Something New

The other day, my students and I were talking about barriers to entry, and an example that came up (this being Michigan, where automobile factories used to be common) was new car companies. It’s been at least a generation since anyone opened a new automobile company in North America; the only new car companies any of my students could think of were Saturn and Hummer, both of which are General Motors nameplates. If we go back a few more years you can get into things like American Motors and DeLorean, but for the most part it has been decades since anyone made a serious attempt to start a new car company, precisely because the barriers to entry are so high – you need an inconveniently huge amount of capital, not to mention land (for the factory), trained workers, government permits, insurance, and so on. At least, that’s the way things were looking up until this week…

From our “There’s something you don’t see every day!” files comes the story of Carbon Motors, a new company based in Indiana that is marketing what it describes as the first police car ever designed specifically for that purpose. Carbon’s “E7” design includes features such as bullet-resistant door and body panels, a back seat that can be hosed out to clean it, driver-specific intelligent keys to keep people from stealing them, integrated lights, sirens and instruments, a 75 mph crash capability, a forward-looking infrared (FLIR) system and a backup camera, not to mention 0 to 60 acceleration in 6.5 seconds and a top speed of something over 150 mph and built-in ram and PITT maneuver modifications. The company insists that the price will be comparable to taking a passenger car and modifying it to have all of the same features, and that the fuel economy should be in the 28 to 30 mpg range. That last claim would be harder to believe if BMW hadn’t signed on to produce the engines, by the way…

According to this story on Bloomberg.com, BMW has won the contract to build a super-low-emission diesel engine for the E7, which will include the exhaust and transmission systems. The deal calls for 240,000 units over an unspecified number of years, and represents a huge windfall for the German car maker (it’s worth something on the order of $1.35 billion to BMW), as well as an excellent way of introducing their new, super-efficient diesel systems to the North American market. If the E7 is actually adopted by a significant number of police forces, the company should be able to start selling its own production vehicles with the same power plant within a year or two. It’s a huge win-win situation, for Carbon Motors (which stands to receive a $310 million Federal clean-energy loan) as well as for BMW. And if the cars are as effective, efficient, and clean as advertised, for the jurisdictions that purchase the cars, as well…

Of course, the real question is whether the E7 will sell, and that remains to be seen. If Carbon Motors can’t gain wide acceptance of the product among law enforcement they won’t be able to produce the cars on a large enough scale to complete their contract with BMW or pay off their Federal loan, and they’d just end up being the DeLorean motors of the 21st Century. On the other hand, if they can sell the product, they’d be the first new car company to appear in the United States in half a century or so, and there’d almost certainly be a demand for a civilian version of their product – from private security companies, security-conscious private citizens, movie stars who play lots of law-enforcement officer characters (don’t laugh; that’s where the civilian Hummer came from!) and anyone else who thinks the design is cool or interesting. In which case, they might just end up being the exception that proves the rule in next year’s strategy class…