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Creating A New Car Company

Carbon Motors is being established to produce a brand new car, what it is claiming is the first-ever purpose-built law enforcement vehicle. Its business model is arguably more revolutionary.

“Your mail arrives in a purpose-built vehicle. But somehow, we’ve allowed 800,000 women and men in uniform to patrol communities basically in a vehicle that was designed in 1979 as a retail passenger car with some lights on it.” That’s William Santana Li talking about law-enforcement personnel, people who are often rolling around in Crown Victorias that have been modified in ways that Li thinks is not particularly reasonable. For example, he points out that one of the ways police vehicles get equipped with lights, siren, shotgun holder, and the other accoutrements is for someone at one of the law enforcement agencies to sit down and spec out the vehicle. The result is a fleet of vehicles that are equipped in a way not unlike tuners transform their rides with aftermarket parts. “They add anywhere from $5,000 to $35,000 worth of aftermarket equipment on a piecemeal basis that was never designed, engineered, or manufactured by an automaker.”

So Li and a group of other people have organized Carbon Motors (www.carbonmotors.com; Atlanta), a company that has been created with the express purpose of building “an all-new, purpose-built, law enforcement patrol vehicle.” Which sounds like it makes sense. But then he talks about the volume that the company is planning to build: 10,000 to 80,000 per year. Which he acknowledges “is a very weird volume for the auto sector.” It should be noted that Li, chairman and CEO, knows more than a little something about the auto sector, having worked at Ford in a number of engineering and management positions, including a stint on the Amazon modular manufacturing experiment that Ford established in the late ‘90s. Other members of the Carbon team also have automotive experience (e.g., vp and chief development officer Trevor J. Rudderham spent over 25 years with the company in a variety of positions, both engineering and managerial). Li understands “Detroit.” And why a Carbon Motors approach wouldn’t work there. 

Essentially, Carbon Motors is predicating its business on a modified version of how Dell Computer Corp. (www.dell.com; Round Rock, TX) goes to market. Li suggests, with perhaps a bit of exaggeration, “The way the auto industry works today is to put $80-billion worth of inventory on 20,000 dealer lots and pray that the right customer walks by the right dealership at the right time and that they have the right product for the right price with the right configuration. A very small minority of customers get the vehicle they actually want. Usually the way the automakers rectify the problem is $5,000 cash back, 0% financing—it’s ‘Please buy my car because I built too many, I built the wrong ones.’” Carbon will have a pull-based model, wherein they will produce a vehicle to a direct order—there will be pre-engineered modules and accessories that can be used to configure the vehicle—and then distribute it directly. While there are franchise laws in place that prohibit car manufacturers from selling direct, Li notes that Carbon is a new automaker and that there have been no dealer franchise agreements signed, so they can go direct. This helps as regards revenue, as there is no intermediary. In addition to which, he points out that by building to order, there is no inventory to clear. And because it is a business-to-government sale—as opposed to trying to sell cars to everyone with a driver’s license—marketing costs are less. That adds up to a financial advantage. What’s more, their fixed cost base will be comparatively miniscule as regards pension liability, legacy costs, medical, etc. And he says, “We’re using technologies that don’t necessarily require a lot of investment.” What’s more, there’s the approach to suppliers they’re taking, which is where the Amazon experience comes into play, as it was predicated on leveraging the supply base to do things that are ordinarily done by the vehicle manufacturers. He stresses: “One thing we want to do is change the tone between the OEM and the supply base. It’s time that we start working to a financially attractive situation for both parties. We won’t allow a supplier to take on business with us if it’s not going to be attractive to them.”

There are four major cost areas associated with producing a vehicle, Li says. There’s stamping. Carbon Motors will not have a stamping plant. The body will be plastic, probably, he suggests, like the thermoset used for the Corvette. Those body panels will be supplied to Carbon. In addition to which, this will not be a unibody, but an aluminum-intensive spaceframe. Also produced by a supplier. “We’re not going to have a significant amount of stamped panels and components to weld together,” he says with some understatement. Paint and e-coat? No. “For cost and financial reasons we don’t want to go down that path.” So they’re looking at such things as molded-in color, thin film coating, and other technologies that will eliminate the need for a paint shop. Engines? They’ll be sourced from an existing OEM. They’re looking at having a clean diesel and a gasoline engine available. Finally, there’s the trim and final plant, which they will have. But once again, they’re looking for suppliers to provide modules, so this will be much simpler than what is ordinarily the case.

However, a question arises regarding the interest of Tier One suppliers getting involved with Carbon Motors given the comparatively low annual volumes anticipated. Li responds that while there will be a “mid-volume premium” in some cases, there is a difference with the Carbon Motors vehicle in that it is going to be essentially unchanged over several years. He points out that while there will be enhancements made to accommodate changed regulatory requirements and technological innovations, unlike commercial vehicles, there won’t be the facelifts and freshenings. So given the number of units that will be the same over time and the fact that they’re planning on working with a few suppliers “as opposed to piece-mealing it to hundreds of suppliers,” there should be sufficient volumes for this to make financial sense to the supply base.

Li won’t talk about timing. He does say that there is a three-phase approach in getting the law enforcement vehicle to market. The first phase has been completed. That was doing market research and analysis. They’ve gone out and talked to law enforcement people and have discovered wants and needs (e.g., while most police cars are rear-wheel-drive, there are agencies that want all-wheel-drive; he points out that Hurricane Katrina pointed out that police cars weren’t designed with wading capability in mind, so a purpose-built vehicle can accommodate that). Then it is prototyping, both digital and running. Finally, it is constructing the plant and ramping up production.

“We are very sober about the challenges ahead of us,” Li admits.

This is a conceptual illustration of the police vehicle that Carbon Motors hopes to put into production. This will be purpose-designed and built, not a retrofit of a current car. Carbon Motors is being organized to profitably manufacture these vehicles on a pull-based model at volumes of from 10,000 to 80,000 units per year.