The biggest impediment to starting a car company is financing. Rogers’s first investor was Smith, but Smith didn’t provide money. Factory Five was situated in an industrial park in Wareham, Massachusetts, and it had extra space, a 20-by-50-foot storeroom, which it gave to Local Motors. Smith also let Rogers pick two of his engineers, and Smith continued to pay their salaries as they investigated all sorts of things from 3-D printing to turning drawings into computer-aided designs to finding new materials that would pass federal safety tests. Finding willing investors was harder, and Rogers is still bitter about it. Venture capital is eager to fund “another corporate Twitter messaging service,” he complains, but LM hasn’t attracted a single corporate investor. Asked how many times he has been told by a potential investor that it is crazy to start a car company, especially in a recessionary economy, Rogers says “at least 400.” He now has 40 individual investors, who have put $12 million into the company. Half are friends and acquaintances.
By the time he set up shop in Wareham early in 2008, Rogers had a concept and he had seed money. What he lacked was a car. He hadn’t started the company with the idea that the cars would be designed by a community, but then he saw a presentation by Threadless, a T-shirt company whose designs are submitted by members of a web community, which then collectively selects the best ones to print on shirts. That got Rogers thinking about how community sourcing might work in the auto industry. As Rogers saw it, corporations had traditionally owned everything their employees produced, and most manufacturing was top down—by corporations for the consumer. But the internet had begun to change that. “The point,” he says, “is that the individual is really the one who could have the power.”
That is what he calls the “third industrial revolution,” after the first industrial revolution, which in the 19th century mechanized tasks previously done by hand; and the second industrial revolution, which in the 20th century ushered in mass production. The third industrial revolution would be digital, and it would birth an economy in which individuals, not corporations, made the decisions about what got made. In effect, the web is the new corporation, which is why LM exists as much online as in its micro-factory.
Web crowdsourcing is precisely how the Rally Fighter came into being. Rogers recruited CIO Tim Thomas to set up a website and invited designers to post their drawings there, where they could be seen and commented on by the LM staff, including Rogers, and other members of the community. To kick-start the site, he visited various design schools and invited students to submit sketches. As a further inducement, he launched competitions and offered prize money, with the winners chosen by a vote of the community. Rogers said he knew the concept would work when the winner of his first competition went online to praise a rival’s submission. They were communicating.
That rival was a Korean-born student at the Art Center in Pasadena named Sangho Kim. When Rogers began a competition to design an off-road vehicle for the Southwest, Kim’s submission, Rogers thought, had the sweep of a Japanese samurai castle. The community responded enthusiastically, and the design won. When Rogers decided it was time for LM to actually make a vehicle, he chose Kim’s design. Rogers admits the team was divided over which car to make, and in the best of all possible worlds the community would have had the final vote. But he felt the community had too few members at the time—roughly 20,000 post comments now, 200 of them daily—and that LM’s first vehicle had to hit a specific niche that no other car company was hitting. The community continued to weigh in, making alterations to the design and even to the engineering, protesting that the BMW diesel engine the company had selected would be too difficult to service in the desert. As a result, it instead chose a Chevy LS3, the engine that powers the Corvette.
From design to production wasn’t exactly an exercise in Henry Ford efficiency. In the first place, the Wareham storeroom was not big enough to make the car, so Rogers picked up the entire operation and moved it to a former recreation-vehicle showroom off the highway in suburban Phoenix, a location that fit the idea of an off-road desert car.
While it takes Ford, GM and Chrysler anywhere from five to seven years to design and manufacture a car, LM had the Rally Fighter ready in less than 18 months. Similarly, when the Defense Advanced Research Projects Agency, an arm of the Department of Defense, approached LM about designing and manufacturing a prototype for a military reconnaissance and recovery vehicle, LM produced the car in just over four months, after receiving 162 official submissions for the design. President Obama attended the unveiling, shook hands with Rogers and saluted all those who had contributed to the design.
That was the high point. The low point came in June 2011 when, after spending $3 million and producing 11 Rally Fighters, Rogers decided to shut down production. The community had suggested some tweaks he knew would improve the car—things like better suspension and a cleaner fit on the doors—so Rogers went to his investors and asked for $300,000. Board members Mark Smith and financier Tom Lehrman suggested Rogers ice the Rally Fighter and raise money by conducting more competitions with corporate partners. When he broke the news to his team, they were stunned—not that the board would propose such an idea but that Rogers would seriously entertain it. That shook him out of his daze. Instead of shutting down, Rogers repriced the car at $75,000 (it had been selling for $50,000), then went out and raised $2.7 million in two weeks to finance the design changes. In six months the Rally Fighter was back in production, but, Rogers admits, “it was wrenching.” During the downtime he had to fire the entire production floor.
When Rogers talks about his community, he fairly beams. To supporters and critics alike, the advantage of using a community is that you get thousands of ideas and critiques—the wisdom of the crowd—without having to pay for it (other than the $10,000 in prize money LM awards its winners). The winners have no financial stake in their designs unless the company actually makes them; they operate by the terms of the Creative Commons, a group that promotes open sourcing, making information freely available to everyone. Indeed, if this is the first community-sourced car company, it is also the first open-sourced car company. The Big Three don’t give their secrets away. All of LM’s specs are listed online, and anyone can make a Rally Fighter in his garage, if he has the wherewithal, without having to pay the company a dime. LM even provides a wiki that takes people step-by-step through the process.
But Rogers is convinced the third industrial revolution is not just about money. It is about happiness. What community members get, he says, is the satisfaction of seeing their designs realized if they win, an international community of like-minded people to provide support and feedback, professional online tools such as CAD at a nominal cost to make it easier to convert drawings into plans and the opportunity to showcase work in the larger design community. (Rogers is certain the site is monitored by traditional auto companies.) Victor Garcia, who submitted the winning design for the DARPA vehicle, is now working at the Peterbilt truck company, and Sangho Kim is working for GM in Korea. Kim’s name also adorns every Rally Fighter on a metal plate the way an artist’s signature identifies a canvas.