Revisiting the 2016 entry, "Ford Motor Company as a transportation company not a "car" company: bike share and small scale transit"

The Congress for the New Urbanism publication Public Square is somewhat Panglossian for my taste.  They just published an article, "Ford promotes street grids," about how Ford Motor is supporting the efforts of Bastrop, Texas to re-orient its urban form to a grid.

Myself and others pointed out that Ford Motor Company, and other auto companies, foremost focus on the promotion of automobility, regardless of this particular project.  You can hardly say coming up with the funding for a video indicates that the company has been transformed.

This ad was published by Ford in 1953, their 50th anniversary, as part of a series.The title: "The street will never be the same again" was prophetic in terms of the impact of the car and automobility on center cities. 

My joke is that the current state of Detroit is what the auto industry intended to happen to cities, because it wasn't in their interest to have center city urban form promote mobility alternatives to the car (walking, transit, biking).

In my comments on the article, I mentioned an entry from 2016, "Ford Motor Company as a transportation company not a "car" company: bike share and small scale transit."

While I think it's a great analysis from that point in time, a number of things have changed in the interim, and a major conclusion I drew is wrong.  Here were the major points:

-- Millennial demographic and psychographic changes are changing the US automobile industry.  That's still true.  Fewer people were buying cars overall, especially younger segments.  More people are buying trucks, to the point that GM and Ford have announced a reduction in the sales of cars while expanding the sales of trucks and SUVs ("Ford to stop making all passenger cars except the Mustang," NBC News).

But with the pandemic, more people took up automobility as opposed to using mass transit.  

-- Telecommunications enables car use without car ownership.  This is true, but few companies have figured out how to make money doing so.  Mercedes, BMW, GM, and others have dropped out of the business of car sharing.  

More recently, ride hailing (Uber, Lyft) has been repriced upward as drivers leave the business because of minimal profitability and an unwillingness of venture capital to continue to subsidize rides ("Farewell, Millennial Lifestyle Subsidy," New York Times).

-- New entrants competing to sell cars using different technologies or business models.  This is mostly about electric cars, and is unchanged.  EVs require a different fueling system than gasoline, which requires the buildout of a charging network ("The White House wants a robust electric vehicle charging network. Here's the plan," WGBH/NPR, "A perspective on equity in the transition to electric vehicles," MIT Science Policy Review).  And companies like Tesla prefer to sell cars directly rather than through independent dealers.  

-- Car companies versus transportation companies.  The entry focuses on something Ted Levitt wrote decades ago, about GM thinking of itself as a car company, not a transportation company.  I don't think he was right exactly, but he was on to something.  

GM saw itself as a "vehicle manufacturer" producing cars, trucks, heavy trucks, construction equipment, buses, and railroad locomotives.  That's transportation.  

What Levitt got wrong was that GM's problem was three-fold, that they didn't think of transportation as opposed to vehicles, they were stuck with a production and operations model that was increasingly unprofitable except for luxury vehicles and trucks, and they weren't sufficiently focused on the quality of the customer experience in terms of manufacturing quality, dealership to customer relations, and on technology like OnStar instead of the experience (versus Tesla).

When the price of gas changed significantly GM was stuck--their design sensibility didn't work with smaller cars, and their labor-health insurance and pension requirements made cars not particularly profitable.

Ford was similar, producing heavy trucks, tractors, airplanes for a time, with some dabbling in transit.  Like GM they got out of everything but cars and trucks, with an increasing focus on trucks, especially SUVs.   Both companies have been downsizing foreign operations, while still focused on China.

Ford created the Ford Mobility division (GM has a similar unit), its arm focused on serving customers "using cars" not necessarily owning them, along with other initiatives such as small group passenger services ("Ford’s Farley On Building Mobility Technology And Services Amid Auto Industry Disruption," Forbes). 

But these initiatives have shifted from dealing with "car customers" versus "car buyers and owners" and more towards technology initiatives like automated vehicles.  The Chariot group passenger unit was shut down in 2019.

Some of Ford Mobility's initiatives, like sponsoring for a time the SF bike sharing program, I argued were more about seeming appealing to potential and younger employees, especially in the Silicon Valley.  Ford ended  its participation in 2019.  

They still have a research unit there, but it's pretty small, about 300 employees ("A New Frontier: How Ford is Engaging Silicon Valley Startups to Transform Transportation").

More recently, Ford announced the acquisition of the long abandoned Michigan Central Station, and committed to its rehabilitation and that the Company's advanced technology initiatives would be based there as part of a new "Mobility Innovation District" ("Ford Reveals Plans for Inclusive, Vibrant, Walkable Mobility Innovation District Around Michigan Central Station").

It will have about 5,000 employees, demonstrating it tends to work better for companies to have employees and innovation units closer to the center.

New developments:

• I was wrong about Tesla, it will become a mass manufacturer.  Part of my problem was recognizing that just because Elon Musk is a blowhard and the stock is driven up by fanboys disconnected from underlying value, the company is transformational, and is redefining the car industry.
• The other thing that I didn't fully understand is that Tesla's entry as an exogenous shock (disruptive innovation), the lead promoter of electric vehicles, and the first mover especially in terms of branding has the strong possibility of boxing out the ability of GM and Ford to reposition and rebrand around electric vehicles.  Electric vehicles challenge the ways cars are designed, internal combustion engines and the billions of dollars of sunken investment, gasoline producers and sellers, existing business models, and traditional car dealerships.
• Just as Sony's Walkman lost out to smartphones, VHS to DVDs, Kodak to digital photography, Nokia to Apple, newspapers and travel agencies versus the Internet, taxi companies versus Uber and Lyft, etc., GM and Ford may be analogous to Sony, Kodak and the printed newspaper.  That's the power of exogenous shock.
• Tesla is years ahead both in terms of battery technology and IT systems and it may be too difficult for the other companies to catch up, especially as younger buyers see legacy companies as old news and not worth considering.
• GM's Chevy Bolt has been a failure ("Chevy Bolt Battery Recall: How Could This Have Happened?," Car and Driver), when I thought it would redefine the industry.  Even without the battery fire problem, most potential customers preferred to buy a Tesla over a Bolt.
• Tesla has opened a plant in China, and has one under construction in Germany.
• However Ford and GM do have an advantage in the truck segment, which may keep them in the game as trucks shift from ICE to electric.  But not for cars?
• Focusing on "car users" rather than "car owners" is likely to remain a niche market, and may require direct participation by public transportation agencies along with subsidy ("In DC and Seattle could Car2Go (ShareNow) be converted to a nonprofit and remain in business? (Or could it be sold to Zipcar?)," 2020) as part of transportation demand management planning.

• In 2019, GM and Ford announced a shift away from car production to focus on trucks and SUVs.  Foreign manufacturers like Toyota and VW in a wide range of segments, and BMW and Mercedes in luxury segments, continue to offer a wide range of cars.
• GM and Ford announced massive new programs for electric vehicle production.  
• The big hang up is battery production, and the scarcity of the unique minerals necessary for batteries ("Is There Enough Lithium to Maintain the Growth of the Lithium-Ion Battery Market?," GreenTech).
• Interestingly, rather than use existing plants, many of the vehicles will be produced in new facilities increasingly outside of Michigan and the core of the Midwest.  Is this because Michigan isn't competitive or is it a way to get cheaper labor and reduce the power of the UAW? ("Michigan Gov. Whitmer slammed after Ford opens electric vehicle plants in other states," Fox Business).
• Car sales are up, but there are also supply problems because of a microchip shortage ("Microchip Shortage Update: Car Inventories Could Stay Low All Next Year," Kelly Blue Book).  This has led to a massive increase in the price of used cars too.
• Gas prices are high as a result of supply difficulties, but mostly because of the contraction of the US shale oil industry because of a price reduction campaign by Saudi Arabia, designed to put many of the companies out of business ("With shale subdued, Saudi, Russia become more comfortable with oil rally," Reuters). 
• It's not clear the US electricity grid is robust and resilient enough to power an automobile fleet shifting in toto from internal combustion engines to EVs ("Plug in cars are the future: the grid isn't ready," Washington Post).
• And legacy dealers aren't necessarily committed to EVs, which demonstrates the importance of Tesla's decision to sell direct, starting from a fresh plate.
• Many cities in Europe have "low emissions zones" in their center cities, which means that diesel and gasoline cars can't enter, or have to pay a significant daily fee upon entrance to the zone. 
• In 2020, California banned the sales of gasoline powered vehicles effective in 2035 ("California will ban new gas cars starting in 2035. Gas station owners worry about their livelihoods," KCRW/NPR).  But too many states are dependent on fossil fuel production, car dealerships, car manufacturing, and the sprawl land use paradigm to be as bold.

McKinsey "principles of organizational health" seem to be relevant to creating "value" more generally

From the McKinsey Insights article "The secret ingredient of successful big deals: Organizational health":

General Motors bus ad from 1968 promotes a type of bus rapid transit

I don't know much about the history of dedicated transitways in the United States.  In the days of streetcars and interurbans, the former were typically constructed within the street right of way while interurbans, at least in the suburban and exurban portions, tended to have dedicated right of way, as did traditional railroads.

It turns out that the 1950 DC Comprehensive Plan recommended the creation of a set of dedicated busways in the city, and in association with the creation of I-395 and HOV lanes, there was a busway network.

 According to a blog entry in the PlanIt Metro blog ("We had bus lanes a half century ago and we can again"), the network included streets in DC as well as Virginia, but starting in the early 1980s, for the most part these lanes were given over to cars.

DC busway map, 1976.

I was doing some image research over the weekend, and I came across this 1968 ad for the GMC Coach division, which manufactured buses until pretty recently.

It discusses their  work on a proposal in Southeast Wisconsin (which is part of Greater Chicago) for dedicated lanes for transit buses within the expressway system.  (GM sold off its bus division in 1987 to MCI/Motor Coach Industries.)

It's an illustration of my point in this blog entry that GM in fact did see itself as a transportation company, even if for the most part it was focused on vehicles that run on roadways rather than rails.

As most people in the field know, until recently, GM was one of the largest producers of locomotives in North America.  But in 2005 they sold off the company to private equity firms.  In 2010, Caterpillar Corporation purchased the company.



Perhaps if GM had also manufactured streetcars (like GE), GM wouldn't have been so focused on buses as their primary interest when it came to local transit programs, and wouldn't have been so interested in buying streetcar lines and shutting them down in favor of replacement by buses ("General Motors and the Demise of Streetcars," Transportation Quarterly, 1997).

This ad was pretty interesting and it made me realize that while we talk about bus rapid transit as deriving from the first BRT transit network in Curitiba, Brazil, created by Jaime Lerner in 1974 ("How Curitiba's BRT stations sparked a transport revolution," Guardian), the reality is that you can argue that BRT builds on the concept of transitway networks, including express bus service using freeways, and that transit malls are another kind of derivation of transitways.

-- Los Angeles conducted a study of "Express buses on freeways" in 1953.
-- Bus Facilities on Limited Access Highways, Guide for Geometric Design of Transit Facilities on Highways and Streets
-- Transit Mall Case Studies, San Francisco MTA
-- Pedestrian and Transit Malls Study, Center City Commission, Memphis
-- PORTLAND TRANSIT MALL: Urban Design Analysis & Vision, City of Portland
-- What is BRT?, Institute for Transportation and Development Policy

However, the importance of the innovations that Jaime Lerner introduced to bus transit service can't be understated.

The first was physical, a complete dedicated road network for the bus-based transit system. Relatedly, the system was based on the use of high capacity buses--first a one-section articulated bus, then a two-section bus capable of carrying 300 people

The second was operational, pre-payment, comparable to subway systems, which significantly reduces boarding time, because people don't have to pause to pay as they enter. Because of pre-payment, all doors can be used for entry, further reducing the time to board or exit (dwell time).

Curitiba’s 357 tube-shaped stations serve the city’s bus rapid transit system. Photograph: Rodolfo Buhrer/Fotoarena/Corbis.

The third is equally important, when the BRT station was introduced in 1991 it was of a startling, forward design.

High quality design of the vehicles and stations, and the graphic design surrounding and complementing these elements is another mark of distinction that Jaime Lerner introduced to bus-based transit systems, which traditionally had been pretty dowdy when it came to design.

Image from Transit Toronto.

Interestingly, it turns out that GM created some test versions of articulated bus designs but never put them into production, although 12 buses were tested in Toronto-area transit systems from 1982-1984.

Ford Motor Company as a transportation company not a "car" company: bike share and small scale transit

What spurs this piece is that on Friday Ford Motor Company, made some interesting announcements concerning small scale transit services and bike sharing in the San Francisco Bay area.

Millennial demographic and psychographic changes are changing the US automobile industry. With the recession, the amount of driving has declined significantly, although it's ticking back up as the economy improves and gas prices have dropped.

Even so, on a per capita basis, VMT or vehicles mile travelled, was on a decline before the recession.

The rise in urban living also reduces demand for motor vehicles, because people can satisfy their mobility needs with other modes.

These trends are intensified as more people spend more time connected to and engaged in "the Internet" in various ways, especially on mobile phones, younger demographics have less propensity to get driver's licenses and to buy cars.

Telecommunications enables car use without car ownership.   Advances in information technology and telecommunications services enable different ways of mobility that enable car use without car ownership.

Car sharing was the first highly visible example, where regular car use could be accommodated by "time sharing" through the creation of a telecommunications-connected fleet of distributed vehicles within a defined geographic area, creating a different way of "renting" vehicles, where cars could be rented for a period as short as one hour, and later by one-way services like Car2Go, by the minute.

Research shows that each car share vehicle reduces demand for automobile purchases by about 10 to 15 cars.

Ride hailing services, with lower fares subsidized by capital investment, also shift consumer spending away from car purchases.

Driverless technology is expected to be a similar game changing exogenous shock, reducing the cost to provide fractional use to the point where more people may be willing to give up car ownership in favor of car sharing-taxi-ride hailing type relationships.

(Personally I don't think it will be as transformational as people think, at least in my lifetime, for technology and cost reasons, and because it may be that a goodly number of people willing to shift from owning and operating their own car is already captured by car sharing services.)

New entrants competing to sell cars using different technologies or business models.  And other companies, be they technology companies like Google, or new companies like Tesla or Local Motors, are entering the market and compete for vehicle sales.

Tesla has repositioned the way people think about electric cars--still much less competitive on cost terms in the US because gasoline is 1/3 the cost compared to countries like the UK or the Netherlands where gasoline is highly taxed--although it's unlikely the company will ever become a successful mass manufacturer, they are helping to reset the market away from gasoline-based vehicles.

General Motors.  In the classic book on creative marketing, Marketing Imagination, by Ted Levitt, one of the chapters makes the point that GM needed to think of itself as a transportation company, not a car company. From the original article that led to the book:

"Management must think of itself not as producing products but as providing custom-creating value satisfactions." Companies should be marketing-led rather than production-led. That will happen only if and when there is a total commitment by senior management (and especially by the CEO) to satisfying current customers so that they remain loyal, and, to attracting new customers. Only marketing creates or increases demand. Without demand, there are no customers.

When I read it at the time--remember I was from Michigan and pretty familiar with the industry--I was pretty impressed.  Now, I think it's more complex.  GM did think of itself as a transportation company.

They manufactured long distance trucks, small trucks, transit buses (the independent Nova Bus Corporation is the successor company), construction equipment (Terex, sold off a long time ago, and Euclid before that), locomotives (EMD, now owned by Caterpillar), and a diesel engine manufacturing company (Detroit Diesel).  (They also manufactured appliances.)

The financial company that started out providing financing to dealerships and later directly to car buyers also became a huge provider of mortgages and other financial instruments.

Later they invested a lot in information technology and engineering.

In the early 1980s, they bought Electronic Data Systems (the company started by Ross Perot) and Hughes Aircraft, the defense contractor that also created DirecTV.  GM used both companies to create the technology now used in GM's Onstar live in-vehicle information and diagnostic telecommunications system.

Other than making small trucks and Onstar, these businesses are no longer part of GM, nor are most of the automobile component manufacturing companies.

GM's problem at the time that Levitt was writing wasn't that they weren't in the transportation business, or even that they were too production focused and less marketing focused. It was that they were unprepared for exogenous shocks to the way that they did business, their business model, especially in their biggest line of business, manufacturing and selling mass market automobiles.

First, the company was heavily bureaucratic and slow (see the book On A Clear Day You Can See General Motors, by John DeLorean, which is a great book and an important influence on my thinking concerning organizations, 2005 blog entry).

Second, they needed to rethink how they conceptualized the car market, from the standpoint of positioning, design, and quality, and in terms of how the market could change,.

Third, in the face of the potential for change, they needed to rethink their labor and production systems, and the provision of health care and pensions--newer companies weren't stuck with the same set of legacy costs, and European companies, with national health systems, didn't have to pay for employee health care.

The market changed in terms of style and design preferences and the because of the rise of the cost of gasoline, and because of competition, business and labor relationships developed in the 1930s-1960s were no longer economically viable nor sustainable.  Increasingly, the company made money only on big cars, and trucks, not small cars.

Cars lined up in Brooklyn to buy gas during the 1973 gas crisis, when there was limited availability of gasoline.  Photographer unknown. 

In terms of design, what happened is that design style preferences shifted in favor of what we might call a European sensibility--BMW and Mercedes but also Lexus, a Japanese make, vs. Cadillac, Oldsmobile, Buick, Chevrolet.

In terms of "the type of car people wanted," when gasoline became expensive, people's preferences for types of cars shifted, and because European and Japanese companies were already building cars based on the paradigm of expensive gasoline, the market shifted their way.

1980s BWM ad.

With a loss in market share, both because of more competition as well as a production model built for cheap gas and no competition, the company was increasingly vulnerable, until it finally entered bankruptcy after the 2008 recession.

Current responses to changes in the automobile market.  These days the company is moving on electric car production--the introduction of the Chevy Bolt could change the automobile and oil production and retailing industries far more than Tesla ("Pressure on the pump," Financial Times), driverless car technology, invested in Lyft, a ride hailing company, and created its own car sharing operation including providing loans on purchases vehicles for ride hailing operators ("GM launches Maven brand, car-sharing in Ann Arbor," Detroit News).

Ford Motor Company.

Back in the day Ford was a transportation company too, making tractors and farm equipment, heavy trucks and small trucks, airplanes(!), and even for a brief time, rail transit vehicles.

The company also was a big producer of its raw materials, ranging from rubber to steel, and automobile parts, and for a few decades owned Philco Electronics, producing products like television sets and car radios, for the consumer and business markets, as well as for military applications.

The company was a leader in real estate development in Detroit after the 1967 riots, aiming to support the city's rebirth.

Ford has had their issues remaining relevant in the face of competition from Asian and European car manufacturers too.

When they were flush, they bought a bunch of other car makes, such as Jaguar, Mini/Land Rover, and Volvo (GM did some of that too, e.g., Saab), and in the US, moved their headquarters for the newly created "Premier Automobile Group" to Irvine, California, to be closer to its customer base compared to Detroit ("Ford to Move Luxury Lines Offices to Irvine," Los Angeles Times, 2000).
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After selling off or closing all of those operations, Ford sticks to manufacturing cars and light trucks.

Unlike GM and Chrysler they still own their financing unit, because by anticipating the crash and doing a huge refinancing, they managed to stave off bankruptcy.

More recently, Ford created a technology and innovation unit in the Silicon Valley, partly to focus on driverless car technology, but also to spur innovation more generally (Ford tries to disrupt itself in Silicon Valley," MarketWatch, "Ford invests $182 million in Silicon Valley tech firm, USA Today, and "Ford doubling Silicon Valley workforce in push toward self-driving cars," CNBC) in responses to changes in how the industry is organized and how people will be using cars, but buying fewer of them, in the future.

Besides developing driverless car technologies, the company is developing telecommunications- enabled services like the FordPass app, which unlike Onstar, while car-focused, accommodates other mobility use, as well as parking, and has created a separate business unit, Ford Smart Mobility LLC, to coordinate investments beyond traditional ways of car manufacturing.

Friday's announcements.  Ford is buying Chariot, a company like Bridg (see the past blog entry "Intra-neighborhood (tertiary) transit revisited because of new San Diego service") that does small scale van and bus based transit (Ford has long made chassis and/or vehicles for this market) unlike services like Uber or Lyft, which for the most part are focused on moving one person at a time.

-- Ford press release

From the Motley Fool article "Why Ford Is Investing In High-Tech Buses and Bike Sharing":

Chariot currently operates about 100 shuttle buses in the San Francisco Bay Area that follow routes that are crowdsourced based on passenger demand. The idea is that the shuttles fill a gap between taxi services and traditional bus lines. Significantly, they also provide a lower-cost alternative to ride-hailing services like Uber Technologies.

Ford Motor Company and bikes?   Ford also signed up to be the title sponsor of the San Francisco Bay bike sharing system, putting in enough money to expand the system to 7,000 bikes (coincidentally manufactured in Detroit), which will make it the second largest bike sharing system in  North America ("Ford backs massive bike share expansion in the San Francisco Bay Area," TechCrunch).  Who would have guessed.

 From the article:

Ford’s sponsorship will see the Bay Area’s supply of shareable bikes expand from 700 to 7,000 by 2018, with 1,350 bikes going to the East Bay, and hundreds of new bike-share stations established to distribute the bikes.

The locations of the bike stations are still being determined, but these will be in and around Berkeley, Oakland and San Jose, not just in San Francisco.

They will also be integrating bike share information into their FordPass app.

In terms of the bike share decision, my sense this is more about the company and its branding and positioning in the Bay Area technology ecosystem specifically, as a way to market the company as innovative and a great place to work in a community with a great deal of competition for skilled talent, and less about taking on broader "transportation company" positioning.

The commuter shuttle service.  The van thing isn't a new idea.  Note that Chrysler too "was a transportation company" for a long time, and besides boat engines, they created VPSI, Van Pooling Service Inc., now called vRide, the original van pooling organization, which happens to be big in the DC area, where distantly located employees of federal agencies often use the service to commute in to their jobs in Downtown Washington and the Pentagon.

After separating from Chrysler, eventually the company was acquired by Enterprise Car Rental ("Enterprise Holdings acquires vRide vanpooling business," press release).

What's happened is that cloud computing and wireless communications systems make providing this kind of service a bit cheaper and easier, including easier to "recruit" riders, called "ride matching," just as these technologies have enabled car sharing systems like Zipcar and Car2Go.

It won't change the world but it is an important element of transportation demand management, and Chariot will have access to more capital which will speed expansion of the service, perhaps beyond the capabilities and financing possessed by Bridg.  And they'll be able to count on some additional sales of vans and bus chassis.