The further to the left or the right you move, the more your lens on life distorts.

Monday, June 16, 2008

Music and Cars

It occurs to me that the music industry and the automobile business have a lot in common. About 10 years ago, as the digital revolution gained strength, music companies of the day failed to see the profound changes that online access to digital music files would have on their supremacy, their distribution system, their profitability, and their survival. Rather than embracing the new paradigm, the music industry insisted on protecting the old one. As a consequence, profits fell, business contracted, new players entered the game and slowly squeezed out the big established music companies. Looking back, the writing was on the wall, but the major players believed they could control events and erase what was written. Later as events accelerated, they thought they could play catch-up, but they couldn’t. They failed to understand that not all trends are transient and that once a tipping point is reached, you can never reverse events.

I contend that we at the same point for the auto industry. As gas prices climb above $4.00 per gallon in the US, the buying public is approaching a tipping point. We're not there yet, but it’s coming. And when it does—when the average consumer changes his perception of the automobile and demands alternatives that use little if any gasoline, the existing auto industry may crash in much the same way as the music industry did.

I’ve noticed a fascinating advertising trend over the past year—coincident with the precipitous rise in gasoline prices. Major car makers (e.g., GM, Honda, BMW) have begun running national TV ads about cars that do not yet exist and are not yet for sale. PHEVs, hydrogen vehicles, fuel cell vehicles are all touted as the company’s focus, its mission, its future.

But where are they? Why has it taken so long, for example, to introduce PHEVs (plug-in hybrid electric vehicles) when the technology (although not perfect) to deliver them has been available for a decade? Why is their styling so stodgy? Why did GM and Toyota precipitously kill electric car efforts during the 1990s, rather than working feverishly to perfect the technology for the mass market of the 21st century?

It appears that Big Auto wants to give the impression it has recognized that a new paradigm is coming, but its approaching change with great reticence. Just like the music companies did.

Obviously, there are major business issues involved, but the simple truth is that few of them really matter. When a paradigm shift begins—lead, follow or get out of the way. It appears that Big Auto hasn’t decided what to do, so it talks the talk (the TV ads) without walking the walk (introducing some of these alternative vehicles NOW!)

As a consequence, startup companies (e.g., Tesla, Fisker) as taking the lead and will have vehicles on the market in 2009 and 2010. Can they beat the majors? The industry cognoscenti say “not a chance.” But then again, that’s what the music industry execs said in the 1990s, isn’t it?

Update (6/17/08) reports:
The FCX Clarity, which runs on hydrogen and electricity, emits only water and none of the gases believed to induce global warming. It is also two times more energy efficient than a gas-electric hybrid and three times that of a standard gasoline-powered car, the company says.

Honda expects to lease out a "few dozen" units this year and about 200 units over three years. In California, a three-year lease will run $600 a month.

So ... 200+ units over the next 3 years. That should alleviate our oil dependency. Not. Faster, please.