On November 13th, Neil Young put forward an open letter outlining his proposal for how to fix the failing Detroit-based American automobile industry. NPR picked up the story on the 17th, and what proceeds is largely based on a comment I planned to reply with on NPR.org regarding the story. However, NPR’s comment system limits comments to 400 words, and the comment I had drafted tipped the scale above 1000. I clipped my entry down to 400, and am instead redrafting the initial piece here. That is, of course, the point of owning your own website. And fair warning ahead of time, I cut this thing short at 1400 or so words.
In his letter “How To Save A Major Automobile Company,” Neil Young states a desire, his desire, that every auto manufacturer who accepts bailout money from the federal government must agree to sweeping, radical changes the govern how these companies are run. Mr. Young’s plan calls for top down changes, a general cleaning of house at the managerial level, sweeping out the ineffective and replacing them with forward thinkers, non-specifically those who have experience guiding more technologically focused fields.
However, Mr. Young’s plan also proposes a set of very strict guidelines that would halt the production of the classic, internal-combustion automobile. His general desire is to drastically shift the entire industry towards the production of Self-Charging Electric Vehicles, or SCEVs. Mr. Young’s plan to do this is to produce the vehicles as they currently stand, but to leave these vehicles as what he calls “transition rollers.” That is a vehicle produced almost to completion though lacking a transmission and an engine. These vehicles would then be fitted to run on current-state electric, or gas-electric motors capable of serving as a stop-gap until the technology exists to produce true SCEVs.
I should say that I support the motivation of Neil Young. Unlike the picture so often presented of a the musician or actor taking advantage of their public profile to espouse their personal beliefs, Mr. Young actually does put his money where his mouth is. He is one of the larger backers and an active participant in a company called LincVolt. LincVolt’s entire mission is to take classic, American cars, remove the internal combustion system, and instead replace these systems with electric power plants. LincVolt works largely because of it’s scale, it’s small, and thus able to capitalize on the relative level of demand for the type of service that it offers.
The concepts that LincVolt has are all very proper solutions to the current situation that the American people, not just the automobile industry, face. However, Mr. Young’s more drastic approach is not. His approach isn’t wrong for wishing to drastically change the cars that Detroit is producing. He’s not wrong for wanting to sweep out the leadership that has largely been deemed ineffective by the woefully unsympathetic judge that is free market capitalism. And he’s not even wrong in proposing that we adapt a stop-gap technology before finally settling on a permanent or semi-permanent replacement for fossil fuel based internal combustion systems. No, Mr. Young is wrong on two very important areas – scale and timing – and how these areas have been models of change in other areas of our day to day life. His scale is too vast and his timing is too poor.
Mr. Young’s proposal is doomed by what Joseph Heller termed “catch twenty-two” – the only time that the federal government could realistically pass such demanding legislation is now, when our country is marred in an economic catastrophe. However, it is this economic situation which would also doom such a plan. The reason is that even if the government were to follow Neil Young’s plan to the letter, there would be far too few buyers to enact the type of change he wishes to bring about.
The law of supply and demand has Mr. Young’s proposal over a barrel. Why? It’s obvious that there is demand for alternative vehicles. The Toyota Prius has been known to actually gain value after being sold and the Chevy Volt is in high demand a year before it’s slated to even be sold. However, that level of demand is hampered by the large scale credit freeze and slow down in overall spending. The perceived demand is more accurately described as a desire. Actual demand, that which is measured in actual buyers, comes nowhere close to the levels which would allow these automakers to continue to make and sell cars while maintaining a positive margin required to continue the process. Though the modern American automobile is weighed down with the pension and benefits of workers present and past, implementing a sweeping change such as this would mean that the new American auto would also be saddled with the cost of new technology.
The concept of starting from a clean slate is appealing in theory, but would prove to be a nightmare in practice. A much more fitting example would be to look at the same industry which Mr. Young proposes the new auto industry talent be culled from – technology. The computer industry, specifically the personal computer industry, serves as an apt analog for the model that the car of tomorrow should be modeled from.
Truth be told, the alternative fuel industry is in much the same situation today, that the personal computer industry was in at the dawn of the 1980s. Back then, computers were slow, large, expensive, and were stacked against an alternative that worked “well enough” – that of paper, pencils, and calculators. But, business as a whole, and a few leaders individually, took to using computers. The competing technologies were judged based on their own merits, and eventually standards arose. The more adopters that a particular computer company had, the easier it was to overcome the initial research costs and the more practiced the producers became. As expected, prices fell. Businesses, which had the most to gain from the computer revolution in terms of increased productivity, shouldered the initial risk and production costs. As that cost was reduced, more and more people started to adopt computers. Soon they made the jump from the office to the home. And the home to the lap. Then the lap to the pocket and to near ubiquity.
The cell phone followed much the same path. And the industries that have formed as off shoots of the computer industry? Like the iPod? The original device was roughly the size of a deck of cards, only came in stainless steel, held a scant 5gb of data, worked with less than 5% of the world’s computers (those running either OS 9 or OSX) and cost an astounding $399. Again, Apple started with a specific subset of buyers, early adopters willing to pay a premium for the initial risk, essentially backing a desired winner. As the price of risk is reduced, the number of people making the change from old to new is increased, often exponentially. And this change isn’t limited to technology, it’s the basis for our entire universe. The reason everything is made of matter instead of anti-matter is due to an imbalance of just one atom.
Mr. Young’s proposal is an attempt to solve two problems with one solution. And because of this, it appears that neither would really get solved. Rather, these two problems need to be addressed independently. The automobile industry must find a way to become economically viable, and America as a whole will have to settle on what the successor to gasoline-based internal combustion will be. The first problem could be legislated into being by attaching strings on a bailout package, the other not so much. To solve the problem with alternative fuels, we must look for who would benefit most and compel them to take the risk of early adoption. When the eventual cost does come down, when the research tax has been paid and production has been sorted out and established, the demand will be there and hopefully the economy will be in a state more willing to buy.
Luckily, there are myriad businesses which would benefit greatly from a sharp reduction in fuel costs, even at the price of an expensive initial investment. The package shipping industry, both private like Federal Express and UPS, or federal like the Postal Service, are obvious candidates for Neil Young’s SCEVs, provided they can overcome the distances that these vehicles travel on a daily basis. And they’re not alone. Taxi and limousine companies, public transportation, long-distance truckers, even restaurants that deliver would all stand to benefit greatly from alternative fuel vehicles. Any one of these industries have the ability to shoulder that initial investment that the American people are too cash-strapped as a whole to endure.
The solutions are out there, they just aren’t in the letter that Mr. Young wrote.