Another “Apple Can’t Do That” Report
September 23rd, 2015There’s an unfortunate habit of the media, and even industry executives, to underestimate Apple. Do you remember when the iPhone came out, and how Steve Ballmer famously announced, “There’s no chance that the iPhone is going to get any significant market share”?
I’m serious!
Of course, when you look at the market share of the various Windows Phone products, you could almost apply that comment to them nowadays. Clearly Ballmer didn’t have a clue, or hoped and dreamed he might be right that the iPhone couldn’t possibly succeed. Indeed, Steve Jobs at first had very modest expectations, saying he’d be happy of global market share exceeded one percent at the end of 2008. It reached an estimated 1.9 percent.
In 2011, IDC predicted that Windows Phone would overtake the iPhone’s market share by 2015, and that Apple would take the number three slot just ahead of BlackBerry. I just hope that nobody paid IDC for that analysis, and if they did, they should ask for a refund. Both Windows Phone and BlackBerry are now vying for irrelevance, although Microsoft will soon to introduce new Nokia handsets that support the mobile version of Windows 10.
Funny how the facts often get in the way when people are denigrating Apple. And I won’t dwell on the fact that the iPhone has pretty much sucked the profits from the smartphone industry. Samsung gets some, most of the other handset makers barely break even or lose money.
So we know what Apple can do when it comes to smartphones.
When the iPad arrived, no less than Bill Gates told us how it was a bad idea. This coming from someone who touted tablets, only to find them reduced to a few vertical markets. That concept of giving traditional note-books touchscreen displays is still in full force in the PC universe, although still not quite successful.
But with rumors arising over the possibility that there may be an Apple Car come 2019, you can bet that auto industry executives — or former executives — are busy telling us that our favorite fruit company hasn’t a clue. They are in the wrong business, and might as well bail before wasting too much money.
On the other hand, Apple has over $200 billion in cash lying around, so a lot of cash has to be burned on a project before it becomes too much.
Understand that there is no official confirmation that Apple is working on a car, or that if they are, that it will ever go into production. Yes, I know about the rumors, but Apple routinely works on new product concepts, and only a few make it to the production line. Consider the rumors over an Apple smart TV set that have more or less become stillborn over claims that the project was abandoned. Or maybe it never existed in the first place.
Now one of the most outspoken former auto executives is Bob Lutz, a former General Motors vice chairman who headed up global product development among other divisions. So one expects he knows a lot about designing and building a motor vehicle, which is why what he says might be taken seriously, although he did most of his work at GM before the bankruptcy and restructuring. But he probably knows nothing about Apple’s intentions beyond what’s been reported in the press.
That did not stop him from stating, in a recent CNBC interview, that Apple’s auto project is “a gigantic money pit.” His argument, echoing what was said about the iPhone in 2007, is that Apple has no experience in making cars, so how could they “suddenly do a better job than General Motors, Ford, Volkswagen, Toyota, or Hyundai?”
Now maybe he should have second thoughts about VW, since that company is facing serious troubles because they pulled a dirty trick to enable vehicles with diesel engines to pass emissions requirements. The scheme involved installing software that would turn on emission controls strictly to pass government tests, but otherwise disable it, meaning that these cars would spew up to 40 times more junk in the atmosphere under normal use.
So if we’re talking about expertise, VW has a problem, unless it’s about expertise on how to fool people.
In any case, Apple has the resources to confound the critics. Indeed, they don’t even have to build a car all by themselves. They could make a deal to use another auto maker’s unused production capacity, or partner with one to build a new factory.
The other question is making profits. The average gross margin in the auto industry for 2015 is 17.98% so far. Apple’s gross margin for the June 2015 quarter was 39.68%. The average new car price in the U.S. hit $33,560 this year, so there are clearly lots of profits to be made even if the marginss are far lower. That assumes Apple can actually do this profitably. Remember that Elon Musk’s Tesla, though perceived as a successful maker of electric cars, is not quite profitable yet. In the second quarter of this year, they posted a loss of $184 million. Then again, Amazon is seldom profitable yet is still a Wall Street darling. It’s a crazy world out there.
So what’s the takeaway from all this?
Well, there is obviously no Apple Car. If it should arrive, we can consider its potential. For now, anyone who has studied Apple will realize that they can’t be counted out just because they are entering a new market. If there is to be a motor vehicle in Apple’s future, it will be built and marketed in a way that will give it a solid chance for success regardless of what the critics say.
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It’s not just that Apple has no experience in designing and making automobiles. If they want to get into that business there’s a lot more than that they’d have to learn. Here’s an example. In the 1950’s there were three small European cars of about equal quality, the German VW Beetle, the British Morris Minor and the French Renault Dauphin. Of these, only the Beetle managed to take hold in the US market, largely because only VW solved the problems involved in setting up a nationwide network of dealerships with service departments supported by an efficient system of distributing replacement parts.
Then too, Silicon Valley has a long track record of trying very hard to avoid dealing with our huge number of federal regulatory agencies. That’s easy enough to do when your manufacturing plants and associated labor force are located overseas. But when you are in the business of manufacturing cars here in the US it’s impossible, and Apple would be a babe in the woods at this.
When you have as deep a war chest as Apple’s, there’s not very much you can’t do since virtually any problem is soluble if you throw enough money at it. But whether you can do this profitably is another question entirely.
If Apple’s top brass and Board of Directors want to keep their jobs, they either have to forget this idea or convince what must be some very nervous stockholders that it makes sound business sense.
Quite a few of the current crop of Industry Executives are stuck in the rut, and can not see around the corner!!!
Volkswagen, the maker of Beetle, has been a cheater! No wonder Volkswagen managed to take hold in the US market!!!