Apple Must 'Think Different' On Cars, Or Join Ranks Of Failed New Brands
Is Apple about to change our lives again?
The company's stock has been on the rise this week, partly because of a rumor that Apple wants launch a line of cars, and do it by 2020.
Wall Street and Silicon Valley are excited, but people in the car business? Not so much.
"Why in the would would any sane company want to get into the car business right now, when the risks essentially are huge?" says Bill Visnic, senior editor with the automotive website Edmunds.com.
Recalls, labor relations and safety regulations are just a few of the challenges. And the rewards haven't always been great — just count up the bankruptcies.
"The margins in the car business are remarkably thin," Visnic says.
He points out that Apple can turn a profit of a few hundred dollars on an iPhone — the same cut a car dealer is happy to make on a sedan that costs 30 times as much.
Matt Anderson, curator of transportation at the Henry Ford Museum in Dearborn, Mich., says it's been nearly a century since a new car company really established itself.
"Some people would argue that the door kind of closed to new entrants in the automobile industry in the 1920s, when Walter Chrysler got in," he says.
Anderson says all kinds of companies in the past century got in the car business — watch companies, bike companies, carriage companies — because it seemed a natural fit to them. Almost all failed.
Sears and Roebuck — a disruptive innovator much like Apple in the early 20th century — produced an automobile from about 1908 to 1912.
"They certainly had a built-in name recognition and customer base, so maybe it didn't seem so far a leap for them," Anderson says.
Sears got out the business as the pace of the industry picked up and Henry Ford's Model T began to take off.
The lesson seems to have been that you can't make the car business a side project.
Bob Lutz, who in the past 50-plus years has been an executive at all three of the big Detroit companies, says every few years he got to know a reformer who came along with plans to reinvent the business — Preston Tucker, John DeLorean, Swatch founder Nicolas Hayek.
"[Hayek] decided that we in the car business were all dummies, were all a bunch of dinosaurs, and so he was going to do what he called the Swatch car," Lutz says. "He invested a great deal of his own money, and lost it all."
That company was eventually bought, and evolved into what are now Smart cars, a division of Daimler AG.
Lutz is on the board of several tech startups and says he can understand the ambition to fix the car business from young, hungry tech people.
The thing is, lead times in the tech world for developing and producing a product are as short as weeks or months — but because of safety and fuel regulations in the car business, getting a product to market takes years.
And launching a buggy product with plans to provide fixes down the road isn't tolerated, an idea that comes as huge surprise to those in the tech world.
So is Apple really going to build actual cars with factories and all the headaches? Bill Visnic, Bob Lutz and other car insiders don't think so, suggesting Apple instead is angling to be the default operating system for vehicles in the future.
Lutz says he thinks it would be good for the industry if Apple were a player in the automotive space, especially as autonomous and semi-autonomous vehicle systems develop.
"That would be a huge business," he says. "That's a far better business proposition than trying to build your own car."
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Transcript
SCOTT SIMON, HOST:
Apple stock has been on the rise this week. That is partly because of just a rumor that Apple wants to build a car by 2020. While Wall Street and Silicon Valley seem excited, Detroit remains skeptical. NPR's Sonari Rhodes Glinton reports.
SONARI RHODES GLINTON, BYLINE: When you hear that Apple wants to get into the car business, you might think - oh, wow, sweet, an iCar or Car MacPro. But people in the car business are like yeah, not so much.
BILL VISNIC: Why in the world would any sane company want to get into the car business right now when the risks essentially are huge?
GLINTON: Bill Visnic is with edmunds.com, the auto sales website. He says recalls, labor problems, all the safety regulations, fuel economy standards and the multiple bankruptcies - those are just the first risks that come to mind.
VISNIC: And the rewards in the meantime historically - and are well known to everyone in the financial industry - the margins in the car business are remarkably thin.
GLINTON: Visnic points out that Apple makes a couple hundred dollars on an iPhone. A car company is happy to make not much more than that on a sedan.
MATT ANDERSON: My name is Matt Anderson, curator of transportation at the Henry Ford.
GLINTON: That's the Henry Ford Museum in Dearborn, Mich.
ANDERSON: Yeah, some people would argue that the door kind of closed to new entrants in the automobile industry in the 1920s when Walter Chrysler got in.
GLINTON: Anderson says Apple is certainly not the first big company to get into the car business after it was successful someplace else.
ANDERSON: Sears for several years produced an automobile from about 1908 to 1912.
GLINTON: Remember, Sears was the innovator, the disruptor, the Apple of the time.
ANDERSON: They certainly had a built-in name recognition and customer base, so maybe it didn't seem so far a leap for them. It was only when they realized they were selling the cars for less than what they could make them for that they decided it was time to get out of this. The industry was just changing too fast for them.
GLINTON: Anderson says all kinds of companies over the last century got into the car business because it seemed like a natural fit - watch companies, bike companies, carriage companies - almost all of them failed. Bob Lutz is the former chairman of General Motors and the former chairman of Ford Europe and the former vice chairman of Chrysler. He says every few years, a reformer comes along who thinks they're going to change the business - people like Preston Tucker or John DeLorean or Nicholas Hayek, who founded the Swatch watch company.
BOB LUTZ: He decided that we in the car business were all dummies and we're all a bunch of dinosaurs. And so he was going to do what he called the Swatch car. And he invested a great deal of his own money and lost it all.
GLINTON: Lutz is on the board of a bunch of tech startups. He says lead times in the tech world are weeks or months, as opposed to years and years in the car business. He says the stakes are just lower in the tech world. Remember the first BlackBerry?
LUTZ: Like BlackBerry back in the old days, they'd crash once a day, you'd have to do a battery flip and then wait two minutes for it to reinitialize. And in the world of consumer electronics, that's OK, well, it is not OK in the world of the automobile. And this always comes as a huge surprise to them.
GLINTON: OK, so is Apple actually going to build actual cars and factories with all those headaches? Bob Lutz says no.
LUTZ: They'll make their money off of the hardware and software that they will offer to the automobile companies when they do the autonomous cars of the future.
GLINTON: Because trying to build a car - that would be kind of stupid.
LUTZ: Well, why would you want to do that? I mean, I know they have a ton of money, but the shareholders don't like it when you waste money. And spending the $10 to $14 or $15 billion that it would take to get into the automobile business would be a total waste of money.
GLINTON: Then again, many people said the same thing when Apple got into the computer business or the music business or the phone business. I mean, you can see how that worked out for them. Sonari Glinton, NPR News, Culver City. Transcript provided by NPR, Copyright NPR.
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