Why Moore’s Law does not apply to car batteries

October 30th, 2009 6:07am

While at BMW in Munich, I received an insight into why we should not hold our breath for pure electric cars to replace those with internal combustion engines.

It came from Hans Rathgeber, a BMW executive in charge of developing fuel-efficient technology for the BMW and Mini brands. Mr Rathgeber’s latest project is a BMW concept sports car, unveiled at the Frankfurt motor show, which accelerates to 100 km per hour in 4.8 seconds but is extremely fuel efficient.

BMW has produced the Mini E, an experimental electric car which is being tested by selected drivers (about 450 in the US, for example). It is powered by a lithium ion battery and has a maximum range of about 170 km in normal driving conditions.

However, Mr Rathgeber had doubts about whether battery technology will advance rapidly enough in the next two decades to enable pure electric cars to have sufficient range to challenge hybrids that have both internal combustion engines and electric ones.

The problem of the battery is that it is not an electronic part, it is chemical. In chemistry what you don’t know today you won’t know in 20 years,” he told me.

BMW has been working on improving the fuel efficiency of its entire fleet of cars under a programme known as Efficient Dynamics. Its new cars registered in 2008 had lower carbon dioxide emissions that competitors such as Audi and Volvo.

The machines have taken over the vehicle world

October 29th, 2009 4:45pm

It sounds absurd to be surprised at how automated the process of car production is these days, but that was my reaction when I toured BMW’s plant making Series 3 cars in Munich today.

It has been more than 10 years since I went round a vehicle plant, so I took the opportunity on a visit to Munich to visit the one that which stands on the site where BMW first made aircraft engines in 1917.

About 9,000 people work at the plant, which only turns out about 900 or so cars a day - these are, after all, premium cars and not volume models - but most of the work is done by robots.

In the body shop, where the stamped metal sheets are welded together into car bodies, for example, about 97 per cent of the task is done by 650 robots. The remaining three percent consists of changing copper welding tips and placing stamped sheets where the robots can pick them up.

BMW does not allow visitors to take photographs inside the plant, which is a pity because I would otherwise have posted a shot of the intricate dance of the robots, which is quite a sight.

The robots, which are made by Kuka and ABB, are painted orange and tilt and twist on several axes as the metal parts are threaded in and out, glued and welded. BMW is proud of a station at which the completed bodies get welded by 12 robots at once, said to be more than its rivals manage.

Even on the assembly line, the powertrains and bodies are brought together (in a process called “marriage”) by robots and human intervention is limited to jobs such as tightening some bolts and threading in the electrics. Humans still make the car seats, although that too is done by robots at other BMW plants.

That accounts for the fact that far fewer people work in vehicle plants than in the past, despite their image of being filled with people. General Motors, for example, now employs only 48,000 US manual workers, down from 114,000 three years ago.

Robots have been in use for about three decades and I recall the 1979 British television advertisement for the Fiat Strada which boasted of them being “hand-built by robots”.

There is a, possibly apocryphal, story that when Hugh Hudson, the director of the Fiat Strada spot, arrived in Turin for the filming, his crew came across a protest by workers at their jobs being taken over by machines. That fight has long been lost.

Formula One lets Renault escape lightly

September 21st, 2009 5:28pm

Are we supposed to believe that the governing body of Formula One racing had any intention of disqualifying Renault from the sport for deliberately crashing a car in last year’s Singapore grand prix?

The fact that Renault got a suspended sentence is no surprise since the power lay with the team rather than the Fédérational Internationale de l’Automobile. The latter could not afford to lose another team after Honda and BMW pulled out.

The FIA’s World Motor Sports Council ruled that the deliberate crash was a rule breach of “unparalleld severity” but imposed only a suspended sentence and did not levy a heavy fine on Renault.

The lesson I would draw, if I were running a Formula One team, is that the FIA lacks the clout to punish its teams severely.

Fritz Henderson’s struggle to change GM’s culture

July 10th, 2009 2:37pm

Fritz Henderson’s remarks this morning on General Motors’ speedy exit from Chapter 11 bankruptcy were a pretty sweeping condemnation of the old GM’s culture and structure.

His decision to sweep away entire layers of regional management, and eliminate the entire group running the North American business and taking charge himself, suggest there was a lot of redundancy.

Of course, the fact that GM is selling its Opel operations in Europe and will only retain a minority stake makes a coherent global structure more difficult. But Mr Henderson is making the best of a bad job by giving Nick Reilly the job of running international operations from Shanghai.

The theme of reducing the amount of time spent talking and prevaricating in meetings is common to GM and Ford, where Alan Mulally has made much of his effort to speed up decision-making.

Maybe the most telling thing Mr Henderson said was to quote Einstein’s dictum that the definition of insanity is doing the same thing over and over again and expecting different results.

It has always struck me that the inwardly-turned culture of Detroit companies gave them an ingrained ability to stick to the same path despite the clear evidence that customers were abandoning them.

Hopefully, Mr Henderson will manage to change that at GM but there is nothing more difficult than altering the long-established patterns of behaviour at venerable companies.

Mr Henderson is clearly in a hurry. He marked down next year for an initial public offering to make GM a public company again and said he intended to repay government loans “much sooner” than 2015.

Elon Musk thinks that cheap petrol is a tragedy

June 15th, 2009 7:16pm

The American consumer should be paying $10 per gallon for petrol, instead of the current average of $2.62. So says Elon Musk, the chairman and chief executive of Tesla Motors, the Silicon Valley company that makes the Roadster electric car.

Mr Musk reckons that is the price that would compensate for all the externalities of burning fossil fuel, polluting the atmosphere, warming the oceans etc. He made his calculation this morning at the Wired magazine business conference in New York, which I attended.

“We are not paying for the true cost of gas at the pump. It is a tragedy of the commons problem. No-one is explicitly paying for the costs of the oceans and the atmosphere.”

Expensive petrol would suit Mr Musk fine since his company currently makes the only pure electric car in production. General Motors is trying to catch up with the Chevrolet Volt, a car that will be powered by electricity, with a back-up petrol engine for when the batteries run out.

Incidentally, James Surowiecki suggests (via Felix Salmon) a federal petrol tax that rises when the price of oil falls and vice versa, to provide stability for consumers and manufacturers.

Mr Musk, a co-founder of PayPal, is nothing if not ambitious and says he has his eye on some of the plants that may be left vacant by the downsizing of Detroit.

“When the mess gets sorted out like to have a conversation with the car czar and say I would like some of those plants.”

In conversation with Chris Anderson, the editor-in-chief of Wired, Mr Musk was adamant that US companies should follow the example of German auto companies such as BMW and Daimler in having engineers at the helm, rather than financial specialists.

“You really need the product guys running a product company. The path to the CEO’s office should not be through the CFO’s office, it should be through engineering and design.”

And what are the job titles of Mr Musk, an engineer, at Tesla? Chairman, chief executive and product architect. That should just about cover it.

The HuffPo gets irrationally outraged about Whitacre

June 10th, 2009 2:55pm

Oh dear, oh dear. The outraged splash headline on the Huffington Post at the moment (”aggregated” from an original news source, as is its wont) is: “New GM Chairman: I don’t know anything about cars”. Inside, the site huffs and puffs about how extraordinary this statement supposedly is:

No experience is necessary to take the top spot at the bankrupt icon of Detroit’s automobile industry.

Believe it or not, the newly appointed chairman of GM has zero experience with cars. And perhaps even more worrisome, Edward Whitacre, who was appointed yesterday, is completely fine with that.

The HuffPo refers to an interview Mr Whitacre gave to Bloomberg News , in which he said:

“I don’t know anything about cars. A business is a business, and I think I can learn about cars. I’m not that old, and I think the business principles are the same.”

Let’s take this slowly, since the purpose of having a separate chairman is unfamiliar in the US. Mr Whitacre is becoming chairman of the New GM, responsible for the board and oversight of Fritz Henderson, its chief executive, who is a “car guy” through and through, as he needs to be.

Would it have been better to have someone who has his own ideas about managing the company day-to-day as chairman, as the HuffPo seems to think? Well, no actually. All the evidence is that chairmen who think they can run companies better than their chief executives cause damaging boardroom rifts.

Indeed, UK corporate governance guidelines suggest that a chief executive should not step up to become chairman of the same company because of the potential for boardroom rivalry.

The job of the chairman is to make sure the board exercises appropriate oversight, and to be a sounding board for shareholders. The chairman of GM does not need to know about cars; he or she needs to know about how to manage a company.

So, “perhaps even more worrisome” or, in fact, perhaps not.

General Motors makes a fresh boardroom start

June 9th, 2009 5:01pm

As someone who generally believes in the separation of the chairman and chief executive roles at the top of big companies, I am encouraged by the emergence of Ed Whitacre, the former chairman and chief executive of AT&T, as chairman of the new General Motors.

The New GM board clearly needs to do a better job of management oversight than the old one did, since it took the US government to force GM into the kind of restructuring and slimming-down it had long needed to undertake. The old board was a very poor guardian of shareholders’ interests.

Mr Whitacre is the sort of figure that New GM needs to balance the talents of Fritz Henderson, its chief executive, once it emerges from Chapter 11 bankruptcy. He is not a “car guy” but he has a lot of experience of running a big company and - importantly - of mergers and acquisitions.

Most heads of US companies are still reluctant to split the roles, although Mr Henderson thinks there are two jobs to be done. As a result, it is rare for a Fortune 500 company to have two strong figures at the helm, one focussing on management and the other on corporate governance.

Given the fluid state of the global auto industry, it also helps to have a chairman who is likely to be open to mergers and alliances with other groups, and able to negotiate good terms.

Hopefully, New GM will be an example to other US corporations, which is not something you could have said about the old model.

General Motors still has a pension fund problem

June 8th, 2009 4:36pm

Tony Jackson makes an interesting, and a bit scary, point about New General Motors, the part of the company that is supposed to spring out of Chapter 11 with its liabilities trimmed, ready to take on competitors in the auto industry.

Although New GM will have dealt with its healthcare liabilities, it will have the GM pension fund attached. He posits that this was because transferring it to the Pension Benefit Guarantee Corporation would have been too bitter a political pill.

Since so many GM employees retire early, any transfer to the PBGC would have heavily cut the value of their pensions. The PBGC pays a maximum of $20,000 per year to 50-year-old retirees so, if it had taken over the fund, GM retirees pensions could have been cut by 40 per cent.

John Ralfe, the pensions consultant calculates that GM could easily find itself having to divert between $1bn and $2bn annually from operating cash flow in future. If it decides it cannot afford to do so, its pension fund could end up in the hands of the PBGC anyway. Jackson writes:

“And so, in an exercise which has inflicted various degrees of loss on GM’s shareholders and bondholders, the 670,000 members of the pension fund are protected. Anything else, it seems, would be politically impossible.

The snag is, of course, that if new GM goes bust a few years from now, the bill to the PBGC will have gone up to the tune of the $3.5bn a year that would otherwise have been saved. When we put that in the context of a GM fund with assets of $91bn at the last count, it is not trivial.

Nor is it trivial in the context of the PBGC, which . . . is seriously underfunded, and has just reported a deficit of $33.5bn for the year to March. The whole problem, in short, has not been addressed, just kicked down the road.”

What was that Barack Obama said about not kicking the GM can down the road?

Congress sets out to micro-manage Detroit

June 4th, 2009 7:59pm

Further to my column on General Motors, I wonder whether the US government’s bail-out of Detroit is fated to go the same way as that of Wall Street. The White House wants to keep out of day-to-day decision-making in companies, but Congress is another matter.

As the FT reports, the Senate commerce committee is already weighing in with pressure on GM and Chrysler to amend their plans to close local dealers. This is a long-running sore with Detroit, since dealers were protected (before Chapter 11) by state laws:

Congress is keen to weigh in on the restructuring. The Senate commerce committee yesterday held a hearing on the fate of dealerships with John Rockefeller, the Democratic chairman of the committee, expressing concern about a “short and insufficient transition period”.

John Dingell, a Democratic representative from Michigan, wrote to Fritz Henderson, chief executive of GM, to say he was “troubled” by plans to close a transmission plant in the state. “I respectfully urge that GM, under the auspices of its restructuring plan, commit to retaining this facility and its workers,” he said.

“Retaining the Willow Run facility would not only evidence GM’s recognition of a model plant in terms of quality and efficiency, but also demonstrate a praiseworthy dedication on the company’s part to preserving valuable jobs in Michigan and the United States in general.”

I referred in my column to the four principles the administration had drawn up for cases in which it holds equity in private companies. The third principle is this:

After any up-front conditions are in place, the government will protect the taxpayers’ investment by managing its ownership stake in a hands-off, commercial manner. The government will not interfere with or exert control over day-to-day company operations. No government employees will serve on the boards or be employed by these companies.

The White House hopes that, since the bail-out of GM does not involve going to Congress for an appropriation, Capitol Hill will be equally restrained. Somehow, I doubt it.

General Motors goes to the garage

June 3rd, 2009 9:11pm

My column in the FT this week is on Detroit:

“This is the death of an American icon,” I heard a television reporter saying as I got to the General Motors building in Manhattan for the announcement of its Chapter 11 bankruptcy. The only icon in sight, however, was the bitten apple over the glass entrance to Apple’s subterranean Fifth Avenue store.

Steve Jobs’ company located its flagship New York outlet below the plaza of the GM building as if literally to undermine the carmaker and its devalued brands. Up there is the old symbol of American innovation, winks the glass cube, but down here is the new one.

Apple was itself reinvented when Mr Jobs returned in 1997 to the company he founded and turned the iMac into the world’s coolest personal computer, before unveiling the iPhone as an encore. Now Fritz Henderson, GM’s chief executive, must do the same in Detroit.

If he succeeds, Mr Henderson will make Mr Jobs – and Louis Gerstner, Jack Welch and the industrial turnround artists of the past – look pedestrian. He may defy the sceptics but I remain one of them.

Watching Barack Obama before Mr Henderson’s appearance, I was struck by the US president’s oratorical and strategic acumen. “I refused to kick the can down the road,” he said of his decision to push GM into bankruptcy rather than accept the plan presented by Rick Wagoner, Mr Henderson’s predecessor.

In fact, kicking the can down the road is exactly what Mr Obama has done. But Chapter 11, and $30bn (€21bn, £18bn) of taxpayers’ money, have enabled him to boot it far enough into the distance that he will not come across it again for a long time, if ever.

You can read the rest of the column here and comment below.