The battle for automotive: Detroit vs. Silicon Valley
Weighing tweets against torque, Jenny Neill investigates which sector and region represent the future of automotive in North America.
The cars being designed today will be driven by digital natives. With hashtags outstripping horsepower and twitter overtaking torque, we debate whether Silicon Valley or Detroit represent the future of the automotive industry.
Six industry experts discussed this question at the Content & Apps for Auto USA 2013 Conference and shifted its frame a little. To them, the biggest challenge facing automakers in their efforts to give millennials the cars of their dreams is one of mismatched product development paradigms. Rather than picturing a cage match in which Californian innovations square off against Michiganian mechanical ingenuity, the real culture clash is between the engineering nimbleness of the “new school” versus the deliberation of the “old school.”
Development dissonance aside, automakers stole the show at the International Consumer Electronics Show this year. Demonstrations of automatic-parking and traffic-assist features from BMW and Audi wowed attendees. Less dazzling perhaps but no less buzzworthy were announcements like that of Google’s Open Auto Alliance and its founding members—a who’s who of automakers looking to dominate the connected car space. That was the first of several allegiances revealed at the event. All this “co-opetition” aims to put OEMs on equal footing with consumer technology giants.
A fear of losing market share is behind moves by car companies to compete toe-to-toe with the likes of Google and Apple. Ford had already made significant investments when it opened its Silicon Valley Lab there in 2012 and is notalone in having California teams in place. Mercedes has 35 developers in Sunnyvale and one of BMW’s three app centers is literally in Google’s backyard in Mountain View.
Yet, in the race to getting connected cars on the road, important safety and business-case questions remain. Where the success stories will come from is as yet unknown. Motor City moving some of its talent to the “Left Coast” does not mean that OEMs are abandoning the Midwest. With the market and standards still taking shape, research and development facilities near Detroit have a role to play.
Still, can anyone still doubt that automotive companies need to look beyond Michigan to create the car of the future?
Cars won’t ever be 100% “new school”
Silicon Valley is known for birthing new consumer and information technology markets. There, products can be thought up, programmed, and prototyped so quickly because the business ecosystem includes young talent, deep pockets, and a culture of multi-disciplinary collaboration. Mistakes happen, but they tend to be fleeting. The ability to iterate rapidly and to get near-instant feedback from a community of users enables this. Move fast and break things. This is the antithesis of what the OEMs are about.
Yet, this speedy approach does not work with cars. Auto manufacturers may have mastered the streamlining of production lines once a car has been designed and certified. But, with many layers of suppliers involved, the design process itself still takes years. According to Steffen Neumann, a project manager for Mercedes-Benz, the norm is that specifications get locked down three years before a new model gets released.
Marc Weiser, founder and managing director of RPM Ventures, summarized why: “The first time you stick something in a car and people start having accidents—they’re interacting with something like Facebook, Snapchat, or Twitter from their dashboard when they have that crash—are they going to sue Facebook? No. They’re going to sue Ford, GM, Toyota.”
That’s reason enough for automakers take the time needed to fully vet a model before introducing it to market. Neumann affirmed that Mercedes-Benz puts its in-development vehicles through analysis and quality assurance above and beyond what most governments require in part because each regional market’s requirements vary.
Even with research and development facilities emerging in other North American regions, none can compete with the automotive vehicle-testing centers in Michigan for safety testing. One such example is the Transportation Research Institute at the University of Michigan (UMTRI). For over 50 years, UMTRI has been involved in conducting automotive safety research.
Sven Beiker, the executive director of the Center for Automotive Research (CARS), an industry affiliates program at Stanford University, said, “I don't foresee that GM, Daimler, Toyota, Hyundai, or whoever, is going to do their engine development in Silicon Valley or have their crash testing in Silicon Valley. I profoundly believe we will need crash-worthiness of vehicles for quite some time, despite all this talk about automated vehicles, and we will also needa combustion engine for the foreseeable future despite, all the talk about electric vehicles.”
Same boat on building a business case
Though each region may continue to excel in its particular specialty, all technology companies looking to gain traction with new infotainment and telematics-based features share a common problem: guessing which combination of consumer electronics integration in the vehicle will get consumers to buy.
Market research continues to report confusing findings about what car buyers want. A recent Accenture study found that over 39 percent of the 14,000 drivers surveyed indicated in-car technology is important when deciding to purchase a car. Consumers reported a similar level of interest in using emerging features like vehicle health reports and management services.
But what do people who already own Hyundai vehicles with Blue Link available to them say about using such services? More than 40 percent have never used them. Another data point lends more weight to growing evidence that customers want telematics but only if it is part of the price of the car: More than half surveyed expected the new services to cost nothing.
Understanding the complexity of demand is the tip of the iceberg when it comes to figuring out the whats, whys, and whens of getting connected cars to market. Beiker opined, “When I went to engineering school almost 25 years ago, I was convinced that really pure mechanical engineering was the best entry to become an automotive engineer. Now, I would suggest someone should work in what I’d call mechatronics.”
Adam Richman of ESPN, Ty Roberts of Gracenote, and Geoff Snyder of Pandora each weighed in on how complexities within the information technology sector itself contribute to uncertainty about how the market for connected cars will evolve. Apple wants to provide the top operating system of the dashboard with its iOS in the car. Google too has taken aim at owning the head-unit infotainment experience with its Open Automotive Alliance, which will enable tighter Android phone integration in vehicles.
But, carmakers are clearly hedging their bets. Most are working with both Silicon Valley giants and a variety of other players involved in creating mobile-device integration tools for the aftermarket.
Other uncertainty abounds. Much has been made of market research that shows younger adults not buying cars at the same rate as previous generations. In the United States, many factors likely contribute to this trend. Of course, some analysts believe that as millennials gain in earning power, with many later settling down to raise families, this trend will fade away.
Dave McNamara, president of McNamara Technology Solutions LLC in Saline, Mich. stated, “I suspect that overall automotive numbers are going to take a hit. I don’t necessarily think there’s any amount of technology that you can throw at a car that will rescue those numbers completely. You might stem some of the damage, but I don’t think that you’re going to completely turn around the problem.”
From where will the winners emerge?
In general, analysts are bullish about the market for the next generation of cars worldwide, including autonomous vehicles. And OEMs are not limiting themselves to looking within the United States to innovate.
Andy Gryc, senior automotive product marketing manager at QNX, noted, “Smaller players are distributed worldwide. You tend to find interesting pockets of them in Israel, as well as the Netherlands, China, and Japan. But overall, most of that activity probably still happens within the States, or within Canada as well.”
Weiser reported, “Another [area] I’ve been paying attention to is Seattle. Everything from the big players like Microsoft to guys like INRX to some of the guys playing in the 3G side of ODB2 (on-board diagnostics). There are a tremendous number of players in Seattle who are engaging in the connected car space across the value chain.”
Some still favor areas with a longer history in automotive development. “It’s a little too early to say [where the nexus will be] but definitely Michigan is making a very big play,” said McNamara.
Still, increasing numbers of Bay Area players keep signing up for Stanford’s CARS. Beiker reported the program started with six founding members. In just five years, the number of companies who shell out $32,000 to become affiliates has grown by 400 percent.
Asked which regional style would open up the connected cars market someday, Weiser stated, “It’s got to be Detroit and Silicon Valley together. It has to be both. It’s not mutually exclusive. If they don’t cooperate, it’s not going to happen anyhow. And by the way it’s not just Detroit. I’d say it’s Detroit and it’s Osaka and it’s Munich.”