Issue: Sep 2008


Buggy whips and $200 oil - Editor's Note



Buggy whips and $200 oil - Editor's Note

by Ed Richardson

Most Marketing 101 courses will include a mention of what happened to the makers of buggy whips. Inspired by rapid growth in the early 1800's, buggy whip manufacturers transformed themselves from family-run businesses to national companies. Then, around 1893, along came the motor car and the demand for buggy whips crashed – along with the industry.
Some 115 years later, the transportation industry is facing a similar watershed - oil at $200 dollars a barrel as predicted by Goldman Sachs is looking ever more likely. High prices at the pump are forcing consumers to cut back on holidays, trade in the gas guzzler, move closer to town and even use public transport. And that’s before oil breaks the US$150 a barrel barrier (at the time of writing).
Even though new car sales are down around the world, one seldom sees the kind of debate that would indicate the industry as a whole is rising to the challenges. The traditional kings of the road are seen to have been caught napping by relative newcomers such as Toyota and Honda. The two Japanese manufacturers have set the bench-mark in the eye of the consumer for hybrid and alternative fuel vehicles. As with most good marketing hype, there has been more smoke and mirrors than substance, but it has worked.
Then there’s Tata’s low-cost Nano, which along with Renault’s Logan Sedan and others promises to put millions of Indians, Chinese and Africans on the road, air-powered engines, biofuel, electric vehicles, and the rest.
“But, wait” as they say in the infomercials. “There’s more”. Global warming is no longer a theory. People are feeling it whenever they shop for food, find their favorite beaches have been eroded or seek shelter from huge storms. They are responding to the challenge with their check-books – by choosing brands that are seen to be doing something about the environment.
In short, the world auto industry is being shook up like never before. It is impossible to say what the mix is going to look like in two, five or ten years from now. We know that some big names will have gone the way of Borgward. Hudson and Trabant. We also know that there will be new components to make, and that many others will become obsolete. Some will be made with new materials to counter the ever-rising costs of plastics and steel.
And, we are going to have to remodel our logistics chains. More than ever, distance to market and the distance between the different component suppliers and the assembly plant are becoming critical factors. Transport costs are on the rise everywhere, and these are helping push the price of vehicles beyond that which the customer is prepared to pay. So, it is conceivable that we will see manufacturing move back from the low-wage countries to being closer to the major markets.
Perhaps even more interesting is the impact that high fuel prices is going to have on our approach to manufacturing. High fuel prices and global warming are symptoms of a much bigger challenge – the world is running out of energy. Conventional sources such as coal-fired power stations, hydro-electric schemes and even nuclear can’t keep up. In future, productivity may be measured in terms of how much energy it takes to make a car rather than man-hours.
Which brings us to questioning one of the mantras of modern society – that everything has to be done faster today than yesterday. Around the world, truckers, ship owners and airlines are cutting speed to save costs. It is literally going to take longer to get things done.
All in all, we live in very interesting times.

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