We Have Seen The Future Of The Auto Industry And It Is Software - InformationWeek
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6/1/2009
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Bob Evans
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We Have Seen The Future Of The Auto Industry And It Is Software

With the U.S. auto industry in shambles and the government transferring ownership of it to the autoworkers' unions, one analyst says the only salvation lies in retooling the entire car industry around the model of the IT industry: electric cars built with off-the-shelf hardware and differentiated by software.

With the U.S. auto industry in shambles and the government transferring ownership of it to the autoworkers' unions, one analyst says the only salvation lies in retooling the entire car industry around the model of the IT industry: electric cars built with off-the-shelf hardware and differentiated by software."We are already seeing hints of this today. Most auto companies have shared the development of the new breed of 6+ speed auto-trans hardware. But from the driver's perspective, some shift harsher or much too often. The difference is the software. Drivers would have no idea their cars share the same transmission hardware," says Michael Steinberg in a column on Seeking Alpha.

"Now take it to the next level where there becomes virtually no hardware differentiation between vehicles. And the complexity becomes balancing power consumption and recovery, and battery life. Performance is now driven by the sophistication of the controlling software, thus software is the new horsepower."

Now, I'm not exactly a gearhead -- I once thought I was treating my car to top-of-the-line motor oil when in fact I had gunked it up with a quart of transmission fluid. So I don't pretend to understand all of the intricacies of the combustion-engine model versus the electric model that Steinberg's touting. But I do know that by looking at this from a purely industry perspective, Steinberg is massively understating the difficulty of such a change, no matter how much sense his theory might make in a hypothetical sense.

Because industries serve at the pleasure of their customers, not vice-versa, and what if somewhere along this hyperevolutionary path, American consumers continue to show unwavering allegiance to internal-combustion engines versus electric motors? If the customer's always right, and the customer says he wants more choices than just electric cars differentiated by software, what happens then?

Well, a couple of years ago, this would have seemed like little more than an intellectual riddle. But today, with the Obama administration showing not just a willingness but an eagerness to become actively involved in the management of private industry, and with the leadership role it has taken in transferring huge portions of the ownership of Chrysler and G.M. from the private sector to the autoworkers' union, maybe this will be one case where the customer's not always right. And in which the new philosophy becomes an echo of Henry Ford's 100-year-old comment about choice of color: "You can have type of car you want as long as it's electric."

Should such a miserable day come to pass, then Steinberg's vision could prove to be a winner. As he says, "Readers could argue that auto parts makers have been squeezed hard by the assemblers, and many are already bankrupt. It can also be said the disk drive and memory manufacturers have lower margins than the box makers. But that misses the point that America does not have to focus on the commodity parts business in any industry. There is plenty of value adding profit to be made in the new auto electric motors, electronic controllers and most of all software."

So will we see a whole second childhood for the "Intel Inside" campaign? Steinberg it's inevitable, as the car industry goes the way of the IT industry and software becomes the center of differentiation:

Historically, America has been a nation of innovators, positioned in the most value adding parts of the food chain. We need to be less concerned about the low value adding assemblers and more focused on designing and building high value parts and very high value software. We do not need Ford , GM and Chrysler for America to make a lot of money and create a lot of high paying jobs in the auto industry.

Don't be surprised to see "Intel Inside" on Chevy's trunk lid.

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