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."

Comments

That's what Nokia, Moto, and Microsoft said

[mveloso]

That's exactly what Moto, Microsoft, and Nokia said about the iPhone. Where are they now?

Re:That's what Nokia, Moto, and Microsoft said

[UnknownSoldier]

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.

Re:That's what Nokia, Moto, and Microsoft said

[gweilo8888]

Tesla's impact on the market, thus far, is squat. Volkswagen brands alone sold 10.14 million vehicles in 2014. Even if you ignore Tesla's fiddling of the numbers (with nonsensical claims about sales being low because customers "were on vacation"), they sold a grand total of 35,000 cars in 2014. VW's marques managed that many in 30 hours, 15 minutes.

I know it's the done thing around these parts to fellate Mr. Musk at every opportunity, but the fact is that in the automotive world, he's a flea. He's completely insignificant and his toys for rich kids -- subsidized by yours and my taxpayer dollars, natch -- have not changed the market even one iota. Of the nearly 90-million cars and commercial vehicles sold in 2014, Elon captured a spectacular 0.04 percent of the market at best.

Re:That's what Nokia, Moto, and Microsoft said

[Yunzil]

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.

Re:That's what Nokia, Moto, and Microsoft said

[AK Marc]

Hyundai got started for a lot less than that. For the projected losses, Apple could buy GM, take the best 1% from GM, then shut down GM, writing off the whole thing, and still end up ahead. The sentiment is wrong, the math is wrong, and the reality is wrong. He's just proven that even idiots can make millions as a CEO.

And yes, I know many don't like Hyundai, but from their bad start with the Elantra in the US, they've improved to be better than GM at this point (from a satisfaction and quality standard).

Re:That's what Nokia, Moto, and Microsoft said

[quantaman]

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.

Re:That's what Nokia, Moto, and Microsoft said

[TomGreenhaw]

For what ts worth, speculative investors don't agree that Tesla is insignificant. Tesla's Market Cap is in the neighborhood of $33.8 billion whereas GM is $47.5 billion.

Re:That's what Nokia, Moto, and Microsoft said

[es330td]

Speculative investors are often quite foolish.

Re:That's what Nokia, Moto, and Microsoft said

[ShanghaiBill]

Apple knows how to make an aluminium shell, in which they stuff a bunch of components

Isn't that how you make a car?

Re:That's what Nokia, Moto, and Microsoft said

[mlts]

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.

Re:That's what Nokia, Moto, and Microsoft said

[larryjoe]

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.

Re:That's what Nokia, Moto, and Microsoft said

[MightyYar]

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.

Re:That's what Nokia, Moto, and Microsoft said

[Anonymous Coward]

Apple thrives on selling cheap hardware

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.

Re:That's what Nokia, Moto, and Microsoft said

[LordLimecat]

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.

Tesla not on that list?

[Lab Rat Jason]

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?

Experience is critical to anything so complex.

[hey!]

But like any other commodity experience can be purchased.

Wishful thinking

[Anonymous Coward]

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.

Re:Car only compatible with iStuff

[Anonymous Coward]

Don't forget about the pentalobular lug nuts.

Hilarious on many levels

[sootman]

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.

Re:Car only compatible with iStuff

[eth1]

And the radio won't get any reception when you hold the steering wheel at the 9 & 3 o'clock positions.

Apple buys Volkswagen's assets....

[BenJeremy]

Apple buys VW/Audi and rebrands (since the brands will be taking a big hit very soon), and consumers forget about dieselgate. Apple gets the infrastructure to build cars, as well as an eager dealership network. They throw money at some new designers to oversee the existing engineers and make the vehicles they want to make.

Book it, done deal.

Lack of foresight

[Anonymous Coward]

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.

Bob Lutz.

[jpellino]

The John Dvorak of the auto industry. Apple could not ask for a better endorsement.

leveraging existing state of the tech

[SethJohnson]

If Apple throws as much money at a car as Tesla did, perhaps they can, but they aren't likely to do that.

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.

Re: leveraging existing state of the tech

[JeremyR]

Two of the "Big Three" already went under, six years ago...

Nobody ever called my mother-in-law a hipster

[SethJohnson]

....and sell like hotcakes to a certain demographic.

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.