How Automakers Can Get Wall Street to Believe

Contrast Wall Street and the private-funding valuations of Uber, Tesla, etc., with the market capitalization of Ford, General Motors, Fiat Chrysler, and the picture is crystal clear.

The money folks and the public at large see automakers as fodder for the “disruptors,” with as much long-term appreciation potential as a New York City taxi medallion in the world of ride sharing.

The automakers seemingly want to convince Wall Street to value them more as innovative high-tech disrupters, not as the disrupted. Maybe the place to start is with their unique advantage – dealers – as their message bearers to the public.

Uber bad for cabs.

Automakers have more engineers and high-tech access than the best start-ups these days, and, in the case of Ford, General Motors and others they’ve opened and expanded Silicon Valley offices.

They have a core of newly recruited technology mavens, and yes, dare I say it, the actual self-funded capital to back it up: billions of dollars that don’t depend on the vagaries of venture capital owners or public acceptance of their vision.

That is a curse and a blessing. As everyone who has ever had to depend on venture capital knows (present company included), that is where you really have to have your act together to sell the vision  – not only to steely eyed VC “kings of the universe,” but simultaneously to potential new customer product innovators and the public at large.

At the start, often the only thing you have to sell is your enthusiasm and vision. Perhaps, this is exactly the part that Detroit is struggling to get right, as auto company price/earnings multiples indicate relative to Silicon Valley. 

Selling corporate to fund projects is a very different process than selling the world on a vision of the future – selling not the “how” or the “what” of the project, but the “why.”

Hard income verses losses and continually blown vehicle deadlines and forecasts notwithstanding, whatever else you can say about Tesla, Elon Musk, its charismatic leader, continuously inspires passion from employees, prospects and customers. 

It’s this kind of passion that literally moves markets and Wall Street, obviously, because this cash poor, loss-ridden car company has a valuation almost as high as the Detroit manufacturers making boatloads of cash. 

Uber, in contrast, still loses boatloads of cash (at least globally), yet has a private valuation last time I checked that was higher than Ford and General Motors combined.

So what is going on here? It’s that the public and Wall Street believe that, just as Uber has virtually decimated the century-old taxi business all around the world, so too, with the advent of self-driving and connected vehicles, will the start-up and technology leaders displace the ancient, lumbering automakers.

However universal this ever-present viewpoint, how grounded in reality is it? One thing is for certain, whatever the reality is or turns out to be, hard valuation evidence suggests Detroit is losing the perception game. Whether the perception is right or wrong, they aren’t inspiring public and inventor passion.

But automakers have a key potential advantage in turning around this perception. To date, they have totally ignored it. While certainly not “tech,” auto dealers have proven to be the most resilient of entrepreneurs. They’re certainly passionate about their businesses. After the last wrenching downturn, it could be said dealers survived better overall than their manufacturer partners. (At least they didn’t require government bailouts). And when dealers get behind something, well, who provides a more passionate force? 

If the automakers could first make their public distribution network (their dealers) passionate about not only their latest vehicle model, but the technologies underlying their Silicon Valley innovations, who better to get the story out to the rest of the world? 

Elon Musk, with Tesla, considers dealers part of the problem, but that viewpoint could come back to bite him in the end as technologies converge and as his product requires more mass adoption than his current high-end boutique-type offerings (which themselves may soon come under assault by the premium brands). 

Dealers could be the unique first step solution in getting the word out that the vehicle manufacturers are every bit as tech savvy when it comes to transportation needs as any Silicon Valley start-up, and a whole lot more resource-rich to roll out these innovations in a practical and profitable way. 

We shall see what happens, but it looks like General Motors’ Chevy Bolt can do everything the Tesla Model 3 will do when that vehicle finally launches. Only the Bolt will do it first and with a dealer/customer service support structure and with the ability to absorb any early losses with accumulated earnings, not investor working capital.

Granted, I haven’t seen many manufacturer-produced impassioned speeches the way Elon Musk rallies up a crowd, particularly focused on their dealer body, but it might not be a bad idea. 

The real key to getting Wall Street to buy the vision is to get the public to believe in the forward thinking innovations of the manufacturers and dealers who are the feet on the street in contact with thousands of prospects and customers every day. That could be a major rallying force. Of course, for that to happen, dealers must be brought into the loop and sold on the vision in a way that is not happening today. 

I’m not sure why, because these unique brand representatives, with face-to-face consumer contact in every region of the country are a potentially overwhelming force in selling the vision to the consumer – if they were properly fired up to do so.  After all, tell me who does more real customer selling every day, your average dealer sales associate or an Apple store product genius?

If the car business has taught me anything over many years, it’s that auto dealers, once ignited, can transmit zeal, passion and salesmanship that can rival or surpass any Silicon Valley company or start-up maven. They just have to be sparked. 

If the auto industry and Detroit in particular can’t first get its family of dealers excited about its technology, how much harder will it be to get Wall Street and the public to rethink the automakers’ valuations expectations?

John Possumato is a Wharton MBA grad who heads Automotive Mobile Solutions. He can be reached at [email protected] and 856-577-2763.