Lutz: Apple Entering “Gigantic Money Pit” In Car Manufacturing

By: Mark Melin

Former General Motors Company (GM) executive Bob Lutz has a warning for Apple Inc. (AAPL) after the Wall Street Journal reported it is entering the automotive market: get ready to enter a “gigantic money pit.” But in his critique of Apple does he miss what has driven their unique brand of success?

Lutz: Apple entering a loosing venture, but it might not matter

Speaking on CNBC’s Closing Bell Monday, Lutz outlined a scenario where Apple is likely to enter a losing venture, which should be a concern to investors.

“If I were a shareholder I’d be very upset because they’re currently engaged in a very high-margin business and the automobile business, at best, is a very low margin business,” he said, pointing to the lack of profitability in electronic cars to date. “They (electric cars) are generally money losers and the only reason that everyone is producing them is because they are necessary to meet European fuel economy regulations and U.S. fuel economy regulations.”

Lutz: Lack of manufacturing experience a negative

With no experience in manufacturing or distribution, Lutz sees a tough road ahead. “There is absolutely no reason to assume that Apple is going to be financially successful in the electric car business,” he said. Apple does not manufacture batteries, thus there is little unique benefit in that area, he said. “The specialized electrochemical companies make batteries and Apple is going to buy batteries like everyone else.”

The lack of differentiation between Apple and other existing auto manufactures continues to trouble Lutz, who can’t wrap his mind around the notion of Apple succeeding where established manufacturers struggle in the low margin business. “When it comes to actually making cars, there is no reason to assume that Apple, with no experience, will suddenly do a better job than General Motors, Ford Motor Company (F), Volkswagen (VLKAY)  Toyota (TM) or Hyundai (HYMLF),” he said. “I think this is going to be a gigantic money pit, but then it doesn’t matter. I mean Apple has an embarrassment of riches, they don’t know where to put the cash anymore. So if they burn 30 or 40 billion dollars in the car business, no one’s going to notice.”