Companies like Google and Apple are poised to enter the car industry but may be biting off more than they can chew, according to former GM CEO Bob Lutz. According to the longtime industry executive the large capital investments for manufacturing plants and the possibility for huge liability expenses create a significant barrier to entry, even with the size of cash reserves possessed by both Google and Apple.
Lutz stated, “I think, like so many Silicon Valley techies, that they believe they are smarter than the world’s automobile business, and that they will do it better. No way.”
With newcomer Tesla yet to earn a profit selling cars and recently being called out by Consumer Reports for poor product quality, Google and Apple may go the route of supplying technology to existing car makers, rather than creating their own finished product.
Google, in what could be considered brash optimism, has already stated that its end goal is not to be in the business of building robotic vehicles—its current fleet of autonomous cars are merely to develop the technology.
Yet this strategy would be the same as used in its Android smartphone operating system - a strategy that has seen phone manufacturers reduced to commodity status and the majority of the industry profits go to one player - Samsung.
This fact is not lost on the automobile industry, which has been very careful to avoid giving Google any control over its vehicles.
Google spokeswoman Courtney Hohne stated, “We have enormous respect for the expertise of the automotive industry and how big and complex a job it is to manufacture a vehicle. We’ll partner with many different companies to bring this technology into the world safely.”
The quicker Google can implement a workable autonomous driving system, the sooner that former drivers can spend some of their time on the road with their mobile devices, generating more ad revenue for the search engine company.
Google would still be on the hook for liability costs around self-driving systems, but the company claims that of all the accidents involving its fleet of test vehicles that its self-driving vehicles none of them were the car’s fault.
Apple CEO Tim Cook has not issued any statements that an Apple car is in the works, yet the company is testing prototypes at an elaborate test course in California. Publicly the company has showed interest in creating an “iPhone experience” for drivers. The company’s current car software, CarPlay, allows drivers to communicate by voice with their iPhones.
As global sales of mobile devices have slowed, cars present an opportunity for both growth and innovation for Apple. The company would have to reignite consumers’ love affair with the car in order to produce larger profit margins than those typical for the industry, a goal which bucks the trend of declining interest in vehicle ownership and fewer miles driven.