Tackling Industrial Capacity - The World Changed, but the Automotive Industry Did Not

To make matters worse, car prices are also higher. Not long ago, there were several new cars sold for around $15,000 that Americans could buy. They have only a few of these options now, if any. Automakers claim they do not want to make these "boring cars" anymore, but that pushes those willing to purchase an affordable automobile to the used market – in other words, to something that is already available and can be reused. Industrial capacity faces a hit with that; rest assured.

One thing I am certain about is that populations are shrinking and getting older. Families have fewer children – if they want to become parents at all. Childless cat ladies (and couples and gentlemen) are not that uncommon. On top of that, social security systems all over the world are on the brink of insolvency because we have more people retiring or already retired than young folks starting to work. That means the economically active population is decreasing in all developed countries and also in some developing countries.

In the European Union (EU), that gets even worse because of the wage disparities between the countries. Young people who graduate in Portugal frequently move to France or Germany because salaries there are much better than at home. The EU makes it really easy for the few children Portuguese folks decide to birth to end up working in different countries. All you need is a valid identity card or a passport to register your new residence. That creates a massive workforce shortage in all fields. No Portuguese politician seems to be aware of the issue.

Finally, globalization also takes its toll in cutting industrial capacity from carmakers. Ironically, it did that by trying to maximize production. That effort started with common platforms developed in rich countries. By making millions of parts instead of thousands, automakers could cut costs and theoretically produce more vehicles. These architectures should be perfect for all markets, but they were (and still are) often too expensive for poorer ones. That led engineers in these locales to decontent these architectures, which also made them less safe than they were designed to be. I wrote about that and how developing-country citizens were treated as second-class lives with that strategy. Eventually, automakers decided that the models developed in their headquarters were perfect for poorer countries, eliminating the local engineering teams.

This one-size-fits-all approach proved to be a disaster. Local teams usually know best what works in their markets. When automakers realized engineers in developing countries cost less, they recovered some of these engineering teams, turning them into global development centers. Several engineers in companies' headquarters lost their jobs, but it was clear some of the automobiles created in developing countries did not work well in rich ones, which were more demanding.

Carmakers are still trying to figure out the best solution to survive in this messy environment. One of their options was to evoke the past to save them in the present. While that led several customers to crave these vehicles, it did not take long for expectations to be frustrated. When people bought a New Beetle, they wanted what the original one offered, not a worse Golf that looked like another car. The Alpine A110 is probably the most successful nostalgic design because the new car is also brilliant, but it is far from being a high-volume vehicle. Reviving charismatic nameplates in completely different cars is the lowest point in that flawed strategy. It is the essence of these classic vehicles that should be recovered, not their names. And they should only be retrieved if their essence still made sense these days, which they often don't.

The structural problem with industrial capacity has always been present, but it is more evident nowadays. A successful economic model is currently measured through growth, which relies on more production and more people consuming that. It is as if raw materials would always follow that trend. However, this world offers finite resources. Exploring them causes environmental damages that are not easy to fix, if that is even possible. When a given resource ends, recycling is the only option to keep using it. We have not reached that stage yet, but we're not far from it. This is why people talk about mining the deep sea or even other planets.

This clearly shows that the classic industrial capacity concept is obsolete. Delivering more and more goods is not sustainable. Instead, we should only use natural resources for really relevant ones, such as cars that people truly want to buy. Riversimple proposes an even better model, which makes a profit from use, not from ownership changes (sales).

The Welsh company's factories will be small and local. They will only manufacture vehicles for use by residents and businesses in a given area, which should be determined by the maximum capacity these factories will have. That means all these locations will retain industrial capacity. The expertise will be there, as well as the workers and the jobs. That should make communities more prosperous.

All vehicles will be rented, not sold, but their use will be similar to that any owner enjoys, especially because most of the contracts should be for long terms. When any customer no longer needs the automobile, it does not go for sale; it is just rented to someone else. The vehicles are expected to last decades. When they are no longer suitable for use, the factory will recycle them and make new ones, but only if necessary.

All expenses are included in the monthly fee Riversimple's customers will have to pay: maintenance, taxes, and even hydrogen refueling. The more efficient and dependable the car is, the higher the company's profit. That kills planned obsolescence and inverts the subjects who benefit from these characteristics – even if customers also win with this logic. After all, a dependable and economical car should never leave them stranded anywhere. Summing up, Riversimple proposes a new industrial capacity standard – a sustainable one.

Will traditional carmakers copy the Welsh startup's genius idea or insist on their current formula? I have never heard of disruption coming from companies that see their business model get disrupted, so the first hypothesis is highly unlikely. Considering that the industrial capacity of the current automakers is so jeopardized, it should not be a difficult transition. I just hope it happens before we forget how to make cars – or have to buy them solely from China.