A TALE OF CHIPS AND CHASSIS by Scott Budman
Two iconic American industries, once great, then humbled: chips and cars. There’s a big difference, though. When the chip industry fell on desperate times, it changed, drastically. Perhaps it could give a lesson to the ailing American auto industry.
The chip industry started strong in the 1970s, and rolled through the early ‘80s. Lots of chips, lots of markets, lots of profits. Then Japanese chip companies made inroads that nearly crippled Intel and its ilk. It was clearly time to adjust, and change. The big idea: Why do companies that design chips also have to own expensive, multibillion-dollar chip plants, or “fabs”? The fabless movement really took hold in the ’90s, emerging in Taiwan, then slipping smoothly through the rest of the world.
Now, to be fair, American car companies did change when Japanese cars came to town with better gas mileage and cooler styling. But not enough. It desperately needs a more flexible model. That’s why the chip industry has handled its boom-and-bust cycles smoothly, while the auto industry has sputtered.
Namely, labor. It’s an understandably touchy subject in the auto industry, but I’m not talking unions, here – at least, not directly.
Let’s go back to the chip industry for a moment. Needing to both cut costs and change with the times, companies like AMD and Qualcomm made fewer and fewer chips. They went “fabless.” There are almost no chip fabrication plants operating in America these days, making the chipmaking process less expensive, and transforming Silicon Valley from a manufacturing economy to a design and innovation center. (Intel is the exception here, able to still build the occasional fabrication plant, because, like Toyota, it’s still big and efficient.)
Are you listening, Detroit? Imagine an auto industry led by designers, engineers, and computer scientists. They already exist in the car business, to be sure, but it’s still an industry famous for manufacturing plants &emdash; the same plants now being closed by the day. If Detroit went fabless, computer-assisted designers would create cars, to be built by smaller, more efficient (and yes, less expensive) companies set up specifically to build cars.
It’s an idea that’s been sketched out before, but has still gone unrealzied. It could also help Detroit become far more efficient, with capital going to green innovations, not expensive assembly lines.
Silicon Valley’s ready to transform Detroit. Software company Autodesk, for example, famously designed the Hummer “H-2” on computer, before it was built. Across a bridge and down the freeway a bit, New United Motors (NUMMI) builds both GM and Toyota cars as part of a (so far) successful hybrid assembly line co-owned by the two companies. Even if NUMMI runs into trouble, the Silicon Valley is now sprouting specialty auto companies like Tesla, Zap, and Green Rides.
High-tech designers on one end; flexible car builders on the other. It’s similar to how the chip industry got its groove back in the late ’80s. Maybe, with huge changes necessary for survival, the auto industry could take a lesson from our chip companies. What’s the car industry’s future — fab or drab?