New developing model for auto industry? Commoditization?

[raider.adam]

Ford turns to a supplier to build an electric car - Mar. 20, 2009

Wouldn't that be an interesting twist in the evolution of the car industry? Sort of how computers are. HP, IBM, Sony, etc. make so few of their own components and just buy from common manufacturers to build and sell their products.

What if autos went the same route? Manufacturers like Magna sprout up selling engine packages , suspension systems, etc that a variety of car "assemblers" can purchase and incorporate into their bodies?

[eldondre]

Dodge was originally a motor company, before industry consolidation. they actually supplied Ford with motors until Ford got so big they started building their own, which is when Dodge got into the motor buggy business.

[Illiniwek]

I wonder. A lot of the parts suppliers are closely tied to major companies, even as they supply their competitors as well.

No one is praying harder for the survival of Detroit than all the start-up companies making electric cars. Without Detroit, the companies the start-ups are depending on for all sorts of parts would go under.

[billy ross]

I wonder. A lot of the parts suppliers are closely tied to major companies, even as they supply their competitors as well.

No one is praying harder for the survival of Detroit than all the start-up companies making electric cars. Without Detroit, the companies the start-ups are depending on for all sorts of parts would go under.

Cars are going to get really expensive, just like oil spikes up in price every so often. When the infrastructure goes away in an attempt to 'rightsize', what happens when demand recovers? Prices spike because the productive capacity to meet demand isn't there. That is why the feds need to keep the parts and general automotive industry from going away. It is also why the Feds need to put a pretty big tax on oil right now, to discourage excessive consumption, because shortages will return, and we shouldn't base our economy on temporarily cheap oil.

[eldondre]

who says it's going to recover? They need to rightsize. There are too many dealers, cars last longer. Demand was artificially high with cheap credit. Demand will likely not reach those levels for years. I don't see the parts going away, the industry does need to restructure

[billy ross]

About 11 million new cars were sold in the US last year, but 15 million were scrapped (remember what I said about Japanese cars not lasting and how people have been fooled into thinking that they are buying something indestructible when in reality they are buying something which is particularly ephemeral?). We're on track to scrap another 15 million this year, and we're on track to sell about 10 million. Thus over the course of two years either a one year backlog has gotten built up, or Americans are permanently reducing the size of their collective automotive fleets. I vote for 'A'.

The American car fleet is about 250 million light vehicles. At 15 million per year the median life would be about 17 years. At 9 million per year (the selling rate so far this year, but I think it's got to go up), the median life would be about 30 years. Yeah, right. All those Toyota Camrys and Subaru wagons have a snowball's chance in hell of getting to 30 years. The Chevys, on the other hand...

[phillyaggie]

All those Toyota Camrys and Subaru wagons have a snowball's chance in hell of getting to 30 years. The Chevys, on the other hand...

...can last one for 3 years, no problem.


to compare this with another industry: Boeing is becoming more and more of an assembler rather than making its own parts. A few years ago, they spun off the division that used to make fuselage and wing parts for them. Now it's an independent company, Spirit Aerosystems. Except for a few, probably not many people know about Spirit and the central part it plays in building a lot of those Boeing planes. Now they also supply the same parts to Airbus as well.

BTW: if you want to buy into airplane stocks, can't go wrong with SPR...it's in the thick of things as far as new planes are concerned. Aything BOeing AND Airbus builds will likely have big chunks made by Spirit. The stock's cheap relative to Boeing.

[Illiniwek]

Cars are going to get really expensive, just like oil spikes up in price every so often. When the infrastructure goes away in an attempt to 'rightsize', what happens when demand recovers? Prices spike because the productive capacity to meet demand isn't there. That is why the feds need to keep the parts and general automotive industry from going away. It is also why the Feds need to put a pretty big tax on oil right now, to discourage excessive consumption, because shortages will return, and we shouldn't base our economy on temporarily cheap oil.

A commodity isn't a good price model for a durable good. The problem with the automotive industry is that there is excess capacity, not a shortage.

The feds don't need to keep the car industry from going away; it won't. But they need to let it contract, as it must.

[eldondre]

About 11 million new cars were sold in the US last year, but 15 million were scrapped (remember what I said about Japanese cars not lasting and how people have been fooled into thinking that they are buying something indestructible when in reality they are buying something which is particularly ephemeral?). We're on track to scrap another 15 million this year, and we're on track to sell about 10 million. Thus over the course of two years either a one year backlog has gotten built up, or Americans are permanently reducing the size of their collective automotive fleets. I vote for 'A'.

you can't look at two years and draw a conclusion. you woudl probably want to look at twenty years of data to draw a reasonable conclusion. remember, low interest financing has been used to entice people into buying new cars sooner than later since 2001 at last.

The American car fleet is about 250 million light vehicles. At 15 million per year the median life would be about 17 years. At 9 million per year (the selling rate so far this year, but I think it's got to go up), the median life would be about 30 years. Yeah, right. All those Toyota Camrys and Subaru wagons have a snowball's chance in hell of getting to 30 years. The Chevys, on the other hand...

where are you getting these figures? I've heard that people generally keep their cars for nine years, which is actually up two years form the 1990's meaning the replacement rate has slowed. that was from a journal article I think. nonetheless, if people had been buying more cars in the past and less now, you'd get an average rate. using two years worth of data to make long term conclusions ignores this. moreover, you are assuming that 250 million vehicles is the natural or desired size for the american car fleet.

[eldondre]

A commodity isn't a good price model for a durable good. The problem with the automotive industry is that there is excess capacity, not a shortage.

The feds don't need to keep the car industry from going away; it won't. But they need to let it contract, as it must.

toyota was able to differentiate based on quality but if all companies start making good quality cars, they're no longer differentiated fro the others. this is starting to happen. toyota saw this and began investing heavily in R&D. They have produced a lot of innovations as a result but they are now questioning whether these innovations have a positive ROI or not. with GM, ford, and hyundai improving quality, consumers will have more choices and should keep a lid on price pressure. moreover, car companies are trying to develop cost effective cars for the third world.