Auto industry margin inflation

I am no fan of Scotty Kilmer’s presentation style, but he does a nice rant at the open of this piece about GM’s ambition to go heavily into software. Ford has been touting the same thing: make a pile of money off software, and make car owners pay subscription fees, in perpetuity, to use the cars they already paid several tens of thousands of dollars to buy.

In the back of my mind is the thought that GM and Ford’s embrace of EVs was a function of management’s envy of Tesla’s margins. …of course, Tesla’s margins are now coming to earth, and, son of a gun, GM and Ford are backing off of EVs.

So, what hobby horse with GM and Ford jump on next to inflate their GP per car? Probably get the government to outlaw anything smaller than a 5,000lb SUV as “unsafe”, because they make their best margins on big SUVs and trucks. Ford CEO Farley recently said he wants to exit the two row SUV market, because there is too much competition and they can’t charge as much as they want.

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I’m over-simplifying, but Bill Gates told Steve Jobs “the money is in the software.” That’s because you make the software once, and then for almost no cost (at that time, printing a box and a disk, now connecting to a website) you sell it for an ungodly price. Even better if you have a virtual monopoly on the type of software that will run on anybody’s box.

Ford does not, their software will only ever run on a Ford. Likewise GM. Likewise any manufacturer, so there is a hard cap on their software sales, which means their margins are species limited. (Think how different the software model would have been if Gateway computers only ran Gateway software, Dell machines only ran Dell, etc. The fact that it worked out for Apple is, apparently, an anomaly since it has not worked out that way in any other field dominated by software, including gaming, appliances, and the like.)

The idea of subscription is also counter-intuitive, at least for things other than “pure software”. You don’t really need to keep updating a refrigerator, or a car (*it’s nice, maybe, but unnecessary, especially if you can’t monetize it), so the idea of Ford getting significant subscription revenue seems fraught; I put it in the same bin with BMW charging for seat warmers, a crackpot idea that shouldn’t have gotten past the focus group stage.

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That was the wall that every PC maker with a proprietary OS ran into. Wish I had bought a dozen shares of Microsoft, around 85. when I was trying to pedal TRS-80s, with their proprietary TRS-DOS, when the first thing out of every customer’s mouth when they walked in was “is it IBM compatible?”

How much of the PC market does Apple have today? The thing I hear the “news” constantly screeching about is their latest phone.

Ford, GM, and the rest, are probably thinking that, by having a proprietary OS, they can gouge the living daylights out of everyone. Would Microsoft have become the “industry standard” OS, if they gouged the daylights out of everyone? Yes, I know, it seems like they are gouging, but one of my PCs updated from 8 to 10 for free. The only reason the other PC would not update from 10 to 11 for free is the processor is one generation too old. Microsoft provides security, quality, and feature, updates for free.

As noted, the auto industry “JCs” are only interested in jacking up ATP and GP. “JCs”. in general, live in an echo chamber, filled with yes men, who will fall all over themselves, proclaiming any self-serving, delusional, nonsense, that the “JC” says as brilliance and bordering on God-hood. Of course a “JC” will like the idea of not only taking $50-$60K, or more, from customers, for the car, but then dinging them with zero-cost to the company “fees” for the life of the product. Scotty can get away with openly laffing at such a notion, but no-one that wants to have a career at the company is going to tell the “JC” the idea is absurd.

Steve

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If the payout is big enough you can write an emulator to bridge the gap between user software and the hardware. WINDOZE runs on Macs.

The Captain

Emulators and virtualization apps.

However, Macs use which processor? It is Intel compatible.

Apple has been changing processors for ever. They used Intel for a time, now they use in-house designs based on ARM. My 2020 MacBook Pro runs on Apple’s M1 chip. The OS is UNIX based.

The Captain

You could certainly count their latest phone as a computer which pretty much does the job of a PC for most consumers.

and my M1 chip Mac runs not only the latest version of Mac software = Sonoma 14.2 but also runs Windows 11 ARM in a virtual machine provided via Parallels.

All works like a charm, and the best of both worlds. Devices and memory can be managed to be shared or not, etc.

'38Packard

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The marketing by Apple was highly intelligent.

Nothing moves off the shelf by itself.

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except drugs, alcohol, gambling, and prostitution.

The Captain