One way to save the auto industry

Instead of financial restructuring and bailing out failed labor contracts, perhaps the auto industry could be saved by coming up with a new way to make better products. (Could happen, right?)

A great article by Charles Mann in the June Wired quotes Henry Chesbrough as recommending open innovation. Noting the slow rate of change in the industry, Henry said

“It's as if the computer industry were still dominated by Wang and Data General and DEC, and they were still selling minicomputers.”

Despite my disagreements with its lousy PR efforts, I think Tesla Motors (a Silicon Valley car company) is well ahead of Detroit in implementing open innovation. For its electric sports car, Tesla utilizes car bodies and assembly from Lotus Cars (using external innovations), as does one competitor. Meanwhile, it has just agreed to sell its batteries to Daimler (licensing internal innovations).

The article also quotes another very smart innovation economist, Steve Klepper of CMU.

A radical reconfiguration may be the only way this vital industry can survive on these shores. "They're going to have to swing for the fences," says Steven Klepper, an economist at Carnegie Mellon University who studies industry innovation. "The only way I can see for them to win the game is to change it entirely."

In his article, Mann reveals his great love for the US auto industry and desire to see it rise again:

I should declare a personal interest here. My father worked as a Big Three executive for much of my childhood, most of that time at Ford. He left to run his own marina, but he always remained loyal to Detroit. He never bought a foreign car. I didn't buy one until after his death, and even then I felt like I was thumbing my nose at his memory. I would like to return to a US product. More than that, I would like millions of Americans—people who don't share my sentimental ties—to come back to vehicles from US companies.

Keppler is right. Ford could survive as the last man standing of a sickly US auto industry (think Renault or Fiat), but on the current trajectory the other two companies have very long odds.

Chrysler’s solution is to become a subsidiary of Fiat, which is likely to bring more of the same — a two-country vertically integrated car company (didn’t work last time). Since it has the least to lose, perhaps GM could take the lead in using external sourcing of technology.