Book Excerpt: Macrowikinomics (Part 3)

In an edited excerpt from Macrowikinomics, Tapscott and Williams describe how a former Marine has created a new kind of car company, Local Motors

Jay Rogers, a Marine veteran of the recent war in Iraq, is going back into battle. But this time…Rogers' target is closer to home: the sclerotic industrial age automotive bureaucracy that has uniformly disappointed consumers, employees and investors and is just barely clinging to life thanks to a multi-billion dollar taxpayer-funded bailout.

The way Rogers sees it, Detroit's inability to transform itself from a lumbering manufacturer of gas guzzlers into an innovative, world-beating producer of clean transportation solutions is one of the reasons why he and his fellow soldiers found themselves fighting to secure oil supplies in the Iraqi desert. So now he's set out to build a revolutionary car company called Local Motors with a mission to set things straight….

Revolutionizing the auto industry, thought Rogers, could reduce American dependence on foreign oil and bring jobs back to the country's decaying manufacturing base. So he asked his general for permission to apply to Harvard Business School, where he hoped to accumulate the contacts and the know-how required to execute a plan that he readily admits is ambitious and perhaps even a little naive. Two years later in 2007 Rogers graduated at the top of his class and subsequently wasted no time founding Local Motors, a radical new form of car company. Indeed, if you want a broad-brush idea of what Local Motors is all about, picture GM or Chrysler, and then imagine it's polar opposite.

Rogers doesn't employ a design team and he doesn't do any in-house R&D. Instead, he has an online community of almost 5,000 designers from 121 countries that participate in contests and collectively design next generation cars. The car parts? Rogers doesn't plan to make any of them himself, except for the state of the art composite frames. He sources everything else on the secondary market from Ford, BMW, Mercedes—whoever has the right piece at the right price. Unlike its larger rivals, Local Motors doesn't own massive 3 million square foot manufacturing facilities and it doesn't have a conventional supply chain. Instead, Rogers is building a network of thirty five micro-factories around the country, each one employing local people and producing cars designed for that particular geography.

Local Motors doesn't even have dealerships: they sell cars directly from the micro-factories where they are made. Since the pie isn't divided numerous times along the chain, Local Motors can retain more of the sticker price. According to Rogers, that extra margin more than makes up for its comparatively higher productions costs. And, while Detroit's incumbents have carved out only the most circumscribed roles for car buyers, Local Motor's customers…help design, buy, service, and recycle their vehicle at a local micro-factory in their area. True enthusiasts can even elect to spend a couple of weekends helping to put it together!

Using this decentralized mass collaboration model, Rogers was able to design his first car in less than three months rather than the two years it would have taken Detroit. And rather than the typical six-year production cycle, it took just another 14 months and about $2 million to transform a sketch—chosen from tens of thousands submitted to his website from across the world—into the Rally Fighter, an extreme off-roader built for high-speed dirt racing.

Who would buy such a thing? Rogers is targeting race teams that compete in endurance competitions like the Baja 1000 in Mexico, and other lunatics in the western states with $50,000 to spend on a lightweight, street-legal racecar. Local Motors is confident it can sell the 250 Rally Fighters needed to break even, and will produce as many as 2,000 in total. Subsequent models developed by community members include the Boston Bullet, a car designed for a smooth ride in the city's narrow streets, and the slick Miami Roadster for urban racing enthusiasts. Some of these models will include engines that run on electric batteries and alternative fuel sources.

Of course with its current focus on niche markets, Local Motors will not revolutionize the auto industry singlehandedly. But then Rogers is not the only fresh-thinking entrepreneur trying to capitalize on Detroit's weaknesses. Unburdened by the legacies that encumber incumbent manufacturers like GM, American startups like Tesla Motors, Fisker Automotive, V-Vehicle and Coda Automotive are rolling out electric, hybrid and other innovative vehicles….

Together these companies are filling the void left behind by industrial age mammoths such as GM and Chrysler while creating new business models by involving their customers, creating genuine partnerships with suppliers and injecting much needed innovation into the whole process.… "The whole manufacturer-centric paradigm hasn't changed since the model T," says Rogers. And that inertia is at the heart of the industry's problems.

So what's the new model? Rogers sums it up. "It's about designing cars on the Web and building them out of advanced materials in factories of the future. There is a better, cooler American auto industry just ahead but it requires a complete paradigm shift. We don't need better record stores; we need to start designing iPods."

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