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Startups, Innovation, and the Auto Industry

Posted by: John Tozzi on September 30, 2009

Maryann Keller argues in a column that the future of the auto industry won’t come from entrepreneurial startups or from global consolidation of automakers. Here’s her grim conclusion:

[T]he future of the auto industry will look like the past: Neither theory of remaking the industry will come to pass. Upstart entrepreneurs will never achieve the mass scale necessary to produce vehicles at relevant prices for most consumers. While the startups may pioneer the use of some technology, any successes will be copied by the large manufacturers, which have greater resources, including government support, as well as an existing infrastructure. The startups will fail or remain relegated to niche markets. At the same time, governments around the world will continue to prop up their domestic automakers (either directly or through domestic market protections), thus distorting natural market forces.

Making cars and trucks is a capital intensive business with high barriers to entry. It naturally benefits from mass production and economies of scale.

But I don’t understand why there isn’t more a more dynamic relationship between established automakers and entrepreneurs. Imagine if the auto industry had an ecosystem like the biotech industry. Thousands of startups develop new drugs, devices, and therapies. Successful innovations get licensed or sold off to larger players with mass production capacity.

I’m not an expert on the auto industry, and I know the market is different in important ways from industries. (The importance of the secondary market and the infrastructure for maintenance, parts, etc. is a huge factor that entrepreneurs in most other industries don’t have, for example.) But do wonder why we haven’t seen more innovation from startups and adoption from the mass market players.

For an interesting example of automotive entrepreneurship, see this post by Jeff Jarvis.

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What's it like to run your own company today? Entrepreneurs face multiple hurdles new and old, from raising capital and managing employees to keeping up with technology and competing in a global marketplace. In this blog, the Small Business channel's John Tozzi and Nick Leiber discuss the news, trends, and ideas that matter to small business owners. Follow them on Twitter @newentrepreneur.

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