Charlie Rothstein: Reordering & Rebirth in Detroit

It only took a complete reordering of everything they knew to be true about their industry, but Detroit’s Big Three automakers are finally embracing the nimble approach and market-responding advantages of the start-up world. Ford’s recent announcement of its partnership with car-sharing service Zipcar is the latest in what has become an auto-industry-wide attitude adjustment. On its surface, the partnership seems unlikely. Zipcar offers members (mostly young urban dwellers and college students) fast access to a car for at an hourly rate. These users are eco-friendly, inconspicuous consumers that have, by definition, designated themselves “non-car buying.” They’re about as far from the SUV-loving soccer moms of the 1990s as you can get, and yet Ford sees opportunity.

Gone are the days of the Big Three scoffing at start-up companies targeting a niche driving market or offering an unconventionally-designed product. On the largest scale, Chrysler’s merger with Italian carmaker Fiat underscores the new value Detroit places on integrating design-centric, market-responsive principles into its once-staid culture. On a smaller scale but still representative of an institution-wide approach, General Motors created a $100 million corporate venture fund to scour the industry for upstart companies making waves. The decimation wreaked on the auto industry in the past decade has fostered a new appreciation for the innovative culture and risk-taking spirit found in the long-ignored entrepreneurial ecosystem.

Consumers are welcoming this shift away from the traditional automotive business model, favoring the quick turnaround of start-ups, rather than the longer product development cycle common in the pre-bailout auto industry. This makes it easy to see why the opportunity for OEM partnership in diverse sectors of the entrepreneurial supplier market is becoming increasingly attractive for venture-backed companies. For instance, Livio Radio, a venture-backed Internet radio maker in which my firm is an investor, is bringing Internet radio to cars; Sakti3, a solid state lithium-ion rechargeable battery manufacturer in which we are also investors, aims to further enable electric drive train vehicles that are capable of getting over 100 miles per gallon. Both companies, and hundreds like them, are meeting the needs of the driving market and anticipating trends in consumer demand, two qualities Detroit’s Big Three automakers are just starting to embrace.

There’s hope among the venture community that the Big Three’s new focus on responding to the market through partnerships with start-ups and embracing the entrepreneurial mindset will fuel growth and innovation in a sector that desperately needs it. Consumers, automakers and investors will certainly be better off for it.

Charles Rothstein is the senior managing director and co-founder of Detroit-based Beringea. The opinions expressed here are entirely his own.