Thought about the Big 3 bailout

I write this post after reading some tweets about one Internet Marketing mogul stating that US government should let the Detroit Big 3 collapse. These words are from Seth Godin. Mr Godin said that he would prefer plenty of small carmakers that would offer variety (which is good) to a few big carmakers offering a limited choices (which is poor). This is the main idea of its post. There will be plenty of models, consumers would have infinite choices (think long tail?). Well I have to say that it is simply not possible and for the reasons hereunder.

The car industry is not Internet

The arguments have an Internet flavor, we cannot apply the same ideas to the car industry because the "ticket d'entrée" is very expensive. While setting the seeds of a start-up is very low, going into the car market is according to the former CEO of French carmaker Renault Louis Schweitzer; is as much as 800 millions euros ( the "ticket d'entrée" ). Why is it so expensive nowadays?

• Emission regulation makes car expensive to produce
• Shareholders want high returns
• Marketing cost are rising
• Large R&D budget for innovation

There are many many small carmakers in Europe that have tried to do some freaks, but none of them survived more than a decade. UK is the only country where small carmakers can survive. If you'd know the amount of money neede to develop a new engine, you'd understand that none of the small carmakers can have their own. So they buy from the large carmakers.

As far I as know, all the small carmakers are losing money, they often end up bought by some rich car addicts, but even these passionnate car lovers often cannot succeed.

What's happening in China

Interestingly, the era described by Seth Godin, the early 1900 years, is exactly what's happening in China. I have worked for a French Internal Engine research company and help them develop business in China for four years (and I have a site about Chinese cars ). The China Auto Industry is at the stage where 160+ carmakers are selling cars all across China. Besides the big FAW, SAIC, Dongfeng, Chery, there are numerous small carmakers that I don't even know the existence that sell small volumes of cars. Of course in China there is not an automobile culture like the USA or Europe, but it is happening slowly. What will happen next? small carmakers are bought by biggers like Nanjing Auto (which bought MG Rover) bought by SAIC, Hafei soon to be bought by FAW etc. The Chinese government is urging the big players to swallow the small ones in order to consolidate the sector and make national champions, strong enough to compete with big foreign brands.

Should US government help the Detroit Big 3? Yes of course, it is vital for the US economy, although I tend to thinks that GM, Ford and Chrysler have what they deserve, they should be saved (or sold). Ther won't be hippie age for the cars again, let's face the reality, there will be fewer and fewer carmakers for the sake of innovation.