Steering an uncertain course to a future of services, not goods

Car maker Ford thinks the day will come when we don't own cars - all we will want is mobility
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The Independent Online

Bill Ford, great-grandson of Henry Ford and chairman of the Ford Motor Company, was in town yesterday - suggesting that Ford would get out of making cars.

Bill Ford, great-grandson of Henry Ford and chairman of the Ford Motor Company, was in town yesterday - suggesting that Ford would get out of making cars.

Well, not quite. What he said was: "The day will come when the whole notion of car ownership is antiquated. The whole notion of you owning a car won't be appealing: you will own access to mobility."

It is a common theme in most manufacturing businesses that they should get out of making things and into providing services. At one level Mr Ford is absolutely right. At the end of the day most of us want to get from A to B; the car just happens in many cases to be the cheapest and most convenient way of doing so. If the car is the most appropriate mode of transport, that is fine. But people then merely want the use of a car, not the actual ownership of one.

This is a common theme nowadays. White goods manufacturers say that what people want is clean clothes, rather than the washing machine. But the reason we own these machines is that it is much cheaper (and probably more convenient) to use a washing machine than send the stuff off to a laundry in a large wicker basket, as our grandparents would have done. Henry Ford's invention of the moving production line enabled goods to be made much more cheaply. As a result most people in the developed world have experienced a standard of living hitherto only enjoyed by the rich.

The choice of whether we buy a good or a service is determined by the cost and ease of use of the good versus that of the service. Sometimes cost is the crucial element. No one buys flat-pack furniture because it is more convenient than having the finished product delivered to your door. Sometimes convenience is crucial: we buy sandwiches for lunch because it is quicker than making them before we leave for work.

Some technologies are more suited to ownership than others. Nearly all of us drive our own cars, but hardly any of us would think of flying our own aircraft. Of course someone has to make the plane in the first place, but the main added value involves running them. So airline travel involves buying a service rather buying a product. Car transport can be a service - it is called a taxi - and you can always hire a car when you need one. But in most cases the cost/convenience equation works out better if you own the thing.

Intellectually it may be ludicrous to have the family's most expensive consumer durable sitting idle for 23 hours out of 24, but we are prepared to pay for the convenience that the car sitting outside the house provides. There are other oddities of the economic world: the most expensive parts of our cities are occupied by offices, which are empty for 14 hours out of 24; and the most expensive infrastructure of our cities, the commuter networks, are used at full tilt for only four hours a day. But societies make a choice to have offices in cities and commuter railways - and to have cars.

You can see why the motor manufacturers want to rebalance their activities towards the service game and away from manufacturing. One is going up, the other down. But the skills needed to run a service business are very different from those needed to run a manufacturing one. You can always buy a service business: Ford owns the car rental group Hertz. But running an airline is very different from making an aircraft. It wasn't the steam laundries that mass-produced the washing machine. I'm not sure that a giant multinational company such as Ford can become nimble enough to win in the service economy.

Besides, making services is very different from making goods. A Ford Focus is pretty much the same wherever it is sold in the world. But mobility is different. We have different commuter patterns; our cities are differently designed; we spend our weekends in different ways. To design a new car needs enormous resources: only a handful of companies in the world have that. Even so, car companies use legacy technology to make their products cost-effective. Cleverness conceals ageing components: the engine in the cute Ford Ka is a 30-year-old design.

But in the new service industries, speed beats size. The giant companies of the new economy - such as AOL, Vodafone or Microsoft - did not even exist when Ford started making the Ka engine. The giants of another 30 years' time don't exist now, except maybe in the minds of some teenagers, listening to pop music in their bedrooms. The great technological breakthrough always comes from new companies, not the existing giants.

Besides, our notions of mobility will, I think, change. A generation ago people took the car out at the weekend for a spin, such was the novelty of ownership and the freedom it gave people. Now people are as eager to move about as ever, but they want to do so in ways that are exciting rather than routine. Driving to work is routine.

A generation ago the luxury was having access to a car. Now the luxury is not having to drive when everyone else is trying to do so. The luxury is a house or flat within walking distance of work; flexible working hours at an interesting occupation; freedom to take a mid-week break in a foreign city - or just to go for a country walk when no one else is.

You can see what Ford is trying to do. This is to make moving about the world a nicer experience. But that is not what it is good at; what it is good at is making vehicles. And for all Mr Ford's green rhetoric, very big vehicles: much of its profits come from things such as the Ford Expedition, a monster that makes the Range Rover look like a pedal car.

There is a moral here. Every large manufacturing company is going to become more of a service company in the future. It is that or a slow death. But not all will succeed in making the transition. Sure, there will still be a Ford Motor Company in another 30 years' time. And it will be selling a higher ratio of services to goods than it does at present. But in terms of power in the world it will be less important. And there is nothing it (or other "blue chip" companies) can do to stop relative decline.