German auto companies put rivalries aside to take on tech giants
Germany's auto behemoths are cooperating with each other to fight back against tech companies encroaching on their territory. Is this pragmatism the beginning of an impending consolidation in the car industry?
"As pioneers in automotive engineering, we will not leave the task of shaping future urban mobility to others," Daimler boss Dieter Zetsche said as his company and arch rival BMW — the world's biggest luxury carmakers — announced the merger of their car-sharing and parking and charging services in March.
Zetsche was referring to cash-rich technology companies such as Apple, Google and Uber, which are making serious inroads in an industry that Daimler, owner of the Mercedes brand, BMW, and bigger rival Volkswagen have dominated for decades.
Read more: The future of driving is (almost) here
To fight back against the tech giants, German automakers are putting their rivalries aside and increasingly cooperating with each other to scale their less capital-intensive businesses. Daimler is reported to be in talks to buy a stake in VW's used car portal Heycar. The two rivals and BMW already own a majority stake in digital mapping service HERE.
"The automotive industry is struggling to afford its own future," Peter Wells, a professor at the Centre for Automotive Industry Research at the Cardiff Business School, told DW.
"While many in the industry have a vision of what the future might hold, the task of reaching that future is made much more difficult given the legacy starting position of the traditional manufacturers … In the end, pragmatism wins over brand identity or manufacturing loyalties," Wells said.
Need of the hour
To be clear, strategic alliances among rivals is not entirely new to the industry. Daimler built Volkswagen's Crafter large delivery van for a decade, Porsche and Daimler came together to build the E500 sedans and BMW sold diesel engines to Opel.
"As the differentiators of autos shift from 'mechanical' aspects [chassis, engine, etc.] to 'software'-based features [connectivity, user interface], the more the core capabilities of tech companies become a threat to automakers who have to build these skill sets rapidly themselves," Arthur Kipferler, of automotive consulting firm Berylls Strategy Advisors, told DW.
Auto companies will need to make big investments into new technologies especially for digitalization, autonomous driving and new mobility breakthroughs.
"In our experience, no single car manufacturer will be able to win in all of those future areas on their own," Klaus Stricker, automotive analyst at Bain & Company, concluded when talking to DW.
"We believe that the most successful carmakers will pick their focus areas and concentrate their effort, but at the same time establish strategic partnerships with leading companies, such as technology champions, traditional automotive suppliers or even other carmakers."
Kevin Hamlin, an independent automotive analyst, says that German auto companies were cooperating partly to control the currency of the future — data.
He gave the example of HERE's acquisition by the German trio.
"Data is a bigger catch-word in the industry than 'the Cloud,'" Hamlin said. "The data that HERE brings with it, especially for autonomous vehicles, is a treasure trove that the automotive industry did not want to fall into the hands of Uber, Google, Amazon."
Read more: HERE to tap big data for 'map of the future'
Kipferler says one needs to differentiate between "core enablers" such as a mapping service and a chain of charging stations and "wanting ventures" such as car sharing.
"The first category would not be possible without collaboration — whereas for the second category, collaboration is an attempt to improve an unsatisfying situation," he said.
Scale or a broad customer base is crucial in the "wanting ventures," most of which are yet to become profitable.
"The true competitor in that field is not your traditional competitor in the car industry. Your true competitors are the software and internet giants," Ferdinand Dudenhöffer, a professor at the Center for Automotive Research at Duisburg-Essen University, told DW.
Can rivals work together?
Strategic alliances involving auto industry rivals have had a mixed track record.
French carmaker Renault and Japan's Nissan have been in a partnership for nearly two decades reaping rich dividends in their respective markets. General Motors and Suzuki shared a three-decade alliance that ended only when the US auto behemoth sold its Suzuki shares to stave off bankruptcy.
But Suzuki's next joint venture with Volkswagen barely lasted two years. The Japanese company accused its German investor of infringing on its independence. VW said Suzuki had violated the partnership agreement by agreeing to an engine deal with Italy's Fiat. The DCX alliance between DaimlerChrysler and Mitsubishi also saw a similar fate.
"One precondition is to establish a win-win partnership, meaning that they are both better off versus the situation before," Bain's Stricker said.
"But they also need to overcome significant cultural hurdles, to open up and work closely together with companies they are competing with in traditional business."
Daimler is clear about just how far it's ready to go in joining hands with its rivals.
"What distinguishes us from the competition, we want to have in our own hands," a Daimler spokesman told DW. "In other fields, we are increasingly cooperating. Cooperations have to make sense for both partners."
Ripe for consolidation
Analysts have long viewed the automotive industry as being ripe for greater consolidation. But it has failed to happen at the pace and scale at which they have predicted.
Hamlin says he expects to see more cooperations and mergers going forward, adding that there is no room for small companies or individual players in the new age of electrified vehicles and autonomous driving.
Read more: Toyota, Uber join forces to push autonomous driving
Renault and Nissan have set a two-year deadline to decide on a possible merger, Bloomberg reported in July.
"The capital intense nature of the industry and automakers' low return on invested capital is a more effective motivation for more collaboration or even mergers," Morningstar analyst Richard Hilgert told DW.
Dudenhöffer says the alliances are the "starting point of a new world of mobility that is far more than just cars."
"It's like the big bang — nobody knows what the result would be in 20 years, however, everybody seems to be prepared to win claims."
Germans are as attached to their forms of transport as the English are to their monarchy. No wonder: Gottlieb Daimler invented the modern car; Nicolaus August Otto co-invented the internal combustion engine. Every child knows the brands Daimler, BMW, Audi and VW, and that motorways were first built in Germany. But transport systems will become greener and more flexible, traffic researchers say.
Since 2008, more people live in cities than in rural areas, and that trend is increasing. Urban zones will become CO2-neutral, climate-adapted, digitized and automated, Fraunhofer Morgenstadt Initiative researchers say. Networking will encourage more efficient means of transport, the sharing economy will catch on, mobility will become a service. No more need for your own car.
With worldwide networking possible via the internet, cities and traffic systems can be coordinated. This could mean automatically switching traffic lights according to the flow of vehicles. Sensors could transmit data and prevent vehicles from hitting each other, thus avoiding accidents. Servicing, maintenance, insurance and parking meters may become unnecessary.
Will Amazon, Google and others become the new carmakers and put the drivers in the back seat? Interesting question — although self-driving cars have recently been dealt a setback. Testing at US company Uber was suspended after a self-driving car ran over a woman by night.
Today the streets are clogged, lights are red, you're stuck in a traffic jam, going to miss that appointment. Car horns, anger, insults: that's stressful. But rage and provocation could become things of the past if self-driving cars become the norm. Then, passengers can sit back and laugh about the old days.
Order your ride or taxi by app. Public and collective transport is increasingly being organized via the internet. You can even pay for the service through your smartphone.
The car's future is electric, that seems to be the consensus; the only question is, when? Despite investing billions into e-cars, there's a lack of options and sites for charging electric vehicles. Together with high costs, consumers are concerned. Alternatives to e-cars could fill the gap: fuel-electric hybrids, and other vehicles powered by hydrogen or synthetic fuels.
Postal workers are climate-friendly when they deliver letters by foot or bike, but for parcels they need vehicles. Deutsche Post (DHL) and Aachen Technical University have invented the CO2-free StreetScooters, powered by renewable energy. One of the challenges of the future is to make sure the electricity used in electric vehicles is also climate-friendly.
It looks a little like a Smart car, but it's actually an e-bike on four wheels. The Podride is 1.8 meters (6 feet) long and has a closed cab with a comfy seat. It travels file on snow and ice, it's heated, it can manage steep and uneven slopes, and there is even storage space. The driver steers by way of two levers at the seat and pedals to power the rear wheels with help from the electric motor.
From many clever minds comes a clever idea. A dozen companies are developing personal aircraft. This rocket-like Vahana flying car prototype from Airbus is designed to beam a passenger along at 9,150 meters (30,000 feet) altitude, reaching speeds of 480 kilometers (298 miles) per hour. Battery swaps would be like Formula 1 pit stops: quick landings, and on you go.
The Bauhaus Luftfahrt association is developing an airport and aircraft concept. The Ce liner would be power by two electric engines with aerodynamically efficient C-shape wings. Inner-city airports of the future would be arranged over several levels to save on space, with lift-off from the top level and battery charging on lower floors.
The Swiss mountain village of Stoos boasts the steepest cable railway in the world. It rises up 744 meters in altitude as it travels 1.7 kilometers in just four minutes. The village has 150 permanent residents, but 2,000 hotel beds for visitors to come and enjoy the view in the car-free resort. Maybe someday the Himalayas will have a similar system?
Can you imagine the world without your own car? Until now, the car has represented prosperity and independence. But experts see mobility as becoming smart in the near future, with cars being used by multiple users and forming just one part of a range of mobility offerings.