Normally I enjoy reading Seth Godin's blog but not "What to do about Detroit" - Part 2

In Part 1 I talked about the cost of starting a car company in today's market. This entry covers the point Seth makes that having more car companies will lead to more innovation:

"I'd spend a billion dollars to make the creation of a car company turnkey. Make it easy to get all the safety and regulatory approvals... as easy to start a car company as it is to start a web company. Use the bankruptcy to wipe out the hated, legacy marketing portion of the industry: the dealers.

There'd be an orgy of innovation, and from that, a whole new energy and approach would evolve."

My opinion is that it takes so much money to start a car company that there will be less innovation. More money invested likely means less risk allowance from investors.

More Car Companies = More Innovation?

If Seth's main point was true - that it could become as easy to start an auto company as it is to start a web company - I think I would agree with him that more companies would equal more innovation. But Tesla and Fisker prove the point that it takes big money to start an auto company today.

Put yourself in the investor's shoes. Here's this little nothing company and they want to innovate like crazy with your $100 million. Will it work? Don't know - gotta build it and see if it works. If it works, will people buy it? It is radically different... Don't know - gotta build it and see if they buy it.

That's a $100 million gamble...............................

And as Fisker and Tesla have shown, $100 million gets you one model of car that takes two years to produce 60 cars. How many years before profits are seen? How many years before you sell a second model?

My point is this: with it costing so much money to just get out of the gate, that means there is actually less innovation. No investor wants to put up $100 million for a total gamble. Big firms might put up $5 million for a total gamble that could reap $100 million but they aren't going to easily put up $100 million on a total gamble unless they think they can make a ton of money - billions of dollars.

In Part 3, I go through some made-up math. I gotta warn you: it gets pretty geeky!