regulatory policies are also conflicting and send mixed signals to the market.
It is especially unrealistic to think that U.S. manufacturers who have balance sheets saddled with oceans of red ink and suppliers barely holding on will be capable of leading this transformation.
It is in the thicket of these very difficult choices and tradeoffs that we as a nation, with leadership from the Obama administration and the auto panel, need to chart the future and redefine what advanced, environmentally friendly, economical, personal mobility means in the 21st Century. This requires breaking through old paradigms, typical Washington lobbying, and narrow-minded regional and local self interest.
The new administration has a lot to think about, and their agenda needs to go beyond evaluating whether the plans of the American auto makers meet tests of “sufficiency and viability”. Rather than walk away from these investments and potentially lose out on the payoff from what are in some cases world-leading technologies. We must find a way to make sure the U.S. auto industry remains at the forefront of technology and innovation, helping to re-secure the long-term health of the industry and increase our global economic competitiveness.
Let us hope, for our nation’s future global economic competitiveness, that wise, far-sighted and responsible vision prevail.
Scott L. Corwin is a Partner with the global leading management consulting firm Booz & Company based in New York. He consults on enterprise strategy and transformation with corporate clients, including within the automotive industry.