Eddie Alterman, chief brand officer of Hearst Autos, has a new podcast called Car Show! With Eddie Alterman. In this Motley Fool Money podcast, he joins Motley Fool producer Ricky Mulvey to discuss:
- Why autonomous cars feel further away today than they did in 2017.
- One way that Tesla (TSLA 0.86%) could become the new Standard Oil.
- Ferrari's strategy toward electric cars.
- Why traditional carmakers may not get enough credit from investors.
- Cadillacs with dry bars and LP record players.
To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.
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Eddie Alterman: We learned about Elon Musk through the cars, through Tesla because they are so cool. But I think what he really wants to be is utility. He's got the best supercharger network. The other fast-charging stations are terrible. They do not compare in any way to the Tesla Supercharger stations. He needs to build more of those, and then he's basically another monopoly. He's basically Standard Oil all over again.
Chris Hill: I'm Chris Hill and that's Eddie Alterman. He spent a decade as the Editor-in-Chief of Car and Driver, and he's got a new podcast called Car Show. He really likes cars, so that's what this episode is all about. Ricky Mulvey caught up with Eddie to talk about the tenuous future of self-driving cars, Tesla's chances of becoming a monopoly, and why traditional automakers don't get enough credit from Wall Street.
Ricky Mulvey: We've talked about the story a little bit on our show, and it ties into this theme where like we're excited about the future of cars. There's plenty of innovation to watch and it's cool. But one thing is really driving me nuts and it's like, essentially losing your ownership of a car you buy. I think you're seeing that with these, the story about BMW, where they are now rolling out monthly subscriptions for things like adaptive cruise control. They're in South Korea, I believe they're trying to charge a monthly subscription just to heat the front seats. It's 18 bucks a month with options to subscribe for a year, for a $180 or you can pay for unlimited access for $415. Is this a new wave? Is this a continuation of how dealers always getting a little extra on the base price of selling you a car.
Eddie Alterman: There's some of that. The blowback on the BMW heated seats thing was comical. They should have been able to see that one coming. You can charge a subscription for something that people expect in a luxury vehicle to begin with and it come on. But the larger point is that this has been happening for a very long time. Whether it was simonizing in the '70s and '80s or pin striping, there's always a little bit of extra. They try to choose a lot of you. The larger trend, quite frankly, is away from ownership toward shared. Leasing is a midway point between owning something and having full responsibility for it and actually just renting it. Yeah, of course, there are penalties when you screw it up, and you have to carry insurance and all that, and it's ownership like experience. But we're moving certainly from pure ownership to either shared or owned by the company. In the case, they keeps threatening autonomous vehicles, those are probably going to be owned by the companies that provide the service.
Ricky Mulvey: In many cases, I think some of the designs, there's no steering wheel. Even if you want the option to drive the autonomous car, they're removing the driver from the equation. I want to get to autonomous driving, but I want to stick on this theme for a little bit, because I think the argument is not just the subscription part, it is you're paying the company to unlock something that is already built into the car. Like, I think Tesla tried that a few years ago where they had these battery packs for the Model S. They said, "Hey, we can sup up your battery pack and give you an extended range." In reality, it was it was a software blocker in the car that was just limiting the miles driven.
Eddie Alterman: Well, this is part and parcel of the transition from hardware based cars to software-based cars. Porsche, for example, has a sports steering option, it's 250 bucks, and that's a line of code. It's totally ridiculous, and Tesla get's away with it. It gives you a little firmer steering. Its electric power steering, so you don't get any more road field, but you get a little firmer weight, and that fools some people into thinking that the car is maybe spottier, but it's not. Tesla seems to get away with everything, and sometimes they seem to be in a different business than the mainstream carmakers or any other carmaker, for example, just in terms of their valuation, the way that they beta test on their customers, their full self-driving stuff. Tesla's side, BMW cannot get away with this. It just speaks to a general tone deafness and bilking of the audience that this is not good for business.
Ricky Mulvey: What do you mean Tesla has the ability to beta test on their audience unlike other carmakers. I'm thinking about some of the episodes you've done on, let's just say like cars from the '60s, even General Motors experimenting with ideas for the Lunar Rover, and I know that's a completely different topic. But carmakers trying new features on customers is not a new concept I guess. What does Tesla doing significantly differently?
Eddie Alterman: In the case of new features and amenities rolling out to consumers in the traditional way, that traditional big iron way where things are tested and tested, till are totally full proof and nobody is going to sue you over it to the Tesla way, when I think full self-driving, which is a misnomer, is a indicator of their approach. Like, yeah, we're going to try this. We're going to roll it out. The point of it is not to provide full self-driving for the consumer in any robust feel-safe way. The point of it, is for them to test it and gather data and improve it. It's just a completely different approach than the traditional Detroit big iron approach. You can see I'm wearing my Tigers cap and I am a bit of a homeboy being. I'm going to get here from Detroit, but safety is a huge thing. We're talking about a system that takes control of the vehicle and drives for you, that to me is the most advisable approach, and I don't think that Ford or General Motors or BMW could've gotten away with it. You look at how GM approaches there Level 3 autonomy with GM Super Cruise. It is a feel-safe system. It's incredible. It's so well thought out, and it's so bulletproof, and it always works full self-driving. If it confuses the environment, they don't have super sophisticated computer vision on Tesla's. If the environment is opaque to the car, lots of bad stuff can happen.
Ricky Mulvey: What's the GM system like? Like there is a novice to this stuff. I don't understand what GM is doing differently with self-driving versus Tesla.
Eddie Alterman: Super Cruise is a much more robust, higher camera dense system that forces you to really be alert, and it keeps you in between the lanes in a really natural way. It's just better. I don't know how else to describe it other than it instills more confidence.
Ricky Mulvey: So I guess this is lead into the question, but there are features of cars today where I'm sure we'll look back and grimace. You mentioned it in your episode on minivans, you talk about the station wagon design, which was, "Hey, we're going to have kids sit in the back of the car and we're going to face they're essentially nostrils toward the exhaust fumes coming out out of the engine." The one I think about is the story where we're Sammy Davis Junior lost his eye, it was at 1953 Cadillac El Dorado. The designers of that car, this is at a time where there were new seat belts, no airbags, and they thought it would be very art deco cool to have in the center of the steering wheel directly pointed at the driver's heart. It's like a conical, cone-shaped, pointed design. The first question is, what are, what are some of your favorite, I guess, features of those 1960s cars, where you look back and think, how could they have thought this?
Eddie Alterman: Well, they were Cadillacs with dry bars and shot glasses, in vehicles, certain high-end catalogs with LP record players in the back seat. Those are hilarious. But the minivan was this important turning point, where cars went from these wild stallions. There are really about freedom and exploration and personal expression, and all those great Don Draper attributes to a much more paranoid covered wagon type of expression of what a vehicle should be with the minivan. The critical change from the station wagon to the minivan, and the big unlock there that made families feel more secure was the third seat. The third seat wasn't faced backwards. In the most putting kids in the most vulnerable position in the car with their feet inches from the bumper, they weren't able to look at the serial killers behind them and make faces at them. Putting that third row forward facing not in the driver seat, but in this command position in the vehicle where the whole family was facing the same direction that allowed parents to look at their kids in the third row. That signaled a completely different moment in not just cars, but also in parenting in the American experiment.
Ricky Mulvey: How much of that change was also coming from the core of air fiasco?
Eddie Alterman: Yeah, core of air put safety in the headlines. It's a great unintended consequence moment. There was this whole story about GM was super paranoid when that book came out. They had already made certain safety upgrades to the core of air, but they were so worried that it would be a blemish on their sterling reputation, this book from Ralph Nader that they sent private investigators to tell him. That's the story that broke first, and that's what gave attention to the book. The book did raise the specter of automotive safety in the American mind and the core of air was, in my opinion, a casualty of that. I think you could draw mine from the core of air to Al Gore not winning the election because of Nader was a factor in that. We've made her have been without it. You can also make an argument, although it's tenuous that if the covariates exceeded, General Motors would have been in a much stronger position to take imports like Honda and Toyota in the '70s and '80s, the so-called Malaise Era of Automotive. There's a lot of what if.
There's a lot of red pill, blue pill with the core of air, which is one of the things I love about that story. But the car was a challenging car to the American public. You look at what Ford and Chrysler were doing at that same time when they had to downsize because imports were starting to really eat into their business. Smaller, more efficient, more fun cars eating into their business for just downsize their big cars and made the Falcon. But General Motors which was really at the height of its powers, they said, no, we're really going to take the fight to the imports. We're going to have a rear engine, rear drive, air-cooled vehicle, just like the Germans, and we're going to beat them at their own game. A lot of people went into Chevrolet dealership saying, I just want to smaller Bel-Air, this is affordable, this looks like fun. They didn't realize it was really a sports to them and really the first American sport to them.
Ricky Mulvey: There's also a communications failure, which is that the specs on it and the way to maintain it was more in line with a European car was that you talked about this show which is even things like tire pressure in the way it could fishtail. I think that was an important communications failure for Chevrolet, and ultimately that's why a lot of people lost their lives.
Eddie Alterman: That's exactly right. Tire pressures had to be very carefully maintained in that car. It was a complicated car, more complicated to own than the Chevrolet's of the day. It was more complicated to drive, an extreme maneuvers, not uncontrollable as some people have put it. I've had that current extremely Nuvera's, it's not uncontrollable, especially in the 65 era. But the core of air was a very weird crux of a moment. It got pillar read by Nader. But it also was a victim of Ford Mustang, which just much better targeted vehicle, much more fun, better teenager car than a core of air.
Ricky Mulvey: You also make the case. You're catching some flack on this. I want to revisit it on this show, but you make the case that after the core of air and after all of the safety features have been implemented in is carmakers have focused on that. The roads haven't gotten much safer.
Eddie Alterman: Well, statistically they have. What is true is that fatalities on a percentage basis have come way down. But we're still carrying way too many people on the road. With all the advances in safety technology, we're still carrying 40,000 people a year on the American road. A lot of that is enabled in a weird way by the safety technology people feel invincible in their cars and people are still driving drunk. Another interesting thing about the core of air era is it represented also a handoff in safety philosophy for drivers. There was something called the Triple E philosophy of driving, which meant engineering, enforcement, and education. The idea was we needed safer roads, we needed safer drivers, and we needed more police enforcement, and we needed to educate the American people on how to drive cars. Now, Europeans are already predisposed to driving in more challenging conditions. They have the Alps right through their countries. Except for the Rocky Mountains and parts of Appalachian, America is pretty flat and people don't have to pay a ton of attention.
Ricky Mulvey: Is your skepticism from these safety features that came after the core of air, and I guess they made things better? But people are bad at driving. I think that's not a controversial statement to say. Is that one of the reasons you're skeptical about the rise of autonomous driving and those types of features and cars? Is that it would encourage people to be even less attractive than they already are on the road?
Eddie Alterman: That's part of it. I also think that the issue with autonomous cars and why their delivery date gifts keeps getting pushed out or their mass adoption date keeps getting pushed out and pushed out. Back in 2017, it was like there right around the corner. All the tech is here. What we found out was that having the tech be really good wasn't enough. The tech had to be perfect. The reason is, and this is another theory of mine and I know this has actually, I share this theory with Malcolm Gladwell. Either he came up with it or I came up with it. I'm not exactly sure, but we both have said this on several occasions, is that when you are driving, the risk is entirely voluntary. You feel as though you're in control. If something happens, well, is the other guy's fall or is the car's fall, or it's never a problem?
You're a great driver, everybody thinks are a great driver. But when you move to an autonomous car, you're in a situation of involuntary risk where something else is in control and we're OK with people crashing into each other. We are not OK with machines crashing into each other. That is a level of existential terror that we can't really cope with this human. Look at the Boeing 737 MAX. Two crashes, statistically very insignificant, but nobody wants to find a 737 MAX now. The reason is of that involuntary risk that you're assuming when you get onto a plane, a plane cannot crash. If planes crashed with the frequency of cars, nobody would fly. I think the issue with autonomous vehicles is that they're not perfect and they might never be perfect. We need that safety threshold of perfection for them to really catch on and for people to really embrace them.
Until that happens, I think they're going to be confined to cities or smaller areas or that level of safety to take hold and to obtain. You really need an air traffic control system. You need vehicles talking to each other. You need vehicles talking to the infrastructure and their environment. So it knows if a ball rolls out into the street, it can see that it can take appropriate action. Until we have that matrix domain environment for cars, I don't think you're going to get the level of safety required for people to take on that involuntary risk. As a result, unless all cars are autonomous in a given area or system, none of them could be. I don't think you can have autonomous and human-driven cars mixing. Lots of stuff going on with autonomous cars that are preventing them from mainstream acceptance.
Ricky Mulvey: You made an episode about the Porsche 928. It's called better isn't always best, and essentially it's about how Porsche created this car that was allegedly improving upon the 911 but also took away a lot of the things that people loved, the ability to steer into skids, just a lot of the character that Porsche's had at the time. I'm wondering if you think Ferrari right now is making a similar mistake. Ferrari is making a big push to turn into more electric hybrid cars and is a casual observer. I do not drive a Ferrari, drive a Acura with 225,000 miles on it. That's my point of view that I'm coming out this, however, it would seem to me, is a concern troll that Ferrari might be making a mistake with this by taking away the thing that people ultimately love which is a Ferrari engine in the name of progress toward electrification.
Eddie Alterman: Let's define our terms a little bit. There have been electrified Ferraris in the past. There are hybrid Ferrari's like the LaFerrari, which is a plug-in hybrid and an exceptionally terrifying machine. [laughs] There's no lack of personality there. Do I have faith that Ferrari can make an EV that has the personality of a Ferrari? I'd say I'm 50 percent on that. When you take the engine out of a Ferrari, you're scooping the heart out of the vehicle, and it's just maybe I'm old school, but without that vibration, without the sound. Ferrari's are this amazing mix of intake noise, engine noise, and exhaust noise. You really don't even need the radio on when you're driving these things. It's so engaging, the sound of the engine is just musical. It's phenomenal and I think those are huge part of the appeal. Why did they really need to do EVs? To seem cool, to seem like with it, I just don't get it. I'm a purist in that sense, and I think that they will turn some people off. Yeah, will people buy Ferrari EVs? Of course. Did people buy Porsche SUVs? Of course. But it was the 928, there was that sacrificial lamb. It was the thing that had to die so that the Cayenne could live, so that the Ferrari Purosangue could live.
Ricky Mulvey: Speaking of electric cars, in 2018, you wrote a column called, Is Elon Musk more of a Henry Ford or a Preston Tucker? Why these two figures, especially Preston Tucker.
Eddie Alterman: I was wrong about him being Preston Tucker. Because I thought he was flash in the pan. I don't think I had a complete understanding of what his end game was and what he was really trying to do. I think the cars at this point, are marketing for his personal energy systems at personal energy independence, and we learned about Elon Musk through the cars, through Tesla because they are so cool. But I think what he really wants to be is utility. He's got the best supercharger network. I mean, the other fast-charging stations are terrible. They do not compare in any way to the Tesla Supercharger stations. He's needs to build more of those, and then he's basically another monopoly, he's basically Standard Oil all over again. I think he wants to get everybody off the grid, and he wants home solar power, and I see him as a much more transformative figure now, even with all the bulls around Twitter and all that, I just think he's operating at a higher level.
Ricky Mulvey: Outside of EVs, outside of self-driving, what trends in cars do you think people aren't paying enough attention to? Because the only thing I've got is that minivans are beating muscle to cars in terms of horsepower or the old school I suppose.
Eddie Alterman: Yeah, well, we've gotten to a point where there's tremendous commonality and homogenization in vehicles. Carmakers are progressing more and more toward the mean. Everybody who's got a Sedan has a 15 cubic foot trunk. Everybody has got a two liter, four-cylinder Turbo. Everybody has got an 8-speed setup transmission, and the personalities that used to differentiate one vehicle maker from another, are really disappearing. There's no Citroen's anymore. There's no subs. Even Porsche and Mercedes and BMW are getting closer and closer together. You look at the VW groups, SUVs, you've got a Lamborghini Juris, you've got a Porsche Cayenne and you've got an Audi QA, and a Bentley Ventika, all in the same platform.
You get that platform is not a bunch of shared parts. It's largely a way of building the cars, but it's a shared philosophy in a lot of ways, and some of the great Cambrian explosion of automotive philosophy where one guy puts his engine in the back, one guy has got a frontage of V12, one guy has got a three cylinder. Some of that's going away. For current fuzziest, that's a bummer. But what has the average punter have to worry about now. All cars are much better than they've ever been. They're much more reliable. They are easier to access, there's more transparency around the retail aspects of them. I have a hard time finding anything wrong with any of that, but I think that the personality is disappearing.
Ricky Mulvey: One thing I'm contractually obligated to ask you as a producer of a Motley Fool podcast is about investing, you spent a lot of time in the auto industry, and many carmakers have historically played out to be bad investments, with the exception of Tesla. Maybe it's because sometimes you have someone like Foltz Volkswagen making Bugatti Veyrons that end up costing them six million dollars more than they are selling them for. Sometimes carmakers have been bad at math. But it's a long-winded way of asking you, for all the time you've spent around the auto industry, around automotive leaders, has it made you more or less likely to invest in carmakers?
Eddie Alterman: Well, if you're looking for big returns, don't buy carmakers. But for long goals, I think that the way that these businesses are managed now, and look, I'm not an investor, I'm not an economist. The way that these businesses are managed, the amount of money they pump into an economy, they're just not getting enough credit for it. These are incredibly capital-intensive businesses. Things can go wrong if somebody makes a bad bet, as you said, with Bugatti, and they are highly regulated, very much bound by things like union contracts, and it's a very, like the hardest business on the planet. Listen, I'm biased, but it has so many facets and so many factors and so many things to do right. It's very hard to do right. I don't think that it's sexy enough for the street, but the value is there. If you look at what happens to nation's economy when a carmaker goes away, that's the value. They just employ tons of people. General Motors created the middle-class. The big three did, led by General Motors. I think we take it for granted. But that's not to say that you're going to realize gigantic gains by putting your money into a carmaker.
Ricky Mulvey: Eddie Alterman, he's the host of a car show with Eddie Alterman. He likes cars. It's been a real pleasure. Thanks for joining us on Motley Fool Money.
Eddie Alterman: Thanks so much Ricky, it was great being with you.
Chris Hill: As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against them, so don't buy or sell stocks based solely on what you hear. I'm Chris Hill, thanks for listening. We'll see you tomorrow.