David Ruggles, an auto consultant, spent two days with our class teaching us about franchising, dealership business strategies, and other pieces of essential car knowledge. Ruggles spent some time explaining the used car market and what he said really stuck with me. A dealership with a used car lot will buy a car at an auction for a relatively small amount, add some improvements on the car, and sell for a much larger price. The profit margin Ruggles approximated on a used car is much greater compared to new cars. I had never considered the used car market to be more profitable than the new car market. For most of my life, my family has been fortunate enough to have the option to purchase a new car and have chosen to do so. As a consequence, I believed dealerships focused on the new car market because that encompassed the majority of my experiences. As Ruggles explained, this is not true and the used car market is just as important. Credit scores also enhanced the car market, according to Ruggles. Before credit scores were introduced, everyone was given the same loan rate. However, with the introduction of credit scores, car dealerships had the ability to judge a person’s ability to make payments and charge varying interest rates. This greatly benefited those with high credit scores by allowing them to purchase at a lower interest rate. On the other hand, it allowed dealerships to judge lower credit score customers as more volatile. While I understand the business aspect of this model, the feeling of injustice is still present. Many people lack financial education and even with financial education the idea of a credit score and how to improve it are unclear. Furthermore, many studies show women are less likely to be offered financial education, placing females at a disadvantage to male consumers with low credit scores. While I’m not aware of a better system, the idea of a credit score as the indicator of one’s interest rate appears flawed.
Today was day one of our trip to Detroit. We started out the day bright and early with the ten hour drive to Dearborn Michigan. As we drove further, we passed through multiple cities with ties to the auto industry. For example, as we passed through Toledo, we saw the tire factories that supply to Detroit. Along the drive we also passed major assembly plants for Jeep and other manufacturers. It was interesting to see how cities and assembly plants are connected along major roads to ensure efficient transportation. I imagine a time before cars and the need for interstates. These fertile farm lands were simply connected by dirt roads beaten down by horse hooves. But as cars became a major part of the American life, the interstates followed.
For dinner we ate at Al Ameer, a Lebanese restaurant in Detroit. The city has an immense population of Lebanese people and other Middle Eastern immigrants. It is amazing to see how immigrant populations grow to form a cultural neighborhood within a large city. The diversity these neighborhoods bring to large cities, such as Detroit, truly exemplifies the melting pot of America and what this nation stands for. Coming from a small town, the culture of a big city is immense in my eyes. The courage and determination the first immigrants to this area had must have been overwhelming. Overtime, the roots they planted would have attracted more immigrants to create a unique culture within Detroit.
Today we toured Federal-Mogul in Plymouth, Michigan. Federal-Mogul is a developer and supplier of auto parts with plants in more than 34 countries. Founded in 1899, Federal-Mogul is a $7 billion company. In this particular location, the development of pistons and sparkplugs was showcased. Through the tour we saw many types of engineers, chemists, and other professionals working intently on perfecting their technology and bettering their parts for the future. Mr. Westbrook, one of the professionals that met with us, explained Federal-Mogul is one of the leaders in developing new technology for engine and car parts. One of the first stops on the tour was a lab specializing in the material used for sparkplugs. The sparkplugs use a naturally occurring aluminum oxide compound, called alumina, and the lab has created new ways to make the content of alumina more pure. This allows for a better surface and reduces friction. When first created, the alumina is a chalk-like material. The part is them fired to create a tough base that soon becomes the sparkplug.
Federal-Mogul does not stop at simply perfecting their current parts. The engineers and scientists are also developing a new sparkplug known as the Corona Ignition, or ACIS. The advanced version of the sparkplug resembles something in a Harry Potter movie as it shoots blue sparks into its surroundings. Compared to the original sparkplug that has been around for almost a century, the Corona sparkplug creates a more efficient and faster ignition. Although not in use yet, the new sparkplug itself could increase fuel efficiency by 5%. This comes from the faster combustion as less negative work is created and through a leaner burn. Improvements in the sparkplug may also lead to improvements in other related areas to create an estimate 10% improvement in fuel efficiency. In today’s market, a 10% reduction would prove incredible benefits to manufacturers and savings for consumers. Under the CAFE standards set by the EPA, car manufacturers have an average fuel economy that must be met through the cars sold. This means if Ford sells a F-150 with higher than the average fuel economy, it must also sell cars with better fuel mileage to bring down the average and meet regulations. These regulations are set to increase overtime, up to 54 mpg, as a way to encourage technology development and a cleaner atmosphere. Federal-Mogul, at the forefront of this technology, hopes to put the Corona into use in the next four to five years and has already introduced the idea to car manufacturers. The manufacturers that choose to plan for the Corona, can develop the best way to implement the new technology while at the same time making the indirect improvements to better fuel efficiency across all models employing the Corona. This gives them the upper hand on their competition by having the latest and most efficient technology and making it easier to meet regulations. The Corona technology, though, is not only to meet the needs of the manufacturers, but also the needs of automobile owners. Better fuel efficiency will decrease the cost at the gas pump and allow a driver to go further on a full tank of gas. While gas prices may be low right now, this will not be the case forever. As prices creep upward, fuel efficiency will be pertinent to both environmentally and fiscally conscious drivers.
The experience at Federal-Mogul was eye opening. Their business tactic, as explained by Mr. Westbrook, was not centered on developing and testing to ensure perfection before taking the product to the consumer. Rather, the engineers develop a new technology and then bring it to the manufacturers. As they sit around the conference table with top executives of a manufacturer, Federal-Mogul learns what to continue developing and what to put on the shelf for a later time. From there, the parts can be further developed and tested because a market has been clearly identified. Although I had never thought about this strategy, it appears to be the most cost efficient for a firm like Federal-Mogul. Rather than spending millions of dollars on research and development only to find the change is unnecessary in the eyes of consumers, Federal-Mogul knows their time is well worth it. At the conclusion of the tour, we walked through the design team’s area witnessing the hardworking individuals developing the new technology through computers and software programs. The sheer size of the operation illustrates how far the auto industry has come in bettering technology and the optimistic future for Federal-Mogul and cars everywhere.
Check out a video of the Corona Ignition HERE.
Today we started out the day at the ford rouge plant tour and the ford museum. At the rouge, we saw the assembly lines manufacturing Ford F-150s. After learning about Henry ford and his advancements in the assembly line, it was fascinating to witness the actual production line. While some parts of the tour looked exactly as expected, others were not. For example, the trucks going down the line are not all the same color. I had expected all a single color for a period of the line and then a change to a new color. However, the guides explaining the paint guns are self-cleaning and it is more efficient to make what a dealer ordered all at once rather than a single color. Another interesting aspect was ford’s commitment to sustainability. On the surface, car manufacturers appear to focus solely on profit which comes at the expense of clean air and environmental degradation. Ford, though, choose to rebuild the rouge in the early 2000s with sustainability in mind. On the roof, a layer of sedum is combined with felt and other layers to collect rain water for use. The layers also provide insulation to warm or cool the plant depending on the season. Other features included skylights to provide natural light which benefits the workers and simultaneously reduces electricity use. It was reassuring to witness the emphasis ford places on sustainable. As more consumers, and especially millennials, include environmentally friendly business practices as a benefit to a good, ford has the ability to market this feature of the company. Currently, the most well own and affordable car for environmentally conscious consumers is the Prius. However, many consumers do not consider the environmental impact of manufacturing but the manufacturing and disposal process has a major effect on the environment. As ford works to keep or augment market share, capitalize on their steps to gain this section of the market could prove to be an enormous benefit.
We also went to the Henry Ford Museum and had the opportunity to see cars and trucks through the ages, presidential cars, and so much more.
The afternoon was occupied with a meeting with the vice president of purchasing at Ford, Hau Thai-Tang. He took the time to explain the values Ford has had for since its beginning. As seen at the Rogue tour, Mr. Thai-Tang discussed the value of the environment and how that plays a part in their design process. One of the parts he discussed was how they learn from their competition. Rather than simply working to beat them at their own game, Ford works to incorporate the best parts of other business models to better their own. For example, he discussed Tesla and how their attempt to change the updating process and dealership model is something Ford can learn from. Although Tesla is a small player working against difficult barriers to break into the oligopoly, Elon Musk and his company have brought a new thought process to the pre-established industry. This discussion enhanced my appreciation of Ford. As a child, my family has always owned at least one Ford indicating the timelessness and reliability of the company’s products. After learning the history of the company in class and talking to Mr. Thai-Tang, I now understand how their company is timeless and fully believe in their products.
Wednesday was filled with a trip to the Detroit branch of the Federal Reserve Bank and a stop at the University of Michigan Transportation Research Institute (UMTRI). At the Fed, we began with a tour of the money counting system and introduced to the process of moving money into the vault. We also had the opportunity to speak with two economists at the Fed. Between the two, we learned about the basic economics and history of Detroit along with how it got to this place of bankruptcy. Once piece that proved interesting was the discussion of the unemployment statistics for the nation, the state, the city, and the suburbs. While most of history, the unemployment rate in Detroit has only been slightly higher than the state statistic, after the recession in 2007, the unemployment gap widened. However, the unemployment in the suburbs was lower than that in Detroit. This illustrates the job and people movement to the suburbs rather than staying in the city. One task the city is attempting to undertake is to expand the light rail system from the city to the suburbs. In my opinion, this would prove to be extremely beneficial for the area. Not only would it provide better transportation for individuals to reach jobs, but it would also benefit the economy of downtown Detroit. As of now, it is difficult to find parking near restaurants and shops downtown. This would inhibit people living in the suburbs from choosing one of these locations or spending the day at the Riverwalk. The expansion of the light rail system would both increase activity and benefit the environment as individuals could decrease their driving to work or other activities. As millennials graduate college, many are drawn to areas such as New York City and Washington, D.C. for jobs and the public transportation system. Increasing the light rail system could put Detroit on this list of destinations.
In the afternoon we had the opportunity to see UMTRI and M City. It was amazing to see how lifelike M city was with their working stop lights, tunnel, and cityscape. The time and money spent creating this state of the art test we met with two of the researchers. The discussion of autonomous cars proved eye-opening. Although I do not view fully autonomous cars as viable product in the future, the discussion shed light on issues with the system I had yet to consider. For example, sitting water on the road way is seen by a car as the same surface as a road. Thus, the autonomous car would continue driving. As humans, though, we know the amount of water on the roadway may vary and the depth may or may not be suitable to drive through. Living in a high flood area, I have had the experience of driving through standing water and forced to make the decision that it was safe. Issues like these make me even more wary of an autonomous vehicle. I have no doubt cars will become smarter, as they currently are, yet some innovators, such as Google, plan to create a fully autonomous vehicle without a steering wheel. The problems we discussed make the timeline, in my mind, much longer than I had originally anticipated. However, as one presenter illustrated, a large percent of people would be willing to ride in an autonomous vehicle. While some people would continue to watch the road, many answered the survey that they would sleep. Overtime, people may feel more comfortable to sleep rather than watch the road. However, the point in time that the average consumer has the opportunity to make this decision is in the distant future.
Thursday started with a trip to witness the last stage of a car’s life at Fox Auto Parts. One of the owners took the time out of his day to give us a tour of the salvage yard. The first stop was where the cars are brought in and the major parts are removed to be sold. He explained how, at the auctions, he must make an estimate of what the car is worth without knowing exactly which parts are salvageable. The area included a power train being dissembled, a newly purchased car, and a frame of a F-150. The frame itself is not salvageable and must be crushed. However, that is not simply waste. The crushed frames are recycled into steel for manufacturing new items. Each part is categorized with a tag to be easily accessible to be sold in the future. The next stop on the tour was at the service area and where the engines and other parts are kept. Some parts, the owners explained, can work in multiple models and, to make their business more efficient, are logged into a computer system. The next stop, though, was the most surprising to me. Fox Auto Parts has a place for customers to come and find their own parts, remove them from a salvaged car, and pay a lower cost. This business model illustrates how a company can make profit on items that would otherwise be discarded. By cutting out the cost of labor, the part can be sold for less and some consumers may truly enjoy the process of finding parts and fixing their own cars. However, the liability of this process may prove to be a major cost to the company. The customer must sign a release form and pay an admission fee, but the potential for accidents still occurs. Although, the owner did not go into detail about this process, I would be interested to better understand the liability costs associated with the program.
In the afternoon, we toured the Detroit Institute of Art (DIA) and the Heidelberg Project. Although both are art, they were extremely different. At DIA, we saw the works of Diego Rivera whom painted magnificent murals depicted the traditional twentieth century automobile assembly line. I was amazed at the complexity of the murals. The walls showed men working hard to move an engine down the production line along with other parts of the process. Above the assembly line were paintings depicted the good and bad of science. On one wall, a baby was given a vaccine, illustrating the good. The other wall showed the bad: chemical warfare. The contrasting illustrations were not only though provoking about science, but also the assembly line. As I stood before the magnificent paintings of assembly lines, I thought of what the contrasting “bad” would be. Although Rivera did not have the opportunity to see Detroit after bankruptcy as we did, I believe the images of automated assembly lines and abandoned buildings would be the “bad.” While automation and the use of robotics decrease the cost of manufacturing, it can also greatly decrease jobs for unskilled workers. Because Detroit was not extremely diversified in its employment market, new technology and outsourcing has taken incomes from many families. While the assembly line and the accomplishments of Henry Ford are amazing, continued improvement in the process has wreaked havoc on the City.
After DIA, we had the opportunity to speak to Tyree Guyton, the artist behind the Heidelberg Project. Tyree started the project in 1986 as an outreach and to draw attention to the neighborhood where he grew up. I personally loved Tyree’s story and his ability to communicate his ideas and values. It takes courage to make art that is so raw and controversial while at the same time professing his values to those who ask. As Tyree talked, I considered my own life and if I am on the path to achieving what I was made to do. He did not make the Heidelberg Project for anyone one else. He created it because that’s what he believed he was made to do in this life and felt he could make a difference with art. Many times we often overlook our own values to conform to societal pressures. Tyree, though, is living proof of a person breaking free from the pressures to do something he loves. At one point, Tyree said something that really stuck with me. He explained that the change in the world cannot come from one person, but must come from “the people.” I believe, no matter your personal feelings towards the art, everyone should hear this statement and Tyree’s story.
Today was the final day of our trip. While most of the day was spent driving back to Lexington, we did have the opportunity to stop at the Transportation Research Center (TRC) in Ohio. It was amazing to see where cars are tested. One part that caught my attention was the emission testing. As someone interested in pursuing environmental law, the process was intriguing. Rather than testing the cars on the road for their emissions, the car is placed in a garage-type room. The floor spins under the wheels, much like a treadmill, while the emissions are collected and analyzed. The TRC does not specifically tell a company their model meets the standards, but instead the TRC provides the company with the analyzed data to be submitted to the correct agency or authority. While the treadmill-like process is how all cars are tested and legal under the EPA’s regulations, it seems manipulative. Because all automobiles are tested under the same procedures, one can compare between models. However, as a consumer, the stated MPG and other emissions statistics are considered for future gas budgets. Walking through this process made me wonder if other consumers understand the discrepancy.
We also had the opportunity to tour most of the test track. The safety testing measures was extraordinary. One of the tests focused on the durability of the frame of the car. I had never considered how rigorous the testing would be for so specific parts of a car. After spending the week learning about the car from life to death, the test track illustrated the intense regulations put on the automobile industry to ensure the public’s safety and was a truly beneficial ending to the week.