Former General Motors CEO Urges Apple To Steer Clear Of Automotive Manufacturing Industry

FEB 27 2015 BY ERIC LOVEDAY 80

Outgoing CEO Dan Akerson Stands In Front Of The Car He Really Didn't Do Much For

Outgoing CEO Dan Akerson Stands In Front Of The Car He Really Didn’t Do Much For

Former General Motors CEO Dan Akerson thinks it wouldn’t be wise for Apple to enter the business of actually manufacturing automobiles.

Quoting Akerson:

“I think somebody is kind of trying to cough up a hairball here.  If I were an Apple shareholder, I wouldn’t be very happy. I would be highly suspect of the long-term prospect of getting into a low-margin, heavy-manufacturing business.”

As Akerson states, the business of making cars is actually very difficult due to government regulations, safety requirements and so on:

“A lot of people who don’t ever operate in it don’t understand and have a tendency to underestimate.”

Instead of actually making cars, Akerson suggests that a wiser move for Apple would be for it to produce operating/entertainment system that go into cars:

“I would’ve signed it over.  I’d have turned over the infotainment and interconnectivity of every GM car.”

The margins aren’t there for car manufacturing either:

“Look at the margins of an iPhone versus a car.  I’d rather have the margins associated with the phone and produce 74.5 million of the devices.”

According to Bloomberg, this is how the financials played out last quarter for Apple and General Motors:

“Apple reported net income of $18 billion for the quarter that ended in December, along with gross margin of 40 percent. GM posted a profit before cash preferred dividends of $1.99 billion during the same period, and its gross margin — the percentage of sales left after subtracting production costs — was 14 percent…”

Akerson concludes:

“They’d better think carefully if they want to get into the hard-core manufacturing.  We take steel, raw steel, and turn it into car. They have no idea what they’re getting into if they get into that.”

Source: Bloomberg

Categories: Apple, General

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80 Comments on "Former General Motors CEO Urges Apple To Steer Clear Of Automotive Manufacturing Industry"

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That article makes a good point!

It’s really not a very good point at all.

“But the logic that says Apple can’t have a high margin car business would also say Apple can’t have a high margin smartphone business.”

No, the logic does not say that.

Apple makes high margins by taking about $15/mo from your monthly phone bill without you knowing, which is not a big deal in the grand scheme of things for something you like and use daily.

High margins in a car mean charging $10k more than competitors, which is another thing entirely.

Nope. You can’t build cars like Silicon Valley (or Apple) builds computers. Thinking that you can was a big mistake that Martin Eberhard and Marc Tarpenning made, when they founded Tesla Motors.

I’m sure it was no surprise to Detroit that Tesla wound up hiring some Detroit executives with experience building traditional cars, before Tesla managed to start producing its first car, the Roadster.

I don’t think Apple will make the same mistake. I rather expect that the leaders of Apple do understand that you can’t run a heavy industry (making cars) like they run a light industry (making consumer electronics).

I find it funny you use the “Tesla” example, as they now sell 35,000 cars for $100,000+. That’s success. A CEO knows when to hire the best talent.

The only “problem” with Tesla now is it’s ambitions are far greater then just being the next BMW. They already are the next BMW. They’re shooting for total control of the market, and so would Apple.

Apple has a long track record of hiring the best talent, I don’t see how or why they would not continue that business philosophy.

Ask Dell, Nokia and Motorola if Apple can’t compete.
I would never bet against Apple.

Mike989 said:

“I find it funny you use the “Tesla” example, as they now sell 35,000 cars for $100,000+. That’s success. A CEO knows when to hire the best talent.”

Sure, Tesla is -now- a successful company, and I’m a big fan. But if you read “Tesla’s Wild Ride”, the tell-all story of the company’s problem-filled early years, then perhaps you’ll understand why Apple — just like Tesla — can’t build cars like computers:

http://archive.fortune.com/2008/07/10/technology/copeland_tesla.fortune/index.htm

Mike989 continued:

“Ask Dell, Nokia and Motorola if Apple can’t compete.”

Do you really not get the point that none of those companies make anything even remotely approaching a requirement for heavy industry?

You could just as well argue that since Kellogg’s is great at making breakfast cereal and Keebler cookies, they should have a go at making airplanes.

Tesla is still learning the auto business lessons as well. It’s easy to throw stones when you have no clue of what’s involved.

I’m actually for Apple building cars. They will stumble, but they may also come up w/a better mousetrap in some areas. I would prefer the work to be in the US (or the countries that the cars are sold).

Wonders if “Foxoconn Motors” building will also have suicide nets around it? 😉

Seems to me that in the unlikely event Apple does wind up actually making cars, they’ll almost certainly have them largely made and assembled in China… just like they do with their consumer electronics. Why would they try to do that in the USA, where both labor and parts cost more?

I have a lot of respect for Tesla in making a car that uses so many “made in the USA” parts, and for assembling the car here in the USA. They say that when Tesla starts using batteries from its Gigafactory in Nevada, then the Model S will be the most “made in America” car of all. Not just all EVs, but -all- cars.

One reason would be logistics. Not just for supplier parts, but shipping cars cost a lot more than shipping iPods.

Another reason would be a workforce that knows how to build cars (this includes suppliers and integrators). Why go through the pains of trying to set this all up in China, especially when you have less than 5 years.

Quality control becomes and issue too (also with suppliers). There’s more involved in making a car than an mp3 player.

kdawg said: “One reason would be logistics. Not just for supplier parts, but shipping cars cost a lot more than shipping iPods.” Well, Nissan did set up both battery factories and auto assembly plants for its Leaf (and other car models) in the USA and the UK, and as a result can make a lot more money selling Leafs in the USA (and I would guess the UK, too). So that supports your argument. But labor costs in Japan are now a lot higher than they were a few decades ago. And given Japan’s lack of domestic resources, including the need to import steel and oil, it certainly makes sense to “export” the manufacture to the USA, at least for the American market. So, I don’t think the same argument holds for Apple moving manufacture from Southeast Asia and China to the USA. Surely the cost of shipping a car overseas would only be a small fraction of the money they save on sweatshop labor in China, Taiwan and other Asian countries. kdawg asked: “Why go through the pains of trying to set this all up in China, especially when you have less than 5 years.” Hmmm, okay, I thought… Read more »

the downside of that would be the Chinese making their own version of the same product which was net as well put together and sold for half the price, like the Chinese Land Rover Evoque

It really surprises me that so many people are so willing to believe that Apple does not understand that getting into the business of making cars is a very different business model than what they currently have, or that it has a much lower profit margin.

I seriously doubt that Apple is actually planning to get in to the business of making cars. Making stuff to go -into- the cars, yes. Stuff quite possibly including the sensors, controls, processors, and software needed for a self-driving car. That would appear to be very much in line with what Apple currently makes, and I can easily see auto makers contracting with Apple to supply a system for a self-driving car which can be integrated into car bodies the auto maker is manufacturing. GM, Ford, Toyota et al do not specialize in things like computers, software, or video cameras. Apple does, so it makes sense for auto makers to look to Apple for an integrated package of sensors, hardware, and software for self-driving cars.

But in the unlikely event Apple -does- decide to get into the business of making mass-produced cars, I feel confident they’ll do it with eyes wide open.

Dan Akerson and all the naysayers should just look at Samsung, which is a multinational conglomerate. “Samsung comprises around 80 companies. It is highly diversified, with activities in areas including construction, consumer electronics, financial services, shipbuilding, and medical services.”

https://en.wikipedia.org/wiki/Samsung

I notice they don’t build cars.

You’re slipping kdawg. 😉

Actually, Samsung does build cars as the minority owner (19.9%) of Renault Samsung, and even makes a BEV named the SM3 Z.E.. Samsung used to own 100% of the company, but had to sell a majority interest when the Asian financial crisis hit in 2000.

The Renault Samsung SM3 Z.E. was even reported on by none other than InsideEVs. 😀 They will probably be good sellers on South Korea’s soon to be all-electric Jeju Island.

http://insideevs.com/renault-samsung-motors-begins-production-of-sm3-z-e-wvideo/

A division tried to make cars in 1994 and failed. In 2000 they got bought by Renault, but kept the commercial vehicles, which then went bankrupt. Renault increased ownership but business was never good. Now the Samsung moniker has been removed as the cars are just “Renault”.

This just further proves the point that the auto business ain’t easy. I’m surprised (happily) that Tesla is still going. Apple has the $ to waste, but it won’t be easy. They could probably save a lot of headache by doing what Samsung was forced to do, and let an existing auto company run the show.

I’d rather that Apple try to get to their goals from the ground up, as Tesla has done. They may stumble along the way but they will benefit from it in the end.

I know for a fact that some of the legacy carmakers are *way* behind state of the art when it comes to electrical systems. Obviously there’s a lot more to making a car than the electrical systems and the software but those aspects are becoming increasingly import relative to the ‘heavy’ physical parts.

Thank you for pointing out why it would make sense for Apple to become a supplier -to- auto manufacturers; a supplier of electronics and high-tech parts. That fits Apple’s business model, whereas actually building cars (or “Titan” vans) definitely does not.

Lensman
(BTW, is your tag an E.E. Doc Smith reference? Always liked that series…)
Apple may or may not be working on a car-control SW platform, but they are definitely not going to be a component supplier firm. Apple has always, since Wozniak split with Jobs (and that’s part of the reason he left), been first and foremost a high-end consumer appliance company. They don’t sell to businesses, and they insist on keeping full control of everything to do with their products. I used to work for a Mac silicon vendor (who was much larger than APple itself at the time), and all this was very clearly a key part of the corporate culture.
Becoming a physical component supplier would be a much more radical shift for Apple than making cars.

kdawg said: “Now the Samsung moniker has been removed as the cars are just ‘Renault’.”

Actually, the Samsung moniker was removed only in markets outside South Korea and the cars are now sold as rebadged Renaults in these markets. In the domestic South Korea market, the cars are still branded as Renault Samsung Motors. I can read Wikipedia just like you, but I paraphrase better. 😉

http://en.wikipedia.org/wiki/Renault_Samsung_Motors

kdawg said: “[Apple] could probably save a lot of headache by doing what Samsung was forced to do, and let an existing auto company run the show.”

Or Apple could do what Samsung should have done in the late-1990s, buy a struggling auto company and run the show. Samsung could have easily bought a struggling Nissan in the late-1990s. Instead Renault entered into an cross-shareholder agreement with struggling Nissan to form the Renault-Nissan Alliance, and then purchased a majority interest in Samsung Motors when the Asian financial crisis hit in 2000.

Like you said “the auto business ain’t easy.”

“I would’ve signed it over. I’d have turned over the infotainment and interconnectivity of every GM car.”

Boy, having an integrated Apple infotainment system would be amazing.

Does this GM guy have a clue what Apple can do with a solid block of aluminum? He thinks they’ve never engineered things using various metals before…

Hilarious! 😀

Inside Tesla’s auto assembly plant:

Inside an Apple factory:

I think Apple understands the difference, even if you don’t.

Looks like a dreadful place to work, even if the salary was decent.

Alonso: Hence, the suicide nets around the building. 😉

Lens: Do a direct comparison, please. Tiny things obviously require the dexterity of human hands for assembly: so you get cheap labor for that. Apple would clearly use large automotive robots– just like Tesla, when building larger scale products. It’s silly of you to assume they wouldn’t know better. 😛 Just slap an Apple Logo on the Tesla Plant image you posted, and it would be equally relevant as an example for Apple’s automotive approach.

Did you actually read the “Tesla’s Wild Ride” article I linked to, or are you just ignoring the lesson there?

“Those who fail to learn from history are doomed to repeat it.”

http://archive.fortune.com/2008/07/10/technology/copeland_tesla.fortune/index.htm

I think somehow one of Telsa’s red factory-uniforms got mixed in with Foxconn’s white factory-uniforms in the laundry. I hate when that happens! 😀

Why assume Apple will use steel bodies?
Whatever they do it will the vey latest tech and look very modern. I would not be surprised if it is a driverless city car for those tech savvy youngster that never got their licenses. I also doubt it will be built in huge numbers.

It was an assumption based on his personal experience with steel cars. No one else said Apple wouldn’t use something else. As I’ve pointed out elsewhere, Apple has an amazing understanding of aluminum fabrication…

Yes, they made miracles integrating the ever shrinking Mac Books iphones and ipads in all aluminium shells.

And carbon fiber.

Lets see here is a former CEO of a company that went bankrupt giving advise to Apple, a company whose stock has appreciated a thousand fold.
Hmm, well. I suppose they could look at GM and say well we will not do anything like they did, and we (Apple) will be just fine.

Well, you know what they say about past performance. Cook’s Apple isn’t Job’s Apple. Jobs died when Apple was at its technical peak, with enormous growth momentum.
Now, Apple is seeing consistent software bugs in both iOS and OS/X, with some key people gone, such as Scott Forstall.

These problems might be temporary, or might indicate a trend. At any rate it is far from proven that Cook can lead the company into new directions. We’ll see what happens with the watch.

It also bears remembering that Apple’s stock rose such a high percentage because it had collapsed in the first place, when Jobs was absent.

+1

One thing I have to say about GM, they seem to be one of the few who takes the Tesla threat as real.

With the Volt and the new Bolt.
The future three of the auto industry: Tesla/Apple, BMW and Nissan. No one else has a plan for the upcoming EV revolution.

Sheesh, I forgot GM.
So, possibly 5 or 6 companies planning for the EV future.
GM, Apple, Tesla, Nissan, BMW, Mitsubishi.

You might want to short the other companies.
Solid state batteries will create EV’s cheaper then ICE vehicles.

I wouldn’t discount Daimler, either. They have a lot of engineering talent, and as a company, I think they’re better run than GM (they certainly generate a lot more profit from less sales). Daimler still has a stake in their former large aerospace arm as well.

“If I were an Apple shareholder, I wouldn’t be very happy”

More like if you are an GM shareholder, you wouldn’t be very happy…

I definitely think you decoded what he really meant.

I *am* an Apple shareholder and I’d be extremely happy if they into manufacturing cars.

They need the next big thing, and a watch won’t be enough.

Well, what’s in the value of an Apple share? Its capital that earns that share price a price multiple, driven by the 40%. Just because you’d be happy if Apple went into a 14% business, does not mean the rest of apples shareholders would like to see 40% diluted by 14%.

Apple has problems others dream of. Where to reinvest? They just put 850mm to work, buying solar electricity at twice the going commercial rate (~$.13/kwh vs. $.053-.055). Apple’s shareholders, like Tesla’s, will accept lower returns, to endorse what the company is doing, but beyond skill set there would still be a financial impact others are not apt to tolerate.

Akerson had a short-term crowd breathing over him.

Because the current high margin products might not last forever.

You can’t base their car margins on what the likes of GM are producing. They’ll probably have margins closer to Tesla, or even higher.

Tesla’s -gross- profit margin is 25%. Elon Musk says they hope to get 15% gross profit on the upcoming Model ≡.

Net profit? Well, that’s arguable. By GAAP accounting methods (Generally Accepted Accounting Principles), Tesla doesn’t make any net profit. In fact, they consistently run a net loss (at least partly, perhaps wholly, because they put all profits into expanding the company). Naturally, Tesla prefers to use non-GAAP accounting methods…

Yeah, if I was an Apple stockholder, I would be -very- worried if Apple does actually plan to get into the business of building automobiles.

Exactly.
We’ll see what Apple creates and what profit margin they can command.

Secondly, GM seems to be the only mgmt team that takes the EV threat seriously. If you were Apple mgmt and saw how slow the auto industry innovates, well that spells: Opportunity.

They saw what Apple did to Nokia, and they don’t like it one little bit!

This guy must not know what’s going on in California. We build Teslas, and Rockets…a typical fearful attitude.

Tesla got a lot of help (and still does) from Detroit.

Apple is hiring talent from Detroit.

Detroit has been building cars for over 100 years, and they built them in California in the factory in Fremont before Tesla started making their cars there.

I can’t speak for Akerson, since he really isn’t a car guy, but in the few years he was in the mix, he got exposed to how difficult the business really is.

This “us against them” attitude is getting old…it is changing though.

I take it you don’t work in the manufacturing sector.

GM is headquartered in Detroit, along with Ford, but they build cars all over the US, and all over the world. It was the “us vs them” attitude originated by Elon/silicon valley. He was going to show “Detroit” how it’s done. Once reality set in, he realized cooperation was necessary. His vision is still different, where he wants to sell EVs instead of ICE cars, and that can still be debated (and is), but the process of building cars is the common ground.

I think what came out of this is that manufacturing cars is harder then Tesla originally thought but not as hard as Detroit make it out to be.

On the software side Tesla undoubtedly know what they’re doing more than the legacy automakers.

Depends on the software.

Sure, Tesla’s huge Model S display screen and interactive touchscreen controls are light-years ahead of anything offered by any other auto maker.

Apple could do just as well, or likely even better, if it wants to spend the development money for that. Quite possibly it will. If Apple is smart, it will stick to what it’s good at, and stick to making things to go -into- cars, rather than trying to build the cars themselves.

You are 100% wrong in attributing Tesla Motors’ idea that it could build cars like Silicon Valley builds computers to Elon Musk. Tesla was founded by Martin Eberhard and Marc Tarpenning. Musk was initially only brought aboard as the principle “angel investor” and fund-raiser. When Tesla’s costs ran out of control, he used his financial leverage to take over the company and kick out the founders, but only -after- the painful learning process had taken place. (“No, we can -not- really build cars like computers! We’re gonna have to hire some Detroit executives to show us how it’s done.”)

Again, all this is explained in some detail in the “Tesla’s Wild Ride” article.

You are right, I work in design. I see designers and programmers cooperating along with state of the art design oriented manfracturing. Cooperation is key, there is no other way. The old guard which includes gas, oil, steel and labor divisions are now falling away.

electric-car-insider.com

“They’d better think carefully if they want to get into the hard-core manufacturing. We take steel, raw steel, and turn it into car. They have no idea what they’re getting into if they get into that.”

So clearly they’ll use aluminum and magnesium instead.

And you think this will somehow make manufacturing easier?

Here’s a hint: it’s much harder to weld aluminum than steel. When Tesla moves from the all-aluminum-bodied Model S to the significantly lower priced Model ≡, it will use a lot more steel in the body.

electric-car-insider.com

Humon, Lensman, just a little Friday afternoon humor.

Apple has proven to be highly skilled when it comes to using aluminum and magnesium in some very innovative, lightweight structures. Not bad looking, either.

NeXT was famous for having used magnesium in its famous “cube” case.

Apple of course has used it all in production chassis: titanium, aluminum alloys, magnesium. Early, but rarely in recent times, high quality polycarbonate.

They also have acquired the license to Caltech’s LiquidMetal™

I’m all in favor of Apple getting into cars.

They have a little too much cash hoarded up. It’ll stimulate the economy for them to lose a few billion.

But the US economy or China’s?

Both, and Europe too.

If Apple enables another manufacturing sector to be destroyed in the US, it would be a sad day, no matter who’s pockets get lined.

Capitalism requires “creative destruction” to work. You can’t keep hanging on to legacy companies. Usually they die and are replaced by the next generation companies. They have to compete if they are to survive.

GSP

I really don’t think Apple is getting into the auto business that GM knows. They’re not looking to make Camrys or Corvettes, I believe they are looking to make computer driven taxis. The margins on that service could be insane, not to mention the data mining / targeted advertising.
Imagine there are 2 equally good paths to work, one drives you pass a Dunkin Donuts and the other past a Starbucks. Apple knows who’s in the car, what mobile device they’re using, hell they even know how much time they have before their first meeting and which one they prefer (via apple pay). How much would DD or Starbucks pay for their ads to show up on the navigation, web browser, etc as they get close? Google is in the same boat. It’s really creepy in a 1984 way, but there’s no denying that’s where we are headed.

Apple is a consumer focused company.
They’re not going to make a taxi.

I’m sure they’ll sell them to end users too, but a driverless “lyft” type service. That’s where the margins are.

The margins are in building hi-tech components to go -into- cars. Not in building the cars themselves.

Jeez… just read the article again. And this time, don’t assume you know more about that former GM exec’s old job than he himself does.

So, tier 1 auto suppliers make good margins, and are not beat down mercilessly by the OEMs? What planet are we on?

Apple will need to sell finished cars to make the high margins they are accustomed to. Tesla has shown how this can be done.

GSP

When I read this it reminded me of video of Steve Balmer having a good laugh at Apple for getting into the phone business after Jobs introduced the iPhone. “Ahah! but good luck to them” he said.

G

And the advise from everyone to have Motorola design and manufacture your cell phone because Apple didn’t have the capability. Remember the Motorola Rokr E1? That was the beginning of the end for Motorola.

CherylG's_DirtyLittleSecret

How much you wanna bet the big push back against crapple going into the car biz has a deep root to the “Stealerships” / NADA.

Most likely they will sell through crapple’s own “boutique’s”.

they will spec out car that they need… then contract with one or multiple car companies to build them… with Apple electronics and control systems… why would apple want to buy factories… or manage them… not what they do best. Turning existing tech into fancier boxes with better user interfaces for twice the price everyone else gets, is what they do best.

Listening to a GM exec… especially one from the old guard is usually fraught with peril… anyone remember the great Government Apple Bailout?thought not…

He is trying to explain to you -why- GM has had to be bailed out of bankruptcy, multiple times. -Why- the auto making industry is so poor at making profits.

You’re not listening.

You just know that if Apple builds a car, Jony Ive will make sure that it’s “impossibly thin!”

OnStar is a subsidiary of GM. OnStar makes things similar to what Apple makes, including electronics, software, sensors, and wireless connectivity systems.

It makes sense for Apple to try to compete with OnStar. It does -not- make sense for Apple to try to compete with Chevrolet, Cadillac, GM Trucks, or Buick.

In this article, former GM CEO Dan Akerson explains why that is. I suggest you listen.

Dan Akerson’s advice is valid, but:

1) Apple would not have to sell through dealer franchises like the established automakers have to. This will help profit margin and customer satisfaction.

2) Apple would not have to produce world class ICEs. This was a huge barrier to new auto companies, but now is no longer needed.

3) Apple has a ton of overseas cash they could invest in product development and factories for long range EVs and DC fast charging networks to support them. This will lower the cost of capital for them compared to other potential startups.

GSP

Never trust anyone who used to work for a Telephone Company.

As far as Musk goes, he has already gone down in history as the world’s best salesman ever.