Silicon Valley for the day

Jack Ewing has an article in The New York Times about the auto industry's fear of Silicon Valley:

Dieter Zetsche, the chief executive of Daimler, began a meeting with reporters at the Geneva International Motor Show on Tuesday by half-jokingly asking them not to spend too much time talking about Apple.
And at a news conference later, the first question for Carlos Ghosn, chief executive of the Renault-Nissan Alliance, was: what about Apple?
The scenes are an indication of how much Silicon Valley has set its sights on the car industry, and how companies like Apple and Google have intruded on what could reasonably have been expected to be one of the most cheerful industry gatherings in years.
Passenger car sales in the European Union have risen for seventeen consecutive months, a sign that the industry is emerging from a brutal slump, though sales remain far below the level of 2007. Cheaper gasoline has made driving more attractive, and the decline of the euro against the dollar and other major currencies has made it easier for European manufacturers to compete in foreign markets.
But there is palpable nervousness among automakers that the car industry could be next in line for disruption by Silicon Valley.
Apple and Google, which had no visible presence at the Geneva auto show (photo), are using their domination of smartphone operating systems to take over car dashboards, elbowing aside the carmakers’ proprietary systems. Someday, they or other upstarts could try to build entire vehicles. Apple has reportedly assembled a team of about two hundred people to develop technologies for an electric car.
Zetsche and other auto executives here were quick to point out the huge differences between making a smartphone and a car. Cars take seven years or more to develop and bring to market, compared with eighteen months or so for a new smartphone. A vast amount of engineering expertise is required to design a car that is safe as well as pleasant to drive. Auto manufacturing also requires a tightly coordinated network of suppliers. Unlike in the smartphone business, fabrication cannot simply be outsourced to a factory in China, at least not yet.
But it is clear that the technologies used to propel cars are in flux, even if electric cars account, so far, for only a sliver of the auto market. Software is playing an increasing role in helping drivers navigate and avoid accidents. Within a few years, cars will most likely be able to drive themselves, at least in standard situations like driving on highways or in stop-and-go traffic.
Zetsche said he thought it was good that Silicon Valley was showing an interest in the car business. “The convergence of automobile technology with the tech world is a huge opportunity,” he said during a meeting with a small group of reporters. Systems that take over much of the driving provide a new selling point and can improve safety. “I see it as only positive,” Zetsche said. But, he added: “it’s clear that new technologies can have a destructive quality.”
Ghosn agreed, saying it was refreshing that tech companies were interested in electric cars, an area in which the French-Japanese company Renault-Nissan has made major investments.
The risk for automakers is that these technology shifts will provide openings for new competitors to steal a share of sales. The sector does not want to follow in the footsteps of PC makers, which have been relegated to becoming mere platforms on which software developers run their wares.
Carmakers in Geneva said they did not rule out the possibility that new competitors could emerge, and acknowledged that some already had, like the electric carmaker Tesla. But they were skeptical that anyone would displace the established car brands anytime soon. “We always take competitors seriously,” said Norbert Reithofer, the chief executive of BMW. “Apple is a very strong brand,” he said, but “we know how cars are built.”
Whether prodded by Apple and Google or not, BMW is hiring more software engineers to work on technologies like autonomous driving. BMW, which has come through the European downturn with its profitability intact, can afford such investment. But it is an added burden for the midrange carmakers like Ford of Europe and the General Motors subsidiary Opel, which are still struggling to make money on the Continent.
While the overall market is growing again, and countries like Spain and Portugal are rebounding strongly, carmakers still have more production capacity in Europe than they need. And they have been hit by a severe slump in the Russian market caused by that country’s poor economic performance, the plunge in the value of the ruble, and political tension with the West.
“I’m not very optimistic in total about the European market,” Karl-Thomas Neumann, the chief executive of Opel, said during a meeting with reporters. The European car industry still has twenty percent more capacity than it needs, Neumann estimated. Underused factories are deadly for profits because they still must be maintained even if they are sometimes idle.
James D. Farley Jr., president of Ford’s business in Europe, the Middle East, and Africa, said that “2015 will be a year of financial progress” for the company. But he said Ford of Europe also faced headwinds, not only because of Russia but also because of low interest rates. While low rates reduce customers’ financing costs, they raise the price of providing benefits to retired Ford workers, because it is harder for the pension fund to earn an adequate return.
Some auto executives in Geneva found all the speculation about Apple’s getting into the car business a bit too much. “A car is so complex, inside and out,” said Gorden Wagener, vice president for design at Daimler-Benz, the maker of Mercedes cars. “A smartphone is fairly simple compared to that.”
While visibly annoyed to be talking so much about Apple, Wagener acknowledged that the technology company exemplified the challenge that automakers will have to overcome as they integrate ever more digital technology into their vehicles. “What’s the success of Apple? It’s simplicity and user-friendliness,” Wagener said. “The one who does it the best will succeed.”

Rico says this is reminiscent of the days when the buggy-whip manufacturers said that that automobile thing would never catch on...