No, China will not buy GM, Ford or Chrysler. But there is another way – a scheme of division of labor in which the U.S. will focus on design and innovation while China on manufacturing efficiency.
The big three automakers are dead businesses not worth saving. Even if the US government pour tens of billions of dollars in bailing out them now, the companies will die another day.
Why am I so certain American car makers cannot rise from the ashes? It’s the quality: if Americans are honest, they will admit that their cars cannot match the quality of Japanese and German cars. No matter how hard Americans try, they have not been able to equal the Japanese and Germans in quality.
But not all is lost. Americans are good at innovation, marketing and service. Therefore, the Americans should use their strength to beat Japanese’s and Germans’ and South Koreans’ weakness.
How can that be done? It is very simple indeed: change the business model!
Say it again? Okay, it is a bit more complicated than that. It requires a total change of the business model, in fact, a disruptive change. Sergio Marchionne, Fiat CEO, in an interview with Automotive News, predicted as much change ahead.
First, the US government should take over GM and Chrysler. Ideally it should take over Ford as well but the Ford family may not want to sell.
GM is now worth 2.5 billion dollars. Chrysler probably values less than that. Therefore, 5 billion dollars can buy both companies.
Second, the US government should appoint a car czar as rumoured.
Third, this car czar should break GM and Chrysler (and may be Ford) into two design/marketing companies, one engine company, and two assembly plant companies. These companies should all operate independently.
Forth, the two design/marketing companies only design and sell cars. They outsource the manufacturing of their designed cars to the assembly plant companies.
The assembly plant companies, according to the designs, buy engines from the engine company and other parts from other parts companies and assemble them together.
The engine company will specialize in producing the best and most energy-efficient engines. It can sell these engines to whoever wants to buy.
In fact, all of these companies will have right to deal with others such as Japanese, German or Korean car companies.
But the latter have the current business model working for them. They may not be interested in changing the status quo.
On the other hand, the Taiwanese and Chinese don’t have as much stake in the existing model and have incentive to try the American new business model.
You may find this new business model familiar. You are not wrong because it exactly copies the current computer hardware business model.
And who are the big players in the computer hardware business?
America’s Dell, HP and Apple, Taiwan’s Acer, and China’s Lenovo are designers and marketers. America’s Intel, AMD and Nvidia are chipmakers. Taiwan’s Hon Hai, Quanta and Compal are manufacturers and assemblers.
The computer business is constant innovation and cost reduction. If the model succeeds for car business, consumers will benefit and the environment will benefit as new energy-efficient technologies will surely result.
One caveat though, I don’t think Americans alone can pull it off. They need the help of Taiwanese and Chinese – this is, the US needs China and Taiwan to buy into the same new business model to have a sufficient number of competitors in each of the specialized segments so that competition and innovation will make everyone better.