Carmakers, Silicon Valley Tech Giants Compete to Shape Future of Driving

The Auto and Tech industries are becoming increasingly intertwined, however some still question whether or not IT companies will delve into full-fledged automobile production.

by Annika Graf and Andrej Sokolov, Deutsche Presse-Agentur, Hamburg, Germany / September 10, 2015
(TNS) -- The mood at this year's Frankfurt IAA car show (September 19-27) is upbeat again as carmakers celebrate their new models, but one thing is making auto giants nervous: the Web.

Carmakers face a digital revolution as Internet giants from Silicon Valley try to muscle in with new online services and driverless cars.

Google and others want a slice of the automobile cake and motor manufacturers risk losing control as buyers chose cars on the basis of high-tech componentry rather than shapely lines and shiny wheels.

"In the old days, the value-added chain was more straightforward. You had manufacturers, component suppliers and dealers," said industry expert Axel Schmidt from the Accenture management consultancy.

"What we are now seeing is an ecosystem that cannot be controlled by any one producer."

The ambitions of the IT companies are plain to see. Google has been working for years on technology for driverless cars and it has been busy testing a bubble-like runabout on U.S. roads.

The ride-hailing taxi service Uber, one of the wealthiest start-ups, is doing research into robot vehicles and Apple is said to be fettling its own electric car. Even Japanese electrical giant Sony is evaluating the production of a driverless road vehicle.

Captains of Germany's powerful car industry are aware of the risks these rivals pose: "The race to define the mobility of the future is very tough and no one has a sure-fire recipe for success," said Martin Winterkorn, head of Europe's biggest carmaker Volkswagen.

Car pundit Schmidt said he could imagine a scenario whereby manufacturers build the cars "with the brains coming from Apple or Google."

Many motor manufacturers have shown IT firms the cold shoulder or downplayed the risk from Silicon Valley.

Daimler boss Dieter Zetsche is an exception. He recently said he could envisage working with engineers from Google or Apple. Daimler would supply the automotive know-how and its partners the software.

Germany's leading car pundit, Ferninand Dudenhoeffer from Duisberg-Essen University, believes Google and Apple have no interest in full-blown car production. The profit margins in the car sector are simply not large enough.

Even premium makers like Daimler struggle to make more than a 10-per-cent profit on the cars they sell. Dudenhoeffer says this could change though and pointed to Californian-based electric carmaker Tesla which is posing a challenge to long-established names in the industry.

Big IT firms clearly have the funds for the huge investment carmaking would involve, but Schmidt has his doubts.

"Google is not interested in hardware. Google wants to establish mobility systems in all the big cities," said the man in charge of Accenture's automotive portfolio in Europe, the Middle East, Africa and Latin America.

A growing number of young consumers want to spend money on mobility rather than a car to call their own. For this reason Daimler, BMW, Volkswagen and Opel are keen on car-sharing and on developing apps which are not just aimed at owner-drivers.

Gaining access to the car occupants is the aim. Both drivers and passengers are customers for companies' products, said Schmidt.

"This is all going to be decided over the next three to five years," said Schmidt who sees rival software platforms battling for market supremacy.

Companies like Google and Apple already have millions of smartphone customers. "The one with the biggest customer base for a particular platform will dictate the terms, right down to prices and margins."

Not that carmakers will cave in without a fight.

"We do not want to be degraded to the status of suppliers just delivering hardware to third parties and with no direct customer contact," said Zetsche.

Daimler and Audi recently teamed up to buy Nokia's map service Here.

The deal is not just about maps for driverless cars. Carmakers do not want to hand over the cockpit controls. "This will be a manufacturers' platform, as an alternative to Google, Apple and any other players who might move in," said Accenture man Schmidt.

The market for mobile phones has shown just how quickly operating systems and apps can give a company a competitive edge. Facebook has also demonstrated how social media can open doors to new customer groups.

"We have come to realise that our business is no longer just about horsepower and torque," said VW boss Winterkorn in a speech earlier this year.

"Driving has gained a new emotional dimension," sad Dudenhoeffer. "We do not know exactly what, except that it has nothing to do with speeding through the turns with tyres squealing."

©2015 Deutsche Presse-Agentur GmbH (Hamburg, Germany) Distributed by Tribune Content Agency, LLC.

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