Does the auto industry need to rethink its business model? If you've been following recent financials from pretty much everyone but Toyota (TM), you'd have to say no. But then you wouldn't be Ray Lane of legendary Silicon Valley VC firm Kleiner Perkins Caufield & Byers. He says (and I quote): "Business as usual is just not acceptable."
Lane isn't completely off-base, but he does sound like a guy who spent nearly his entire pre-VC career at Oracle (ORCL). Because it has created and destroyed vast amount of wealth while employing nowhere near as many people as Detroit did during its heyday, Silicon Valley believes it's entitled to prognosticate about how the auto industry should be fixed. Of course, that implies the auto industry is actually broken.
Detroit was transitioning long before Silicon Valley appeared
Back when San Jose was still known for fragrant apricot orchards, Detroit was building the postwar car of tomorrow, supporting a vast chunk of the burgeoning U.S. middle class, and giving rise to the American corporation. Ever since the early 1970s, the car industry has been making the automobile progressively more efficient and environmentally friendly.
True, the automakers haven't moved as fast as they could, and General Motors' (GM) commitment to highly profitable SUVs prior to the financial crisis set it up for bankruptcy when the car market collapsed in 2009. But it's not as if Motown's engineers have been building the same infernal contraption for 100 years.
Just don't tell that to the VC guy
Here's a sample of Lane's views, as reported by Reuters:
Over the next decade, the disruption caused by new technologies in the auto sector will be the greatest the industry has seen since before World War Two, Lane said.Heated mirrors! Colors! Yes, that's why we don't have laser-powered flying cars yet!
"Our industry's business structure needs to be revamped and the recession offers the best opportunity to do that," he said. "Do we need 20,000 dealers in the United States? Do we need the incremental focus on features in the product we design today?
"There's a better way to focus on designing, building and distributing vehicles," added Lane, who said the cars of the past 10 years all looked alike to him and lacked the passion in design of prior decades.
Lane also criticized the industry for its focus on features like heated mirrors and new paint colors over groundbreaking technologies.
This is why a lot of VCs are hard to trust: they talk about disruptive economic forces as if they're completely destructive of what preceded them. Even Schumpeter didn't go that far -- he merely argued that "creative destruction" undid monopolies by enabling the power of innovation to be applied elsewhere.
Why do VCs talk this way? Because they need to bolster the value of their investments, in order to be able to exit their positions with outsized gains. It's worth noting that KPCB has put money into Fisker Automotive, a plug-in hybrid startup that's now several years behind Tesla (TSLA) in delivering any actual cars.
Why talk smack about an industry in recovery?
It's only a matter of time before the electrification of autos is widespread. But until then, cars are mostly going to run on gas, be sold through networks of community-building dealerships and, if anything, see the introduction of even more features that consumers are demanding.
Dissing the industry's overarching business model, in a time of robust recovery, is an obvious effort to belittle legacy technologies that, even when gas is expensive, are legitimate competitors to EVs. It would be easy to say that Lane doesn't know what he's talking about -- but in fact, he does. He knows it all too well. Often, business as usual is very good business, so good that it overcomes disruption.