Diatribes of Jay

This is a blog of essays on public policy. It shuns ideology and applies facts, logic and math to economic, social and political problems. It has a subject-matter index, a list of recent posts, and permalinks at the ends of posts. Comments are moderated and may take time to appear. Note: Profile updated 4/7/12

21 November 2008

Lack of Imagination II: Making the Volt Succeed


[For a more recent and more upbeat post on the Volt’s marketing prospects, with links to the EPA’s decision to certify it at 230 MPG, click here.]

A little less than four months ago, I published a post decrying our woeful lack of national imagination. The post’s specific subject was small, remotely piloted aircraft (RPA). I argued that they could be—and should be—decisive in managing the twenty-first century’s chief military and intelligence challenges: finding and destroying terrorists and WMD with minimal collateral damage. Yet as far as I can tell, we are doing little or nothing to develop them, although doing so would cost a tiny fraction of what we are spending in Iraq.

Why are we sitting on our hands? The only reasons I could think of are lack of imagination and the persistent bloating of our military-industrial complex (MIC). Small RPA simply don’t promise the profit that obsolete Cold-War weaponry does. So our MIC would rather produce expensive monstrosities that will be largely useless in any foreseeable twenty-first century conflict, including the ones we are now fighting.

Just as puzzling is the lack of imagination regarding our auto industry. That industry hasn’t marketed a significant innovation in half a century. Yet its leaders seem to think all they need is few short-term loans and a little more time to squeeze their workers a little harder. Then their industry will rise triumphant from the stagnant dung heap of engineering on which it has settled for the last five decades.

Even Congress is having a tough time swallowing that one. But Congress, or at least its Democrats, fear what might happen to all the workers now sullenly feeding from Detroit’s desiccated tits.

I like the idea of field trips. So I propose a field trip for every member of Congress, especially those with committee jurisdiction over a proposed auto-industry bailout.

The trip begins in California’s so-called “Silicon Valley.” The members visit just three companies, spending a day at each: Apple, Google, and Hewlett-Packard. Auspiciously, H-P just reported a respectable profit, despite the general economic meltdown.

What the members see is what modern industrialists call “horizontal” company structure. They might ask the workers how many layers of management lie between them and their divisions’ bosses or the CEO. They might enquire how long it takes to make an important product decision. But they don’t really have to ask. All they have to do is look at the architecture.

If the members observe closely, they will see telltale signs of horizontal organization designed into the buildings themselves. They will see large open spaces with tiny cubicles and plenty of meeting areas, but very few private offices. They will see rooms designed for what look like fun and games, but which (on closer inspection) appear to provide enticing opportunities for workers to talk—even to their counterparts in different departments and divisions.

What the members won’t see is executive dining rooms. Instead, they’ll see multiple dining and catering areas where all from the CEO to computer technicians mingle, and where those who need to work hard can get high-quality food fast and take it back to their desks or labs. The members won’t see whole floors of private offices occupied by people who spend their days shuffling paper and going to meetings.

The field trip’s second part takes us to Detroit, also to three companies: Chrysler, Ford and GM. There the members will see large, exclusive executive dining rooms. They will see row upon row of private offices sheltering paper shufflers and meeting goers. While the cubicles of Silicon Valley reminded them of a beehive, the quiet and largely empty corridors of Detroit’s executive suites will remind them of tunnels left by large but long-extinct dinosaurs. The only thing in Detroit that resembles a beehive is the shop floor, and even that seems empty compared to the Silicon Valley’s beehives.

The architectural differences won’t stop there. If the members get out and about, they will notice another striking difference. Executives in Detroit don’t mingle with workers at all—not in the factory, and not in town. They live in mansions in a different part of town, and they socialize among themselves, in their own country clubs. While executives in Silicon Valley have fine homes, too, they drink and dine in local hangouts with everyone who makes the industry hum. There venture capitalists, would-be entrepreneurs, engineers, scientists, technicians, and workers meet and mingle at lunch and after work every day.

Having taken this field trip, members of Congress will understand something important. They will know that Detroit’s stagnation is not the product of a few bad apples in senior management, far less a temporary spate of bad luck. Social and technological stagnation are built into Detroit’s culture, the architecture of its communities, and the very buildings in which people work.

Detroit is a nineteenth-century town trying to survive in the twenty-first century. A simple bridge loan will not turn it into Silicon Valley any time soon.

Yet there is one small part of Detroit which, with the exercise of a little imagination, might begin to resemble Silicon Valley. That’s the part working on the Chevy Volt.

I’ve written two long posts about the Volt (1 and 2), and I won’t recount their substance here. I’ll just state one undeniable truth. The Volt is the only real product on which stodgy old GM appears ever to have stolen a march on Toyota. If my crude outsider’s estimates are right, GM is about a year ahead of Toyota, maybe more. That is better than any American car company has done in several decades.

If you want to see how little the Volt’s team resembles Detroit as usual, read Jonathan Rauch’s incisive article in The Atlantic, appropriately entitled “Electro-Shock Therapy.” Although much shorter, it reads like Hard Drive, the story of Bill Gates’ rise to industrial power. It is a tale of risk-taking, sleepless nights, and unrelenting hard work toward an elusive but attainable goal.

Yet even the Volt’s team has an imagination deficit. Most of the Volt involves non-innovative technology: things like axles, bearings, electric motors, generators and heavy-duty solid state electronics to control the electricity. That stuff was old before the Prius.

What is new is the heavy-duty lithium-ion batteries, which GM has left to outside suppliers to develop. The batteries have had some trouble. They aren’t as reliable as GM hoped. Sometimes they overheat. And their latest cost figures brought the Volt’s price up to the $40,000 range—a third more than the initial price goal of $30,000.

So what did GM’s executives do? They got stuck. They had promised a car with a daily (single-charge) range of 40 miles, and their manhood wouldn’t let them back off. That’s just the kind of rigidity that made Detroit what it is today.

But suppose the Voltians showed a new kind of imagination and flexibility. Suppose they cut their batteries in half.

As Rauch described it, the engineers have already designed the battery box for a forty mile range. If they spread half the battery cells out in the same space, they would have plenty of room for heat sinks and dead space to cure the overheating problem. The battery—which is by far the car’s heaviest component—would weigh half as much, improving the car’s performance. And the battery’s estimated $15,000 cost would drop by half, to $7,500.

Together with the $7,500 per-car subsidy that President-Elect Obama has promised, that would reduce the Volt’s price to $25,000, the same as a Prius’.

Who wouldn’t prefer the Volt to a Prius at the same price, when the Volt could commute daily without using any gasoline at all? Not only would drivers save much of the cost of gas, even at today’s prices. They wouldn’t have to go to the gas station; they’d just plug in their Volts overnight.

The price for this change, of course, would be reducing the Volt’s single-charge range from the hoped-for forty miles to twenty (actually a bit higher, based on the weight reduction). But the Volt wouldn’t stop dead after twenty miles; it would just start its flex-fuel engine and run on fuel like any other small car.

My own commute is seven miles each way. I’d be delighted to pay $25,000 for a Volt that would make my daily round-trip commute by plug-in recharging alone. My earlier post pledged to buy a Volt at a much higher price, and I renew that pledge today.

More generally, GM estimated that a forty-mile range would cover 78% of Americans’ commutes. How many would fit in the twenty mile reduced range? Suppose the answer is only 20%. That’s still a large market, and the lower price would entice many more early adopters like me to buy the Volt. Haven’t these guys heard of the law of supply and demand?

Maybe a forty mile-per-charge range is a worthy longer term goal. But selling shorter-range vehicles quicker would give GM time to perfect the larger batteries. More important, it would build brand identification and convince the world that Detroit is not brain dead.

The most important of GM’s promises, by far, is getting a Volt that works—any Volt—out the door and into showrooms by fall 2010, as promised. If GM can get sales started by late summer, the traditional start of the model year, so much the better. November will be too late, just in time for Detroit’s funeral. This is a race of titans that GM must win and win decisively.

Congress needs to understand that Detroit’s rare lead over Japan, Inc. in four decades is something to cherish and nurture. The Volt is the future of America’s auto industry, period. Let it lag, and we’ve lost Detroit forever. Make it work, and we’ve got a chance to sell cars with an American logo for another generation or so.

So our members of Congress, too, need a little imagination. They don’t have to restructure the whole of the American auto industry; they may have to let it go. But they should do everything they can to preserve the plans, plants, engineering teams and dealers to design, build, sell and service the Volt. They should do so even if they have to take over the project (temporarily) and cut the batteries in half with their own hands.

If it succeeds, the Volt project will jump start not just our auto industry, but our energy infrastructure and our national pride as well. It is too important to be run by folks who, for several decades, have forgotten what imagination means.

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