Capitalism Gone Wild

Here’s another in my long list of posts labeled Old Man Grapples With Philosophical And Political Concepts More Properly Digested In High School.

So I watched a video a couple days ago on the YouTube channel Connecting The Dots about the auto industry, specifically about the industry’s shift to Electric Vehicles. The video talked about all the challenges involved in this transition, and especially about two of the big players, Toyota and Ford, who, he says, are facing a life or death moment. I drive an EV, and the inevitability of the world transitioning to this technology is not news to me. And I think it's abundantly clear that the legacy auto industry will need to retool how it works. But I haven’t really thought out the details, and it turns out there are devils in those details. And some of the details of the transition are like the pork secretly hidden in an appropriations bill in Washington, incidental yet fraught with consequences unintended by the original impetus.

I’ve had a Ford F150 Lightning electric pickup as my daily driver now for over three years. I loved it—like, crazy love!—at first drive, and after 60,000 miles I remain absolutely smitten. The Lightning is brilliant for daily use, and my hat goes off to Ford for the engineering involved. Three years in I have almost no complaints of any kind—and this from a guy who is normally looking at new cars before a year has elapsed on the current one. This truck is my favorite of the 50+ vehicles I owned before it—by quite a margin. I’m actually still excited every day to have an excuse to go drive it. But it was a very ambitious undertaking for Ford, a step away from much of the institutional knowledge they’d accumulated over a century. It’s an expensive vehicle, and even at the eye-watering sticker price the sale did not cover the costs to the company for producing it. But this was part of the pain of transition, right? The world was changing Ford was wrestling with that change. My truck was proof. 

But then about a year ago, after four years of production, Ford abruptly canceled the Lightning leaving them with the Mustang Mach-E as their only EV. They also halted construction on a big battery plant and announced that present EV plans were being curtailed (they cautioned that the change did NOT mean they were abandoning electrification; but what DID it mean?). This was shocking and profoundly disappointing to me. I had joined a new and exciting club, and now Ford looked to be retreating from all that, and the alternative path was just so obviously a dead end. Cue the huge sad trombone as the air left the balloon. Yes, there might be profit in the short term with ICE and hybrids, but long term the world will sing a different tune, and the big task must be undertaken. (None of this was helped by the stupefying Trump Administration faceplant as it implemented, among its endless stream of multiple daily faceplants, its Project 2025 self-immolating war on climate science and green energy. The tax credits that were intended to help the auto industry work through the immense costs of the changeover were abruptly withdrawn, and chaos and uncertainty became the order of the day—in cars as in everything else these people touched. The switch to EVs was underway in Europe, and China is WAY ahead. And we’re still stuck on Drill, Baby, Drill, falling further and further behind.)

Toyota and Honda—of which I’ve owned many examples—were a whole different flavor of disappointing. They didn’t just misread the winds, they seemed to refuse to read the winds altogether. They showed no interest in EVs at all—which is especially baffling when both were early developers of hybrids, and Toyota with the Prius brought at least partial electrification prominently to the mainstream 20 years before anyone else. And yet the next logical step seemed not to interest them. It’s like orbiting the moon and having no thought to land on it. Both companies made half-hearted attempts at an EV or two and then… Look At Our New Hybrid! About the same time that Ford killed the Lightning, Honda announced it was pulling the plug on a trio of ambitious EVs, and very recently Toyota announced the abrupt cancellation of their coming flagship Lexus EV, leaving us in both cases with an uninspired old school lineup. Even as Toyota chalked up 11 million sales last year making them the largest carmaker in the world by quite a margin, their CEO made a recent public speech saying that the company was in a death match with China and if it did not radically rework how it operated it would not survive—again, this in the midst of very healthy sales. On the surface, none of this adds up.

Well, they’re reading the winds now. The Connecting The Dots video addressed all this, dissecting what is afoot at both Ford and at Toyota. And his conclusion is that both companies have had the same realization that the industry is in an existential crisis, and each is attempting to avert disaster—albeit in rather different ways.

The key player in this drama—the wrench in the machine, if you like—is Tesla. Not only did Tesla almost single-handedly turn the electric car into a viable household item, but in the process—and as part and parcel of the product itself—the company radically reworked the whole car business. I mean, everything: the basic car design, the process of designing it, the building of it, how it’s fueled, how it’s sold, even how it’s driven. The gloom and doom from Ford and Toyota can be traced almost directly to each company’s dissection of a Tesla Model 3. After that it was obvious to both that a complete ground-up reworking stood between the present day and the companies’ survival. (I wonder how many such tectonic shifts there have been in history, ones affecting such large industries, so many people, so many billions of dollars?)

So what is this shift and why is it so disruptive? My Lightning is a second generation product of a legacy industry, a company adapting to a new reality. By the inception of the Lightning, Ford could already see that electrification was coming and would take over. And so the company began retooling for what management expected the new reality to look like. Generation 1 EVs from the legacy builders involved swapping electric components into existing ICE drivetrains. Put a battery where the gas tank was, and an electric motor where the gas engine was. Ford’s first serious EV, the Focus Electric, was just that: an ICE car with electric components swapped in. My truck, and the Mustang Mach-E, were Generation 2: new conventional vehicles with purpose-built electric drivetrains in place of ICE components, not a revolution but mostly familiar cars designed by legacy engineering teams and built more or less on existing factory lines. With the Lightning, Ford took its single biggest selling product, the F150 pickup, one with a healthy profit margin the buyers of which expect to write big checks, and banked on those characteristics being able to shoulder the burdens of these changes to the company and the industry.

But Tesla was playing a different game entirely. They started with a clean sheet and reworked *everything,* and their innovations made this whole legacy structure untenable. The design team, materials acquisition, the factory layout, the supply chain, the assembly protocols, the marketing approach, the sales model; none of the old ideas worked in Tesla’s new world, at least not without a ground-up rethink. And Ford and Toyota could now see this. This is why the Lightning was killed, not because it wasn’t a good vehicle, but because scaling this technology and these manufacturing methods was just scaling a fundamentally inefficient methodology, ensuring bigger and bigger losses, digging a deeper hole. The new approach was just vastly more efficient on all fronts. And both companies could see that without reworking to this new reality they were on the ropes. As it killed the Lightning, Ford announced some $19 billion in write-downs for its EV transition, and now admitted they were on the wrong track. $19 billion! And what they could now see was the real work was not yet done. In fact, the crucial bits were not even started. But if we dig down, the efficiencies found by Tesla are not without knock-on effects. I have questions.

What Ford must rework, exactly? The video identifies four “anchors” which he says are “dragging Ford down to the depths,” to wit: 

1) Union contracts, 

2) Pensions, 

3) The “Wall Street trap,” and 

4) The dealership model (which he calls the “dealership mafia”). 

If China—and then Tesla—don’t have to abide by union contracts nor pay pensions to retired employees, obviously their costs are substantially reduced. Cars made under that model will undoubtedly be cheaper. The extensive use of robots eliminates even more costly employees. So is that the end of it, to be successful we just have to eliminate employees? But who SHOULD pay pensions to retirees? How SHOULD older people sustain themselves? What protections SHOULD workers have? Whose prerogatives should be honored? (And are the costs of Ford’s vast management structure not similarly a liability? Surely AI can do the work of a middle-manager as well as it can run a welding robot.) Why is it OK for money to go into the pockets of shareholders, but money going to the people, you know, actually doing the work is a waste?

As to dealerships, for as long as I’ve been paying attention they have been floated as a prime cause of the failure of EVs to take root here. As the video points out, dealerships make their money not in selling cars, but predominantly in repairs and maintenance, both of which are much curtailed by the mechanical simplicity and basic operation of an EV. So naturally, the dealers are reluctant to sell them, or they stick high markups on the sticker price (when I bought my Lightning, the dealer was quite frantic to get me into a hybrid or ICE truck and I had to insist on the EV. They really didn’t want to sell me one. Maybe not coincidentally, the sales guy who gave me my test drive knew far less about the truck than I did). What to make of this? Are the dealers insane for not wanting their business to suffer or for maintenance jobs to go away? Is it just inevitable that progress puts all jobs out to pasture? I recall that when diesels came to the railroad industry and supplanted steam power in the 1930s-40s, something like 90% of the maintenance staff got let go. Of course the idea of continuing with steam power just to keep maintenance guys in jobs was not the answer. Surely the solution to progress is not to entrench needless inefficiency. But where does it lead? Do we end up with 100% robotic factories, machines with AI brains building the other machines? And what happens to the profits from that new approach? I can see value in getting rid of most of the dealership networks, but it’s not surprising that those workers do not want to vanish quietly.

And lastly, the Wall Street Trap, the need for Ford to remain a stable, blue-chip stock that people can buy to reliably prop up their portfolio. That seems another whole can of worms having nothing specifically to do with the car industry, and it feels to me like we’re looking at a very specific pathogen in a petrie dish—one which I suspect has quietly metastasized throughout our whole culture. I have long felt that pleasing shareholders—that is, rewarding the people who have gambled some of their excess and unneeded money hoping that money will make them MORE money—has become the tail that is manically wagging the dog, to the point that it's shaking the dog apart. The notion that sensible and responsible retirement strategy now consists of large scale institutionalized gambling—a setup which looks suspiciously like it was dreamed up entirely for someone else’s benefit—seems insanity itself. But I simply don’t know enough about business and banking and taxation and any of it to feel very informed in my opinions. 

I just don’t know what to do with this information, especially when the pathway to set workers aside is being advocated by the world’s richest man, one who could divvy out half his yearly income to the people at his factories doing the actual work, to genuine benefit to them and virtually no pain to himself. But—surprise!—the notion of widespread profit sharing is not part of the Big Change discussions. Talking up that option is not part of the coordinated response from the MSM—who are, not coincidentally, owned by exactly the same billionaires who sent American manufacturing jobs overseas. CEO-to-worker pay ratios have never been so divergent as they are now, and the complex pay packages and hidden bonuses and off-the-books perks and crazy tax laws are now kind of the whole playbook of big business. Political conservatism seems always to have been at odds with democratic self-government, that a small cadre of rich elites have always worked to keep outsize control over the worlds in which they live. And those realities have never been demonstrated so starkly as what we see today. (And all this is quite separate from questions of unlimited riches and political influence in the hands of sociopaths as we hope they'll do the best for us.)

But is this what ails the American auto industry? Or is this just the pain of progress?

What’s the alternative? Artificial make-work to keep people employed? Even when, especially when, the jobs could be done faster and cheaper and better with automation? But faster and cheaper to what end? Musk has said that automation will take over most jobs in short order; what does that look like? Are the people making this prediction, the people working for its implementation, in favor of a Universal Basic Income? Communism, the bogeyman of economics in the West, is supposed to take from each according to their ability and give according to their needs. Where does UBI fit into this scheme? Is it not the ultimate thing for the right to hate? Or will the machines just quietly eliminate us from the equation altogether? (I mean, even better than machines making cars for us would be machines not needing to make cars for us—or roads or any automotive infrastructure.)

I see now that the Connecting the Dots site has even more dire predictions for GM. But that's another post.