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Businesses The Almighty Buck Transportation Apple

Former GM and BMW Executive Warns Apple: Your Car Will Be a "Gigantic Money Pit" 535

An anonymous reader writes: With rumors that Apple is not only moving ahead on its electric car initiative, but trying to accelerate its development, a former GM and BMW exec is giving a few words of warning. Bob Lutz appeared on CNBC and expressed his doubts that Apple has a fighting chance to make any impact on the auto industry. "And when it comes to actually making cars," Lutz said, "there is no reason to assume that Apple, with no experience, will suddenly do a better job than General Motors, Ford, Volkswagen, Toyota or Hyundai. So I think this is going to be a gigantic money pit, but then it doesn't matter. I mean Apple has an embarrassment of riches, they don't know where to put the cash anymore. So if they burn 30 or 40 billion dollars in the car business, no one's going to notice."
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Former GM and BMW Executive Warns Apple: Your Car Will Be a "Gigantic Money Pit"

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  • by mveloso ( 325617 ) on Tuesday September 22, 2015 @05:21PM (#50577867)

    That's exactly what Moto, Microsoft, and Nokia said about the iPhone. Where are they now?

    • by UnknownSoldier ( 67820 ) on Tuesday September 22, 2015 @05:24PM (#50577889)

      Agreed!

      I also don't buy that argument -- otherwise how the hell did Tesla jump start into an already saturated market? If Apple was smart they would just buy Tesla to save them years of experience. :-)

      Just because a company is_currently_ not in an existing market doesn't imply that they won't be hiring people who can lay the foundation.

      Impossible? No. Hard? Yes.

      • by pixelpusher220 ( 529617 ) on Tuesday September 22, 2015 @05:29PM (#50577945)
        If Apple throws as much money at a car as Tesla did, perhaps they can, but they aren't likely to do that. It will be just a small part of the ecosystem.

        Apple thrives on selling cheap hardware by putting well tested software on it that really works well...and selling that package for a hefty premium. Cars aren't cheap to build and they won't be building them in China.
        • by SethJohnson ( 112166 ) on Tuesday September 22, 2015 @06:21PM (#50578385) Homepage Journal

          If Apple throws as much money at a car as Tesla did, perhaps they can, but they aren't likely to do that.

          I fully agree with you, Apple isn't going to spend as much as Tesla did to ramp up production.

          At a significant expense, Tesla innovated many processes and designs for their electric cars. Elon Musk threw the patents into the public domain and asked other companies to leverage them [teslamotors.com]. Apple will do that and then build on top of that with their own R & D investments.

        • by Anonymous Coward on Tuesday September 22, 2015 @08:23PM (#50579381)

          Apple thrives on selling cheap hardware

          Cheap hardware? Pretty much every time someone tries to match another company's hardware with the build quality/specs of Apple hardware ("because PCs are cheaper" mythology), the other company's hardware ends up AT LEAST as expensive as the Apple hardware.

          I know I'm _sort_ of conflating purchase price and build price, but not completely, since if it really were cheap, then some other company could/should be able to build it cheaper.

          • by LordLimecat ( 1103839 ) on Tuesday September 22, 2015 @09:48PM (#50579859)

            Cheap hardware? Pretty much every time someone tries to match another company's hardware with the build quality/specs of Apple hardware ("because PCs are cheaper" mythology), the other company's hardware ends up AT LEAST as expensive as the Apple hardware

            No, it only appears that way because of the slanted metrics that are always used in these comparisons.

            I could post equivalent hardware to the latest Mac that had a slightly slower SSD but better processor, RAM, and screen, for half the price-- but the complaint would be that the Apple has a better SSD (which is clearly what matters!)

            I could post something costing ~$100 more than the latest mac, and was superior in every metric-- but the complaint would be that it cost more (which is clearly what matters!)

            I could post something superior in every tech spec for the same price-- but the complaint would be that it wasnt in aluminum (which is clearly what matters!)

            The fact is the apple markup is real and is generally ~50% or more. Its been true for years, and people trying to justify the tag dont want something better than an Apple or cheaper than it, they want something that IS an Apple regardless of specs, price, or build.

      • by gweilo8888 ( 921799 ) on Tuesday September 22, 2015 @05:38PM (#50578045)
        Tesla's impact on the market, thus far, is squat. Volkswagen brands alone sold 10.14 million vehicles in 2014. Even if you ignore Tesla's fiddling of the numbers (with nonsensical claims about sales being low because customers "were on vacation"), they sold a grand total of 35,000 cars in 2014. VW's marques managed that many in 30 hours, 15 minutes.

        I know it's the done thing around these parts to fellate Mr. Musk at every opportunity, but the fact is that in the automotive world, he's a flea. He's completely insignificant and his toys for rich kids -- subsidized by yours and my taxpayer dollars, natch -- have not changed the market even one iota. Of the nearly 90-million cars and commercial vehicles sold in 2014, Elon captured a spectacular 0.04 percent of the market at best.
        • Re: (Score:3, Insightful)

          by AK Marc ( 707885 )
          That would only be true if the electric offerings from others would have been the same without him. Most don't subscribe to that opinion.
          • by kuzb ( 724081 )

            Most fail to admit that electric car market penetration is horrible overall anyway. Tesla is not competing with other electric cars. They're competing with other luxury cars. For most intents and purposes they're making enough to stay alive, but they're losing that competition.

          • we cant know what would have been, only what is

            did tesla kickstart it? perhaps, but would we be where we are now with the main companies without them? sure is possible
            • Tesla wouldn't have been possible without the EV-1. Hell, it might not have been possible without the senseless destruction of the EV-1. But it might also not have been possible without the existence of Lotus, or any number of other factors... the existence of the Tesla has been a spur to the automakers to stop fooling around with half-assed concepts and put out some cars that people can use.

          • by mlts ( 1038732 ) on Tuesday September 22, 2015 @07:09PM (#50578843)

            What Tesla brought to the table was making electric cars good looking, cool, fast, and fun to drive. Before that, we did have electric cars. However, they looked like the ZAP Sparkee, cute, little, underpowered bubble things with a range of footsteps. Tesla brought interstate travel to the table for electric cars. They also got places to install electric charging stations, and legitimized people plugging into the wall at stores and such [1], which was considered theft previously.

            Tesla definitely doesn't sell cars like Toyota... but for what they offer sets a standard for other automakers to follow. Things like vehicle updates that add features, even for vehicles several years old, decent service (even in areas where they are forbidden to sell vehicles), a very good safety record, and excellent customer service. Plus, when you pop the hood of a Tesla Model S, it is awesome -- another place to toss suitcases and other items.

            [1]: Well, except for Alaska where stores and other places have outlets to plug into to keep vehicle heaters going.

        • by TomGreenhaw ( 929233 ) on Tuesday September 22, 2015 @06:01PM (#50578225)
          For what ts worth, speculative investors don't agree that Tesla is insignificant. Tesla's Market Cap is in the neighborhood of $33.8 billion whereas GM is $47.5 billion.
        • Tesla's impact on the market, thus far, is squat.

          Market share is not the same as impact. Tesla has shaken up the electric car market by showing that people care a lot more about displaying status that about saving the planet. That should have already been obvious from the non-electric car market, but for some reason it wasn't.

      • by AK Marc ( 707885 ) on Tuesday September 22, 2015 @05:48PM (#50578115)
        Hyundai got started for a lot less than that. For the projected losses, Apple could buy GM, take the best 1% from GM, then shut down GM, writing off the whole thing, and still end up ahead. The sentiment is wrong, the math is wrong, and the reality is wrong. He's just proven that even idiots can make millions as a CEO.

        And yes, I know many don't like Hyundai, but from their bad start with the Elantra in the US, they've improved to be better than GM at this point (from a satisfaction and quality standard).
        • Hyundai was already a huge conglomerate with auto experience, though. Heck, Hyundai still builds assembly processes in other manufacturers' plants. Magna International could probably build a car, and Kuka (who currently builds some Chrysler bodies-in-white) could probably build a car, if these companies threw resources at it.

      • by quantaman ( 517394 ) on Tuesday September 22, 2015 @05:55PM (#50578179)

        Agreed!

        I also don't buy that argument -- otherwise how the hell did Tesla jump start into an already saturated market? If Apple was smart they would just buy Tesla to save them years of experience. :-)

        Just because a company is_currently_ not in an existing market doesn't imply that they won't be hiring people who can lay the foundation.

        Impossible? No. Hard? Yes.

        Tesla didn't enter an already saturated market. They entered an untapped sub-market that traditional auto-makers aren't ready to enter (Telsa can afford to make major screwups and have limitations that an established auto-maker can't get away with).

        Similarly Apple didn't enter a saturated phone market, they entered a very new smartphone market. A market they were one of the best positioned players to enter..

        If Apple wants to make another Mercedes they've got a very tough battle ahead. But if they want to make a self-driving car, electric car, or if they have some other idea that traditional car manufacturers haven't done for some reason, then they've got a shot.

    • A smart phone != an automobile, much less an electric one.
    • by Yunzil ( 181064 ) on Tuesday September 22, 2015 @05:46PM (#50578099) Homepage

      Apple knows how to make computers. An iPhone is just a small computer that happens to be able to make phone calls. A car is an entirely different kettle of fish.

    • A smartphone is just a small computer with dialing capability. In fact that's the biggest mistake Microsoft in the mobile space. Back in the day, everyone knew that PDAs and phones were going to converge (well, everyone except Microsoft it seems). We just didn't know if PDAs would gain dialing capability, or if phones would gain PDA capability. All Microsoft had to do was add native dialing and cellular chipset support to WinCE, and the PDAs with dialing capability added on would've morphed into smartph
      • Windows Mobile is Windows CE, though not everyone liked it. I had a Tmobile Dash (HTC Excalibur) back in the day and it was pretty cool. Finding apps that could run on it was where I had trouble. If you remember, you had to download them as CAB files from your typical web page. WinMo and WinCE apps and games could run half the time. The other half of the time there was some problems with the screen resolution or some library was missing, or something else.

        I think the transition to Windows Phone 7 could have

    • Not exactly...

      Cars really ARE a low margin business where the possible sales volume is pretty low and the produce is very expensive. Cell phones are generally not the same kind of business, margins are pretty high per unit and the volume is a couple of times that of a cars.

      In Q1 of 2014 it is estimated that just Apple sold over 60 million phones, during which the auto industry struggled to sell 10 million units industry wide. This makes the production rate of iPhones an order of magnitude higher than th

  • by Lab Rat Jason ( 2495638 ) on Tuesday September 22, 2015 @05:22PM (#50577877)

    I know I'll be accused of being a Tesla fanboy, but it's interesting to me that Bob Lutz failed to mention both Tesla and Pontiac (and Saturn) in that list... like he's an expert on what works and what doesn't?

    • Aren't Pontiac and Saturn dead?

      • Exactly....

      • by MouseR ( 3264 )

        While I replace my engine in my turbo Caliber, I bought a junker daily driver: a Saturn SL-1 1996. Only 132k KM on it. It drives better than the new Pontiac Sunfire I had bought in 96 and shows no rusts. I can't stop kicking the plastic door so much it's fun.

        Should have bought a Saturn back in 96.

        This shows that sometimes, good stuff can go extinct. And that includes phones.

        We all love our smart phones (currently sport a 6+) but the old phones were good at what they were designed, too. And very cheap.

        My 6+

      • Pontiac was 'just a brand,' there was really not much difference between Pontiacs and other GM cars (although in my experience renting cars, Pontiac had worse than average fit and finish.) Saturn showed both new auto technologies and a different approach to sales. The original Saturn polycarbonate side panels had a lot of advantages, including no rusting and more ding resistance than metal.

        But much more important was Saturn's "no hassle/no negotiation" approach to sales. That alone got Saturn a lot of tr

    • by aitikin ( 909209 )

      I know I'll be accused of being a Tesla fanboy, but it's interesting to me that Bob Lutz failed to mention both Tesla and Pontiac (and Saturn) in that list... like he's an expert on what works and what doesn't?

      Tesla is the upstart, I wouldn't necessarily consider them a reliable reference point. Sure, it's been around 10 years since they were introduced, but 10 years in an industry where many people buy a new one only roughly every ten years doesn't mean much. Pontiac and Saturn clearly don't belong on the list as they haven't made a new car in...well...almost 5 years, and even then, they were part of GM...

    • Lutz is an idiot (Score:4, Informative)

      by surfdaddy ( 930829 ) on Tuesday September 22, 2015 @06:20PM (#50578383)
      Lutz is an idiot, a blowhard. IMHO he's highly overrated. He laughed at hybrids when Toyota came out with the Prius. A few years later GM was wildly scrambling to catch up with THREE different hybrid systems (two have failed and one is no market winner) - the "mild" hybrid a la Malibu, the "two mode" hybrid for big SUVs, and the Volt. The first two are already out of production.

      Lutz also led the development of the Pontiac Solstice and Saturn Sky sports cars, which looked great but were crap cars that also failed in the market.

      You can pretty much ignore whatever he says.

  • by hey! ( 33014 ) on Tuesday September 22, 2015 @05:25PM (#50577899) Homepage Journal

    But like any other commodity experience can be purchased.

  • Wishful thinking (Score:5, Insightful)

    by Anonymous Coward on Tuesday September 22, 2015 @05:27PM (#50577913)

    Apple has, repeatedly, entered a market with a better product than most or all of its competition. I don't know if they'll do it again with cars or not, but then again neither does Bob Lutz.

    And frankly, I hope it's a flop - I don't like Apple, the way they treat customers, or their lock-you-in ecosystem. But their car won't fail just because I want it to, any more than it'll fail just because Bob Lutz holds a bunch of stock in GM and BMW.

  • Billions. (Score:3, Insightful)

    by Anonymous Coward on Tuesday September 22, 2015 @05:27PM (#50577915)

    Apple literally has almost $200 Billion in cash reserves. I might hate Apple, but they're entirely equipped to fight the long war.

  • No one is going to notice $20 Billion wasted? What is he smoking? I'm willing to bet that Apple could produce a car people would want to buy and could do a better job than the auto companies. It's not like Apple isn't going to hire experienced people to do the important stuff.

    Apparently these jackasses think only auto company executives can run car companies. They might be surprised to find out they aren't as valuable as they think they are. I'm no Apple fanboi but making cars isn't as hard as he makes it o

    • I'm no Apple fanboi but making cars isn't as hard as he makes it out to be. There are plenty of people out there that can be hired and build this business from the ground up. And a car company that was actually interested in what people want in a car would be a welcome change.

      It is hard--it's a big, complex project. But you're right, you can hire a lot of that expertise. And then have the tricky leadership task of using that experience and combining it with a good, user-oriented vision that can let the product take off.

    • by Xenx ( 2211586 )
      Apple has a history of telling you want you want, not asking you what you want. However, that process seems to work for them. Apple won't necessarily get things wrong. However, there is a lot they would have to get right. I wouldn't expect Apple to fail outright, but they will have to work hard and likely expect to operate at a loss before succeeding.
      • No one will buy an Apple branded car that cost's as much as most tesla's.
      • Apple has a history of telling you want you want, not asking you what you want. However, that process seems to work for them. Apple won't necessarily get things wrong. However, there is a lot they would have to get right. I wouldn't expect Apple to fail outright, but they will have to work hard and likely expect to operate at a loss before succeeding.

        My God Man! You mean Apple are behind systemd??

  • by creimer ( 824291 ) on Tuesday September 22, 2015 @05:30PM (#50577957) Homepage
    Apple needs a money pit for its surplus of cash. Stock buybacks and dividends can only do so much for shareholder value. They might even discover a new automotive product category by pursuing this line of R&D, change the world (again) and make more money to sink into a money pit..
    • Apple needs a money pit for its surplus of cash. Stock buybacks and dividends can only do so much for shareholder value. They might even discover a new automotive product category by pursuing this line of R&D, change the world (again) and make more money to sink into a money pit..

      Actually, dividends are designed to pay earnings to shareholders. They can issue as much in the way of dividends as they want without it harming shareholder value. And that's what they *should* do if they have more capital than they can deploy intelligently, because otherwise that portion of the shareholder's value is just sitting there undeployed.

      • by AK Marc ( 707885 )

        And that's what they *should* do if they have more capital than they can deploy intelligently, because otherwise that portion of the shareholder's value is just sitting there undeployed.

        I worked for a big company. They had $10B in cash. Their $10B in cash was invested. In a good investment year, the "profit" from the "undeployed" cash was greater than the rest of the company combined. They don't have the cash stuffed under their mattress (corporations don't sleep). But it's invested. And it's growing. I'm too lazy to look up their FTC filings, but I'm sure you can find it if you want to look it up and see what the investments returned.

  • Money Pit (Score:4, Insightful)

    by thevirtualcat ( 1071504 ) on Tuesday September 22, 2015 @05:30PM (#50577959)

    Getting into a new industry is always a big money pit. Especially industries with firmly entrenched players with interests to protect.

    Doesn't mean it's impossible, though. Just hard. They just have to throw enough money into the pit to fill it, and do it quickly before the shareholders get cold feet.

    • by AK Marc ( 707885 )
      What's hard about it? Designing? Building? Supporting? Apple doesn't do 2 of those for things it's "expert" at, so why would it for cars? Build them in China. https://en.wikipedia.org/wiki/... [wikipedia.org] would all love to make the iCar. And some of those have lots of experience. So then it's design, sales and support. A dealership network would be fine for sales and support, so it's just to Apple to design something. And that's what they are good at, or so I'm told.
  • by sootman ( 158191 ) on Tuesday September 22, 2015 @05:33PM (#50577997) Homepage Journal

    1. "PC guys are not going to just figure this out. They're not going to just walk in." -- Palm CEO Ed Colligan, 2006, on Apple's prospects with their (at the time) rumored phone.

    2. One of the guys in charge of GM during its recent bankruptcy is going to give financial advice to the most valuable private company in the world? I'm sure Tim Cook will give it all the consideration it deserves.

  • by random coward ( 527722 ) on Tuesday September 22, 2015 @05:35PM (#50578025)
    Lutz has also said that the best designers at car companies are their greatest asset, and should be their highest paid employees. Good car design is what makes profits for companies. Apple had great work with design under Jobs; so there is at least even odds they can get it right, at least enough. Really no one understands the car industry better than Lutz right now. Maybe Apple should listen to what he says and address those issues he brings up? Of course they could do that and we might never know.
  • ... Maximum Lutz!
  • by BenJeremy ( 181303 ) on Tuesday September 22, 2015 @05:42PM (#50578073)

    Apple buys VW/Audi and rebrands (since the brands will be taking a big hit very soon), and consumers forget about dieselgate. Apple gets the infrastructure to build cars, as well as an eager dealership network. They throw money at some new designers to oversee the existing engineers and make the vehicles they want to make.

    Book it, done deal.

  • They popped out of nowhere without prior experience, and last I checked people waxed lyrical about their cars.
  • Lack of foresight (Score:5, Insightful)

    by Anonymous Coward on Tuesday September 22, 2015 @05:51PM (#50578149)

    Former Palm CEO Ed Colligan, on Apple's prospects in the phone market: “We’ve learned and struggled for a few years here figuring out how to make a decent phone,” he said. “PC guys are not going to just figure this out. They’re not going to just walk in."

    Here's the fundamental mistake they're making by dismissing Apple: Apple didn't "just walk in" to the phone market - they worked on it for years before they shipped anything. A car that's "slated to ship in 2019" is not "just walking in" - that's 4 years away, it's already been in the works for a while now, and that 2019 date is "rumored." Which means it may just as easily be 2025, or 2030, before Apple decides that anything they're working on is ready to ship.

  • by Lumpy ( 12016 ) on Tuesday September 22, 2015 @05:54PM (#50578173) Homepage

    How to sell a premium brand that makes everyone want to buy it. I love driving BMW, but the prices of the upper models that I lust after, the M3/ M5 / M6 I will never ever afford as it's impossible for me to. GM, well they can't sell cadillacs to people that are dripping with money, so GM has zero clue.

    Apple on the other hand has figured out how to get poor people on FOOD STAMPS to buy their premium phones.

    Plus knowing apple, they wont try and make a giant sedan to appease everyone. they will make a city car that is small and fits in some kind of legal limbo hole like the 3 wheeled cars and golf carts that are legal to drive on the road. And people will buy the shit out of them.

    • by Maow ( 620678 )

      Plus knowing apple, they wont try and make a giant sedan to appease everyone. they will make a city car that is small and fits in some kind of legal limbo hole like the 3 wheeled cars and golf carts that are legal to drive on the road.

      Knowing Apple, they'll build a 4-wheeler, get a design patent on "a revolving device placed at or near the 4 corners of the vehicle" and one on "a round device in the passenger compartment, placed off centre to be used for modifying the vector of motion" then sue Hyundai or Toyota for billions of dollars for infracting their precious IP.

      And people will buy the shit out of them.

      Yes, and rave about how revolutionary the design is and how Hyundai / Toyota are just a bunch of cheap imitators.

  • Of course it will be a money pit. It will be like 10% of Apple's cash on hand. No new business is profitable on day one, especially against entrenched troglodytes like GM.

    Businesses that are consolidated and set in their ways like the car industry would benefit from some disruption, even if Apple ultimately fails.

  • To be honest, I'd trust a car from Apple more than I'd trust one from GM.

    Apple knows how to do nigh impossible feats in product development, I'd trust they'd do a car right aswell.

    However, I'm still wondering where these Apple car rumours are coming from. It seems way out there, imho. ... Why would they build a car? A professional camera or something is far more likely imho.

    My 2 cents.

  • Bob Lutz. (Score:5, Insightful)

    by jpellino ( 202698 ) on Tuesday September 22, 2015 @06:05PM (#50578257)
    The John Dvorak of the auto industry. Apple could not ask for a better endorsement.
  • But I'm looking forward to that. The car industry is so stuck in its ways that it just needs a healthy shock.

    When Apple is planning for a few years still, they may do it right and come with an autonomous car and you won't buy it, you will just rent it when you need to get from A to B. The car itself then may be expensive but this way it may still be cheaper and more convenient (no parking, no caring for anything) than owning a cheaper car. Like a robot chauffeur you can summon to appear out of thin air when

  • by Razed By TV ( 730353 ) on Tuesday September 22, 2015 @06:35PM (#50578537)
    ...and that's a step up from most car companies.

    5 or so years ago, when I was shopping for a car, I picked up a Consumer Reports car edition. My previous car had been an 87 Toyota Camry station wagon, and it got somewhere in the range of 23-27 MPG doing suburban driving. Looking at that Consumer Reports was depressing. The majority of cars had the same or LESS mpg, despite being 10 to 20 years newer.

    Fuck this executive. If he had his way, cars would run 10 MPG.

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