One of the abiding notions in the auto industry today is that there are significant barriers to entry. Consequently, the possibility of being new entrants is remote. After all, it takes a whole lot of money to design, engineer, validate, produce, distribute, and promote motor vehicles. The tab for even a diminutive factory are stag-gering. Returns on investment aren’t all that great—to be generous—and so finding capi-tal would be a tough slog in and of itself.
Of course, that’s assuming that things are done the way things are done by the existing participants.
Arguably, another area where there are significant barriers to entry is in space flight. After all, we’re talking about competing with NASA. But as is now widely known, on October 4, 2004, SpaceShipOne won the $10-million Ansari X Prize for becoming the first privately built spacecraft to go into space twice within a two-week window. Rather than waiting two weeks, the craft went up first on Wednesday, September 29 and then the following Monday, the 47th anniversary of Sputnik I, the Soviet craft arguably had a huge effect on the technological development and prowess of the U.S. aerospace industry.
SpaceShipOne was developed by Burt Rutan and the people at a company he founded in 1982, Scaled Composites. Interestingly, GM worked with Scaled Composites in the development of a 1992 concept car, the Ultralite, which truly is an ultralight automobile: curb weight of just 1,400 lb. for a four-passenger vehicle.
SpaceShipOne was funded by Paul Allen, the billionaire who started up a company a few years back with a pal named Bill Gates. The investment Allen’s American Mojave Aerospace Ventures made is reported to be $25 million. For those who are keenly interested in the ROI of the venture, it should be noted that Richard Branson, who turned a record label into a multitude of other things, including an airline, Virgin Atlantic, which set the venerable British Airways back on its heels, announced the establishment of Virgin Galactic and plans to have Rutan develop a five-seat spacecraft for tourist flights that will have a ticket price of $208,000 per ticket. It is supposed to launch in ‘07. Given a sufficient number of people with serious disposable income, and the whole thing begins to look financially reasonable.
The point here is not merely to give big props to Rutan and his group—although they are well deserved and earned. And the epigram from Michael Lewis’s book about the Oakland A’s under the clever management of Billy Beane is not a gratuitous baseball reference. Rather it is to stress the importance—the absolute necessity—for people to begin to think anew when it comes to performing their jobs and in running their businesses. Both of these cases prove that the barriers to entry that people think exist are barriers that can be readily overcome by those with the imagination not to try to replicate what is already being done.
One of the problems that those involved in the North American auto industry will be facing in the not-too-distant future are other serious competitors from places like China and India. This will be the case for suppliers and even OEMs. In some instances, it may already be the case. Chances are, those companies producing commodity components are not going to be able to compete in the market—and let’s not kid ourselves: when cars and trucks are being sold on the basis of cash back, not customer desire, they are high-ticket commodities.
In the end, imagination wins.