A contrarian viewpoint — Irrational exuberance or pure insanity?

By Christopher A. Sawyer
The Virtual Driver

(February 11, 2019) All of the legacy car makers fell for the fallacy that electronics were not only sexier than automobiles, the young would stop buying cars as being online and connected meant more to them. The Detroit three and the luxury makers (Audi, BMW, Mercedes especially) really fell for this one, with the Germans seeing an opportunity to enhance their tech standing while Detroit searched for “relevance” with the new generation.

Remember, the iPhone arrived just prior to the bankruptcy of GM and Chrysler, and after years of strong sales but significant financial worries for the domestics.

As masters of the obvious fed by marketing people of equal shallowness, the answer was not in what they and their predecessors had done, but in a changing market dynamic. With Wall Street — another pack of geniuses — fawning over the ascendent electronic companies, their excuse — it’s them, not us — was reinforced and, therefore, proven to be “true.”

Ford SYNus Concept

Remember vehicles like Ford’s SYNus, a micro Brinks truck in which Gen Y could gather to play video games? These were seen as the future for a generation that, we were told, was much more “tribal” and “social” than its predecessors. Which meant they had to have their stuff with them, a place to use it, and room for their ever-present friends. The first scion xB was the perfect example of this, and Jim Farley was its chief at the time. He was branded a genius, and promoted to Lexus before Ford paid him a bundle to defect. And if my many, many sources are correct, Farley’s future follies will be his greatest (most misguided) yet.

Of course, what everyone forgot was that the original xB was a big hit with single moms who had 14 year-old sons, and retirees looking for a cheap and cheerful carryall in which to hit the garage sales. It was just the latest example of the old adage: “You can sell an old man a young man’s car, but you can’t sell a young man an old man’s car.” You’d think that Baby Boomers, the most youth-obsessed generation of modern times, would have remembered that.

Just an aside, the second-generation xB didn’t have the “authenticity” of the first and faded away, neither did the Nissan Cube or Honda Element. That whole segment died quickly, though there is a pressing need for a smaller, four-cylinder minivan that’s not the Ford Transit Connect… (Toyota has it right with its TJ Cruiser concept.)

Then came Tesla. It surprised everyone with its ability to defy gravity (i.e. stay afloat), and suck the oxygen out of the room. It was “clean” and sporty and that was cool. All the tech heads had to have one, and the tech-lets (techie wannabes who couldn’t afford one as they didn’t have a job while living in mom’s basement) drove it with fan-boy enthusiasm.

At first the industry ignored Tesla, then the various governments (the same people who brought us an over reliance on diesel power) decided to chase the chimera of global warming/climate change with plans to ban the sale of new vehicles with an internal combustion engine. Faster than you can say, “Oh shit!,” every car maker was planning its own EV. But Tesla was more of an Apple-like tech play than a pure EV in that it had semi-autonomous driving ability, something the larger automakers were working toward, but at a deliberate pace.

As the uber coolness of Tesla continued to be celebrated, mainstream automakers jumped on the bandwagon. It was, they claimed, only natural as the Millennial generation would not want to own cars, but use them, much as they did their electronic devices. The percentage of teens with driving licenses was dropping (why get a driver’s license or tag an Uber when you can use mom as your personal taxi service), which was — once again — misread to prove that kids weren’t interested in owning cars.

What everyone forgot was that the “Great Recession” had killed the job prospects for the echo Boomers and kept the Millennials in limbo. They piled on student debt to the tune of approximately $135,000 per person chasing after a college education that had been oversold, and at a price that was — and is — indefensible.

Like Apple with its iPhone X, the trend line finally caught up with reality, and folks began to decide that there was no compelling reason to spend money on a new device just to have one. It needed to be truly special or unique, and have capabilities the old one didn’t if they were going to shell out $800 - $1,000. Ditto living in the city.

Yeah, it appeals to this generation (again, it has been sold as being “authentic” by an educational and social structure that sees the modern urban/suburban mix as racist, environmentally inexcusable and corrupt), but they can’t afford to live in the city. The rents are too high and the job prospects are not as compelling, not to mention that starting salaries outside of Silicon Valley — where you are worked hard and thrown away after five or so years — are not in keeping with the high expectations of a generation that has been told (as we were) they’re special.

Like us, they will discover their peak earning years start when they turn 40, only companies — following the Silicon Valley example — will jettison them for a newer, cheaper, younger model. Just ask Mary Barra. She bragged recently that the average GM employee has worked for the company 12 years or less. It may keep GM’s salary and benefits cost down, but forces experience out the door, a lesson you would have thought GM learned in the mid-1980s when it last tried it on a large scale.

But, back to the plot line.

Autonomy was a given as Tesla had forced it out into the open, even though its “Autopilot” system falls far short of the promise of the name. Soon every automaker was chasing this ideal, certain it was the Holy Grail for the future of transportation. And, since these kids were living in the city (or wanted to), transportation would mean more than just cars. It would mean electric scooters you can (literally) drop anywhere, bike rentals, ride sharing programs, and so on and so on — up to an including pilotless drone taxis that will compete for the skies above the world with pilotless delivery drones dropping your Amazon packages at your doorstep.

The only problem was that no one asked if this was feasible or what the customer really wanted. Certainly Wall Street didn’t care. It saw the future, and the chance to make bundles of money. That drove Tesla — the number one EV maker in the world whose sales are far, far below that of Toyota’s Tacoma mid-size truck — to ridiculous valuations while the rest of the car industry stood still or declined. Which means….

… Yes, a run back to “relevance” and “me too” chasing of the autonomous EV combined with establishment of ride sharing companies, and buying every startup that had — or even thought of — being a “leading edge” transportation company. Yet, Ford killed one of its ride sharing companies recently due to a lack of riders. In Europe, its ride share unit went six months without a single subscriber.

However, instead of taking a step back and reassessing, Ford dropped a billion on the dilapidated train station in Detroit (ironically enough it was put up as an urban renewal project to draw people and employment to the area in the 1920s) for all the kids who want to live in the city while they work for Ford on electric and autonomous vehicles (“relevance”), bought an electric scooter company, doubled down on autonomy, and more.

And it is no different at most any other car company. Hell, VW stepped into the EV arena with both feet (for obvious — “dieselgate" — reasons) and is now offering its MEB modular EV platform to anyone who wants to sign up. The electric future isn’t as strong and bright as forecast. But will they learn? Hell no! Expect even more of the same (only with more shouting) at next year’s Consumer Electronics Show, the very show that sucked the life out of the North American International Auto Show in Detroit.

The only ones making money in all of this will be the “entrepreneurs" with the latest transportation company and/or app, and those shorting auto industry stocks after the initial price rise following each autonomy or EV or transportation company takeover announcement.

In the past we used to call this “irrational exuberance” when what it really is is nuts.