November 3, 2008
Interview with Richard D. Smith
(Fourth in Series of 5 Interviews)
U.S. Auto Sector & 'Wealth Creation' Plan
Follow-up to Plan to Create 2 Million New U.S. Jobs
SUNNY: Good morning Richard. Once again, good to have you with us. Richard, in a recent reference to your 'Wealth Creation' plan you said, and I quote, "most sustainable solution for the domestic auto industry is a complete industry re-invention". Given GM and Chrysler efforts to merge do you still hold that view?
RICHARD: Yes I said that, in the context of the following -- despite the valient efforts of all Big 3 CEO's the resulting math from the 'keep-us-alive' triage efforts are just not working in their favor. The industry is getting periously close to its final tipping point. Should GM and Chrysler merge the 'start-anew' entity would look something like this: huge outstanding traditional debt obligations; combined $4 billion market cap; over 100,000 workers; approximately 100 auto and parts manufacturing plants; ongoing financial obligations for 600,000 pensioners with health-care; and a bloated network of nearly 10,000 dealers. Additionally, Big 2 auto makers will at some point have to repay any Federal financial aid; they must operate through a protracted recession; they have to pay eliminated dealerships Federally mandated fees; and their biggest competitors will remain foreign based auto manufacturers with domestic capacity, higher brand value, and distribution. With this said, yes is my answer to the need for industry-wide re-invention.
SUNNY: Richard, if Ford faces the same economic challenges then they're all going to die!
RICHARD: Depends on how you define death. Should GM, Ford and Chrysler go out of business the answer is Yes. If, as I've suggested in the 'Wealth Creation' plan that all three U.S. manufactured brands are reconstituted without legacy encumbrances, the answer is No.
SUNNY: Encumbrances means what in particular?
RICHARD: Encumbrances in this instance means overwhelming cost burdens. For example, let's say we, a group of entrepreneurs with considerable equity funding and a cadre of former auto industry executives, create a new major auto entity. We begin with no legacy costs. A green field. The auto venture has a vision and strategic business development plan -- nothing physical -- no plants, no manufacturing workers, no unions or employee contracts, no design or engineering studios, no dealers, etc, and lay the foundation for the 'company of the future' vehicles. Once we identify the target markets to serve and vehicle types to build, we buy or joint venture secure the assets required, restructure the ecosystem, and refocus or retrain market available individuals to fill prescribed needs.
SUNNY: You're also implying the Big 3 could have the same new entrant advantages if they went Chapter 11, wrote almost everything off to zero, and restarted.
RICHARD: Theoretically the Chapter 11 option may be a last choice decision. The politics of that decision across all Big 3, just don't think that could actually happen. It might but doubt it.
SUNNY: In your new entrant example, what does refocus or retrain mean?
RICHARD: Put refocus and retrain in the context of Toyota. When Toyota was building it's first production facility they explained to prospective employees Toyota's intention to use 'best-of-breed' practices to compete and win market share. Individuals who understood, embraced and bought into this approach were hired and told to leave bad habits at home. The basic mantra, together all workers would achieve success. Together they would build a customer focused, quality driven, highly competitive, and sustainable business model.
SUNNY: So, your 'Wealth Plan' automotive start-up is going to out-Toyota, Toyota?
RICHARD: I'd prefer to say we're going to out Lexus...Lexus across multiple market segments.
SUNNY: And, your economic speed-to-market advantage is what, your ability to buy and modify abandoned plant? Then take advantage of the growing surplus of laid-off auto and manufacturing sector employees?
RICHARD: A little more complex than that. But, you're on target. Only exception, labor. We'd pay highly competitive hourly wages to attract and retain quality individuals. On the human resource side we're very interested in establishing rewarding career paths for all employees.
SUNNY: Do you envision unions.
RICHARD: Our objective is to offer a 'total-value package' to both white and blue collar workers. We believe properly designed employment packages would negate the notion of unions, work rules and the like.
SUNNY: Last time we talked you mentioned GM's HUMMER, Pontiac and Chryslers Dodge Viper as products of interest. Is that still the case?
RICHARD: Most recent thinking on HUMMER, niche product with short life expectancy because the U.S. military has decided to replace it. Pontiac, one of America's storied brands, has been rumored to be eliminated in 2011. We think Pontiac, the brand only, has going forward potential. Dodge Viper could possibly be incorporated into a product portfolio much like the Corvette is to GM's Chevy. Viper acquisition costs less than $100 million. May be a fit.
SUNNY: You're also targeting other types of vehicles, yes?
RICHARD: That is true. We have two types in mind. But, not at liberty to disclose.
SUNNY: Money. Where is it going to come from?
RICHARD: Initial capitalization, in the $5 billion to $10 billion range, will most likely come from private equity sources.
SUNNY: Why to you believe you'll succeed? Assuming you have your funding lined up!
RICHARD: Five reasons -- 1) Self-Funding Business Model, 2) High-Value Vehicles, 3) Made-in-America, 4) Lower Cost Infrastructure, and 5) Employee Focused.
SUNNY: Richard, before we bring today's session to a close, any parting words for our audience.
RICHARD: Yes. I'd like to share something interesting about company size versus business value. Porsche, the small high-end and high-value niche products company, is now taking financial control of much larger Volkswagen. Apple Computer, (Apple, Inc.) has just a 5% to 7% market share. It also has $26 billion in the bank. Microsoft, on the other hand, dominates its space and has banked less. Our U.S. 'Wealth Creation' plan is not to create or restore the largest businesses in their respective sectors. We are focused on building high-value businesses -- the best in the markets they serve.
SUNNY: Richard, absolutely enjoy having you on the show. Your entrepreneurial optimism is contagious. Look forward to having you back for another session soon. As always, best to you Richard. And audience, if you want to help Richard e-mail him RDSmith@SMITH-TRG.com. Take care all!
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