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Former GM and BMW Executive Warns Apple: Your Car Will Be a "Gigantic Money Pit"
An anonymous reader writes: With rumors that Apple is not only moving ahead on its electric car initiative, but trying to accelerate its development, a former GM and BMW exec is giving a few words of warning. Bob Lutz appeared on CNBC and expressed his doubts that Apple has a fighting chance to make any impact on the auto industry. "And when it comes to actually making cars," Lutz said, "there is no reason to assume that Apple, with no experience, will suddenly do a better job than General Motors, Ford, Volkswagen, Toyota or Hyundai. So I think this is going to be a gigantic money pit, but then it doesn't matter. I mean Apple has an embarrassment of riches, they don't know where to put the cash anymore. So if they burn 30 or 40 billion dollars in the car business, no one's going to notice."
I know I'll be accused of being a Tesla fanboy, but it's interesting to me that Bob Lutz failed to mention both Tesla and Pontiac (and Saturn) in that list... like he's an expert on what works and what doesn't?
Which has more power: the hammer, or the anvil?
Agreed!
I also don't buy that argument -- otherwise how the hell did Tesla jump start into an already saturated market? If Apple was smart they would just buy Tesla to save them years of experience. :-)
Just because a company is_currently_ not in an existing market doesn't imply that they won't be hiring people who can lay the foundation.
Impossible? No. Hard? Yes.
But like any other commodity experience can be purchased.
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Apple has, repeatedly, entered a market with a better product than most or all of its competition. I don't know if they'll do it again with cars or not, but then again neither does Bob Lutz.
And frankly, I hope it's a flop - I don't like Apple, the way they treat customers, or their lock-you-in ecosystem. But their car won't fail just because I want it to, any more than it'll fail just because Bob Lutz holds a bunch of stock in GM and BMW.
Apple literally has almost $200 Billion in cash reserves. I might hate Apple, but they're entirely equipped to fight the long war.
If Apple throws as much money at a car as Tesla did, perhaps they can, but they aren't likely to do that. It will be just a small part of the ecosystem.
Apple thrives on selling cheap hardware by putting well tested software on it that really works well...and selling that package for a hefty premium. Cars aren't cheap to build and they won't be building them in China.
People in cars cause accidents....accidents in cars cause people
Getting into a new industry is always a big money pit. Especially industries with firmly entrenched players with interests to protect.
Doesn't mean it's impossible, though. Just hard. They just have to throw enough money into the pit to fill it, and do it quickly before the shareholders get cold feet.
1. "PC guys are not going to just figure this out. They're not going to just walk in." -- Palm CEO Ed Colligan, 2006, on Apple's prospects with their (at the time) rumored phone.
2. One of the guys in charge of GM during its recent bankruptcy is going to give financial advice to the most valuable private company in the world? I'm sure Tim Cook will give it all the consideration it deserves.
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Lutz has also said that the best designers at car companies are their greatest asset, and should be their highest paid employees. Good car design is what makes profits for companies. Apple had great work with design under Jobs; so there is at least even odds they can get it right, at least enough. Really no one understands the car industry better than Lutz right now. Maybe Apple should listen to what he says and address those issues he brings up? Of course they could do that and we might never know.
Apple knows how to make computers. An iPhone is just a small computer that happens to be able to make phone calls. A car is an entirely different kettle of fish.
"A phone != a computer, much less a smart one." - You, 2006.
That would only be true if the electric offerings from others would have been the same without him. Most don't subscribe to that opinion.
Learn to love Alaska
Apple specializes in selling to the hipster market, so their hipstermobile will probably have more in common with a Smart Car than a traditional automobile. Basically a golf cart with doors. It will cost $4,500 to manufacture, be marketed as saving the world, cost $19,999 at retail, and sell like hotcakes to a certain demographic.
Former Palm CEO Ed Colligan, on Apple's prospects in the phone market: “We’ve learned and struggled for a few years here figuring out how to make a decent phone,” he said. “PC guys are not going to just figure this out. They’re not going to just walk in."
Here's the fundamental mistake they're making by dismissing Apple: Apple didn't "just walk in" to the phone market - they worked on it for years before they shipped anything. A car that's "slated to ship in 2019" is not "just walking in" - that's 4 years away, it's already been in the works for a while now, and that 2019 date is "rumored." Which means it may just as easily be 2025, or 2030, before Apple decides that anything they're working on is ready to ship.
How to sell a premium brand that makes everyone want to buy it. I love driving BMW, but the prices of the upper models that I lust after, the M3/ M5 / M6 I will never ever afford as it's impossible for me to. GM, well they can't sell cadillacs to people that are dripping with money, so GM has zero clue.
Apple on the other hand has figured out how to get poor people on FOOD STAMPS to buy their premium phones.
Plus knowing apple, they wont try and make a giant sedan to appease everyone. they will make a city car that is small and fits in some kind of legal limbo hole like the 3 wheeled cars and golf carts that are legal to drive on the road. And people will buy the shit out of them.
Do not look at laser with remaining good eye.
Agreed!
I also don't buy that argument -- otherwise how the hell did Tesla jump start into an already saturated market? If Apple was smart they would just buy Tesla to save them years of experience. :-)
Just because a company is_currently_ not in an existing market doesn't imply that they won't be hiring people who can lay the foundation.
Impossible? No. Hard? Yes.
Tesla didn't enter an already saturated market. They entered an untapped sub-market that traditional auto-makers aren't ready to enter (Telsa can afford to make major screwups and have limitations that an established auto-maker can't get away with).
Similarly Apple didn't enter a saturated phone market, they entered a very new smartphone market. A market they were one of the best positioned players to enter..
If Apple wants to make another Mercedes they've got a very tough battle ahead. But if they want to make a self-driving car, electric car, or if they have some other idea that traditional car manufacturers haven't done for some reason, then they've got a shot.
I stole this Sig
The John Dvorak of the auto industry. Apple could not ask for a better endorsement.
"Win treats sysadmins better than users. Mac treats users better than sysadmins. Linux treats everyone like sysadmins."
Speculative investors are often quite foolish.
Tesla didn't enter an already saturated market.
Tesla entered a market that was perceived by their competitors to be saturated.
The iPod and iPhone also entered markets that were perceived to be saturated.
I fully agree with you, Apple isn't going to spend as much as Tesla did to ramp up production.
At a significant expense, Tesla innovated many processes and designs for their electric cars. Elon Musk threw the patents into the public domain and asked other companies to leverage them. Apple will do that and then build on top of that with their own R & D investments.
$5 / month hosted VPS on linux = awesome!
Do you really think Apple became the richest company on the globe selling their products exclusively to hipster millennials? That's actually quite a narrow demograph from which to have siphoned such immense wealth. Go check out an Apple store. It's filled with an entire spectrum of people buying their premium-priced products.
This is the same type of stereotyping of Apple's limited appeal is exactly what led to Steve Ballmer's obsolescence.
$5 / month hosted VPS on linux = awesome!
Awww, since they design their own CPUs that's a bit harsh.
...and that's a step up from most car companies.
5 or so years ago, when I was shopping for a car, I picked up a Consumer Reports car edition. My previous car had been an 87 Toyota Camry station wagon, and it got somewhere in the range of 23-27 MPG doing suburban driving. Looking at that Consumer Reports was depressing. The majority of cars had the same or LESS mpg, despite being 10 to 20 years newer.
Fuck this executive. If he had his way, cars would run 10 MPG.
Apple knows how to make an aluminium shell, in which they stuff a bunch of components
Isn't that how you make a car?
What Tesla brought to the table was making electric cars good looking, cool, fast, and fun to drive. Before that, we did have electric cars. However, they looked like the ZAP Sparkee, cute, little, underpowered bubble things with a range of footsteps. Tesla brought interstate travel to the table for electric cars. They also got places to install electric charging stations, and legitimized people plugging into the wall at stores and such [1], which was considered theft previously.
Tesla definitely doesn't sell cars like Toyota... but for what they offer sets a standard for other automakers to follow. Things like vehicle updates that add features, even for vehicles several years old, decent service (even in areas where they are forbidden to sell vehicles), a very good safety record, and excellent customer service. Plus, when you pop the hood of a Tesla Model S, it is awesome -- another place to toss suitcases and other items.
[1]: Well, except for Alaska where stores and other places have outlets to plug into to keep vehicle heaters going.
Apple specializes in selling to the hipster market, so their hipstermobile will probably have more in common with a Smart Car than a traditional automobile. Basically a golf cart with doors. It will cost $4,500 to manufacture, be marketed as saving the world, cost $19,999 at retail, and sell like hotcakes to a certain demographic.
Yes, but manufacturing a car with 75% gross margins will be a bit tricky, since typical auto gross margins are less than 20% with large volume.
And the $4500 manufacturing cost will be equally challenging. There are no car foundries or car part vendors that Apple can impose one-sided manufacturing or sourcing agreements with.
And Apple would have to contend with the same logistic and legal distribution hurdles that Tesla is facing.
My mom, dad, and step-mom have iPhones. They are generally called "boomers". I don't think your worldview is correct. I'd be surprise if iPhones were counter-culture enough for a hipster. A Blackberry (with keyboard) or Razr seems more appropriate, or even a full-on 80s brick phone.
W..w..W - Willy Waterloo washes Warren Wiggins who is washing Waldo Woo.
Cheap hardware? Pretty much every time someone tries to match another company's hardware with the build quality/specs of Apple hardware ("because PCs are cheaper" mythology), the other company's hardware ends up AT LEAST as expensive as the Apple hardware.
I know I'm _sort_ of conflating purchase price and build price, but not completely, since if it really were cheap, then some other company could/should be able to build it cheaper.
Cheap hardware? Pretty much every time someone tries to match another company's hardware with the build quality/specs of Apple hardware ("because PCs are cheaper" mythology), the other company's hardware ends up AT LEAST as expensive as the Apple hardware
No, it only appears that way because of the slanted metrics that are always used in these comparisons.
I could post equivalent hardware to the latest Mac that had a slightly slower SSD but better processor, RAM, and screen, for half the price-- but the complaint would be that the Apple has a better SSD (which is clearly what matters!)
I could post something costing ~$100 more than the latest mac, and was superior in every metric-- but the complaint would be that it cost more (which is clearly what matters!)
I could post something superior in every tech spec for the same price-- but the complaint would be that it wasnt in aluminum (which is clearly what matters!)
The fact is the apple markup is real and is generally ~50% or more. Its been true for years, and people trying to justify the tag dont want something better than an Apple or cheaper than it, they want something that IS an Apple regardless of specs, price, or build.