Electric Steering

Automotive News reports that Ford is moving 90% of their fleet to electric steering by 2012 in order to improve fuel economy, facilitate "parking assist", and reduce steering effort due to road crowning and imbalances.

It's estimated fuel economy will improve in the range of 0.6 to 1 mpg. Less fuel will be used because electric assist only consumes power when turning, compared with hydraulic power steering in which the engine has to drive the pump all the time.

Parking assist is also an interesting development which will enable cars to parallel themselves (Toyota offers such a system in the Lexus LS460 in North America). These are further steps that are necessary to reach full electrification, when cars will be ultimately powered by electricity.

The last reason seems of dubious value to me as reported. It doesn't seem that road crowning is much of an issue. However, the real benefit of electric steering may be that it can lead to independent steering of left and right side wheels which would allow for self-diagnosis and alignment of the front axle. Manufacturing for left and right-hand drive might be simplified as well.

Further, it is possible that when electronic stability systems kick in during an emergency, the rotation of the steering wheel won't need to be directly proportional to what is actually happening at the tires. This could reduce risk of injury to the driver's hands (especially thumbs) due to steering wheel whip, when he or she loses control of the vehicle.

All in all, it seems a logical direction on the path toward driverless cars.

100 Years of Automobile Manufacturing

Below is a neat video (5:16) about production of the Model T Ford. It suggests that the assembly line was one of the biggest breakthroughs to occur, and it was.

However, one facet that is overlooked is the fact that before the assembly line could come into play, all parts of the automobile had to be manufactured to standard tolerances so that all the pieces could fit together with minimal or no 'tweaking'.

Then the labor could be divided into very basic tasks which in turn made workers interchangeable as well. Prior to that craftsmen gathered the parts they needed and fit everything together as needed. Things just didn't bolt together.

At Ford however, someone who didn't speak English or had any formal education could be taught to do most jobs in a very short amount of time.

At the beginnning (circa 1908) of Model T production workers still went from station to station to do their tasks. It was only after a few years that the assembly line was created and the vehicles moved between stations. This reduced assembly time by more than 80%. It was an amazing feat of organization.

This is detailed in the groundbreaking 1990 book entitled "The Machine that Changed the World" which explores how societies make things, and studies the transition of automobile manufacturing from craft-based methods to mass production by Ford to lean production, as pioneered by Toyota.

What Happened to Detroit?

After decades of mismanagement and mediocrity, we’ve all seen many of the overarching issues laid-bare in the past several weeks. In a nutshell here are the Detroit 3's problems:

1. Poor Management, Perpetual Reorganization, No Solid Long-Term Strategy

Actually their long term strategy essentially amounted to lobbying to keep the status quo in terms of fuel economy and regulatory standards. Cheap gas spurred big profits in SUVs and other vehicles that were not necessary in the numbers in which they were produced, and also put the manufacturers at the mercy of fluctuations in fuel prices.

All the while they went from one failed plan to another with no consistency in long term outlook. Every couple of years each manufacturer would roll out a new initiative but the outcome was usually more of the same: Shrinking market share and decreasing profitability, while spreading their marketing too thin on far too many brands.

2. Producing Vehicles the Market Doesn't Want

The domestic manufacturers produce 8 of the 11 worst cars of 2008 according to Consumer Reports. That becomes even more of a problem when demand is constantly shifting and their plants are geared to only producing a few models, with little flexibility.

Because of continued production of less desirable vehicles they’ve hurt the value of their brands. Sure, by many objective measures the domestic manufacturers have made great strides in productivity, cost, and quality.

But they missed the boat on building exciting, interesting, and desirable vehicles. The reason for this simply is that the executives do not understand cars. They may understand some of the numbers, but until the cars are what people want to buy, they’ll never make the numbers.

3. Excessive overhead (labor cost, healthcare, etc)

Not much of the fault is with the labor unions. They negotiated what they could. Sure it was shortsighted and the results helped dull America’s competitive edge and drove jobs to Mexico and overseas. But the real fault lies with management that would be so inept as to ALLOW the unions to push them into the agreements that they did.

The reason they're in crisis now is because they have been losing so much money, and then the credit crunch sharply reduced sales (many buyer's can't qualify for loans) AND reduced the credit available to the companies, especially since their existing debts (bonds) have continued to be downgraded. It's a vicious cycle resulting from the 3 points above.

By the time they realized this it was all too late. We’re now at a stage where it looks unlikely that GM and Chrysler will be able to stave off bankruptcy without government support (and even then it’s not looking too bright). The reason is because their businesses are not strong enough to survive in good conditions, much less to weather the storm.

Auto Leasing Losses

A number of auto manufacturers are cutting back on leasing. The reason is because they are losing money, in some cases a lot of money on previous lease deals that were, at the very least, optimistic in the projected resale or residual values of the leased vehicles. Chrysler has left the leasing business entirely. GM, Ford, and Toyota are scaling back somewhat. All took big hits.

The Wall Street Journal reported that Ford lost $2.1 billion in the second quarter of 2008 on leasing, GM lost $2 billion, while Toyota has set aside reserves for a “large” write down for leasing.

At the heart of the issue is excess capacity. The manufacturers used leasing as a way to keep the factories running. It is often less costly to keep making the vehicles and selling them at break even or at a small loss than to idle a factory and still pay the overhead. Thus they had to find customers for all these extra cars.

What do you do to find customers (notice I didn't say "buyers") for extra cars without lowering retail prices? You lease them at very attractive rates, in some cases at ridiculously low rates. That preserves the retail price of the new car for the time being.

The problem with that, aside from attracting customers who often could not afford to buy the product and thus not enhancing the value of the brand by creating future buyers, is the manufacturers took on a lot more risk.

When a company sells a product it eliminates price risk. The item sold for X dollars and it's a done deal. When a company leases it is projecting what the car will be worth used when the lease runs out. It is also projecting the customer will not default.

Any time projections are made there is risk. The bottom line is the manufacturers bet wrong. The auto market has tanked and now those cars coming off lease, especially the less fuel efficient ones, are worth a lot less than projected. On top of that they have suffered higher default rates due, in part, to the collapse of the credit/mortgage markets.

Leasing, on the scale that it was done, was a bad idea. Not only did it artificially inflate the market size, the additional units "moved" were the riskiest transactions for the manufacturers. In summary, the manufacturers sold off tomorrow for reprieve today. Except that was a couple of years ago. Tomorrow has arrived and it's time to pay. Hence the losses.