Archive for March 2016

GM buys Cruise Automation in a bid for autonomous driving

GM buys Cruise Automation in a bid for autonomous driving

GM buys Cruise Automation in a bid for autonomous driving

As it plunged toward bankruptcy in 2009, General Motors Co. was slammed for its reluctance to change.

Now, with the auto industry speeding toward a point where cars drive themselves, the automaker is trying to get ahead of the curve.

On Friday, GM said it acquired Cruise Automation, a 40-person software company in San Francisco that has been developing autonomous-vehicle technology.

GM plans to use Cruise technology to gave autonomous capability to its vehicles, though probably not in existing models.

The deal marks Detroit’s latest foray into Silicon Valley.

Also Friday, Ford Motor Co. announced the creation of Ford Smart Mobility, a subsidiary focused on designing, building and investing in such things as connected vehicles and autonomous technology.

Two months ago, GM bought the assets of Sidecar Technologies Inc., a San Francisco ride-hailing company, and invested $500 million in the ride-sharing service Lyft. GM and Lyft plan to collaborate on a service that will allow users to reserve a self-driving car.

Founded in 2013, Cruise Automation is best known for its software that gave autopilot capabilities to conventional cars, said Kyle Vogt, company founder and chief executive. About a year and a half ago, the company switched its focus to fully driverless technology.

Cruise said it is one of the few firms that has a permit from the California Department of Motor Vehicles to test self-driving vehicles on public roads.

“We share a common vision with GM for how autonomous vehicles will change the world,” Vogt said. “We were already on that path, and we remain on the path.”

Financial terms of the deal were not disclosed, and Vogt and Kelly said they would not comment on “speculation” about the price tag. ReCode and Fortune quoted anonymous sources as saying the price was at least $1 billion.

GM said Cruise would continue to operate in San Francisco, but would function as an independent unit within the automaker’s newly formed autonomous-vehicle development team.

“Cruise provides our company with a unique technology advantage that is unmatched in our industry,” Mark Reuss, GM executive vice president, said in a statement. “We intend to invest significantly to further grow the talent base and capabilities already established by the Cruise team.”

The Sidecar and Lyft investments — and GM’s launch in January of the Maven car-sharing service, which allows users to reserve and unlock vehicles with their smartphone — indicate that the company wants to quickly integrate new technology.

“GM is actually investing in products that are already developed, so they’re not inventing from scratch,” said Rebecca Lindland, a senior analyst at Kelley Blue Book. “It makes sense, saves money and also potentially speeds up the adoption rate and the technology and integration.”

Technology is now the biggest difference between vehicles because their quality, durability and reliability are more or less on par, said Ed Kim, vice president of industry analysis at market research firm AutoPacific.

The best example of a seamless blend between technology and autos is Tesla Motors Inc., he said.

“Elsewhere in the automotive industry, you’ve got automakers trying to interact with tech companies, but Tesla is, by its very nature, both,” Kim said. “It’s certainly a driving force in getting the traditional automakers really thinking about the future and … how technology fits into the future of the automobile.”

That future poses a threat to the traditional carmakers’ sales models.

“As autonomous vehicles become more and more widespread, especially in urban areas … we’re looking at a potential future where car ownership may decrease,” Kim said. “This does have some very big potential and far-reaching implications in the sense that this will definitely have an impact on future auto sales volumes.”

GM and Ford have been ramping up their presence in Silicon Valley.

Ford said its new Smart Mobility subsidiary will function as a start-up and will have operations in Palo Alto and Dearborn, Mich.

In January 2015, the carmaker opened a research center in Palo Alto dedicated to advanced automotive technologies, such as autonomous and remotely piloted vehicles.

In December, Ford received a permit to begin operating a driverless car on public streets.

Compared with Ford and GM’s tepid interest in alternative energy vehicle development in the 2000s, this time seems different, said Jessica Caldwell, a senior analyst at Edmunds.com.

“There’s more visibility in this issue,” she said. “All of this is very buzz worthy, where if you made a push toward improving fuel efficiency … it wasn’t really as interesting back in 2007. I do think they’re being more proactive with this issue.”

 

Millennials Are Finally Arriving in the Car Market

Milleniums are arriving

Millennials were once a source of panic in the auto industry. Dubbed the “go nowhere” generation, they weren’t getting driver’s licenses, never mind buying cars. Headlines declared it was “The End of Car Culture.”

New data suggests at least some of that worry was misplaced. Millennials — especially the oldest ones — are these days buying cars in big numbers. They just had a late start.

Now the largest generation in the U.S., millennials bought 4 million cars and trucks in the U.S. last year, second only to the baby boomers, according to J.D. Power’s Power Information Network, which defines millennials as those between 21 and 38 in 2015. Millennials’ share of the new car market jumped to 28 percent. In the country’s biggest car market, California, millennials outpaced boomers for the first time.

Industry watchers say it’s been hard to get a read on millennials because the generation is big and diverse, ranging from recent college graduates to settled-down suburbanites. Automakers were also unsure about the impact of new transportation choices, like ZipCar and Uber, which helped millennials delay car buying. But as they got jobs and started families, millennials headed into car dealerships just like previous generations.

“This whole idea that they’re not going to need cars is absolutely ridiculous,” said Steven Szakaly, the chief economist for the National Automobile Dealers Association. “The new car buyer age is just happening much later.”

It’s a very different story from 2010, when millennials — who make up around 30 percent of the population — bought just 17 percent of new cars. Auto executives wondered aloud if the trend would be permanent.

In 2011, a University of Michigan study showed a steady decline in the number of young people getting their driver’s licenses. In 1983, the survey found, 87 percent of 19-year-olds had a license. By 2010, that had fallen to 69 percent. Millennials told the study’s authors that they were too busy to get licenses and were happy to hitch rides from others.

But there was more to the story. The advent of graduated licensing laws — which make teens practice driving in stages before granting a full license — was one reason millennials were getting their licenses later. An even bigger reason? The economy.

For many millennials, the Great Recession hit just as they were getting their first job or graduating from college. By 2010, millennials’ unemployment rate reached 13 percent — four percentage points higher than the national average — according to a report by the White House Council of Economic Advisers. For teens, things were even worse. The teen unemployment rate rose from 15 percent to 26 percent between 2006 and 2012.

Millennials’ unemployment rate has improved to around 8 percent. Add low interest rates and low gas prices to the mix and the car market suddenly looks more enticing to young buyers.

Lucy Mueller, 26, lived in Los Angeles for eight years without a car. She took buses and trains, hitched rides with friends and used ride-sharing services like Lyft. Her commutes lasted more than an hour each way. Finally, last July, she bought a slightly used 2015 Fiat 500.

“Now that I have a car, it’s almost bewildering to me. I feel like a grown-up,” said Mueller, a project manager and video producer for financial software maker Intuit.

Several things kept Mueller out of the car market. She didn’t have a credit card until a year ago; without any credit history, financing a car would have been difficult. Also, like many recession-weary millennials, Mueller wanted to avoid accruing debt, so she saved enough for a substantial down payment.

Szakaly says it will take millennials another four to five years to match the spending power of boomers. According to government data, the median household income for people ages 25-34 is $54,243. For those ages 55-64, it’s more than $60,000. In addition, the average 25-year-old has more than $20,000 in student debt, according to Goldman Sachs. That’s enough to buy a new Kia Optima sedan.

Bret Hyde, a cameraman with Access Hollywood in New York, waited until he was 37 to buy his first car. He and his wife used to rent ZipCars or take buses to visit friends and family. It was tiresome and expensive, he said, but there wasn’t much parking in their old neighborhood. After moving to a new neighborhood and renting a garage last spring, the couple bought a 2015 Nissan Rogue SUV.

Sheryl Connelly, a futurist with Ford Motor Co. who studies buying trends, said even as millennials start buying cars in bigger numbers, their attitudes are different than previous generations. Owning a car and getting a driver’s license aren’t the milestones they once were, and that may be a permanent change.

“The sense of freedom and independence that used to come with getting a vehicle has been arguably displaced by the cellphone,” she said.

Automakers have taken note. They’re improving in-car technology to make it easier for young drivers to stay connected to their friends and music while they’re driving. They’re forming partnerships with ride-hailing and car-sharing services and conducting mobility experiments of their own. And they’re ditching things that don’t appeal to millennials. Toyota Motor Corp. is axing its youth-oriented Scion brand, for example, after finding that millennials prefer the Toyota brand.

“Millennials are going to be the main generation we will cater to as an industry,” says John Humphrey, J.D. Power’s senior vice president of global automotive operations.