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Wednesday, September 12, 2007, 01:00 pm PT (04:00 pm ET)

"iCar" unlikely to materialize for several years - report

A rumored partnership between Apple and Volkswagen to develop an "iCar" with iPod connectivity could benefit both companies enormously but is unlikely to yield an actual automobile for three or four years, according to market intelligence firm iSuppli Corp.

Speculation about the iCar was spurred by a recent meeting between Apple boss Steve Jobs and Martin Winterkorn, chief executive of German automaker Volkswagen. However, it's unknown whether the two actually discussed an iCar, or if it was merely a meeting regarding cross-functional leverage opportunities for each company.

Assuming the conversation did concern an iCar, each company could potentially benefit enormously from the pact, iSuppli claims. For Apple, it would present an opportunity to extend its iPod ecosystem into the automotive realm, and for Volkswagen, it would deliver an assured hot seller.

Already, rumors of an iCar have generated significant caché for Volkswagen — a Google search of the phrase "VW + iCar" yields more than 2 million entries, iSuppli said, which begs the question of how much interest the concept would spur if it translated into an actual product introduction.

One of the major challenges to the success of a potential Apple/Volkswagen iCar collaboration would be the vastly different cultures of the two corporations.

"Although the old cliché says ‘opposites attract,' the cultural divide between Apple and Volkswagen may be too wide to bridge," said Richard Robinson, principal analyst, automotive electronics, for iSuppli. "Apple is a highly innovative and dynamic consumer electronics company that generates significant profits from living off its wits and supplying niche markets with the next big thing in music players, mobile phones and personal computers. VW, on the other hand, is from an entirely different tradition: the more conservative world of automotive, with its solid four-to five-year development cycles, tight margins and production-standard compliance requirements that would bring even the most enthusiastic designer from Cupertino to his knees."

Still, iSuppli notes in its report that Volkswagen is not unusual in its conservatism, as automakers have a generally cautious approach to design and development — a philosophy forged in the fire of a thousand product recalls. With rising electronics, silicon and software content in vehicles, all of which can fail at any time, automakers probably are justified in maintaining their cautious stance regarding new technology offerings, according to the firm.

"[V]ehicle manufacturers are not interested in the next big thing and instead are focused on producing solid, tried and tested products that will be reliable for years," Robinson said. "While consumer-electronics warranty returns might eat into a company's profits, automotive recalls are the stuff of nightmares in a car industry that operates at the very margins of profitability."

iCar
"If your iPod fails, it's your problem, and you must shell out a meager $120 to buy a new one — which is okay because you probably wanted to get the latest model anyway," he continued. "However, if your two-year-old car's built-in infotainment system fails while driving in 20-below temperatures on an Alaskan highway, it's not your problem — it's a problem for the company that sold you the car and it must bankroll the repairs."

Unlike consumer electronics makers such as Apple, automakers must bear the responsibility of product failures throughout a car's entire warranty period, which typically lasts three to five years. Therefore, iSuppli believes that, while it's in the consumers' interest that popular devices such as the iPod and iPhone get integrated into their cars' automotive infotainment systems, the cultural shock of a consumer-electronics company being forced to support products for up to 10 years after start of manufacturing will probably be the undoing of the idea.

"While Volkswagen would expect a car manufactured in 2007 to be perfectly serviceable 10 year later, does anyone seriously think the current iPod and iPhone ranges will be anything more than museum relics a decade from now?," Robinson added.

And if indeed Apple and Volkswagen do team on an iCar, consumers shouldn't expect to see it this year — or even next year, according to Robinson. Based on standard automotive industry practice, even if Apple and VW press the 'Go' button today, it is highly unlikely that the first iCars would roll off the assembly line until at least 2010 or 2011, he said.

Still, there's big money to be made if and when an iCar finally materializes. Even with total automotive "infotainment segment" set to break through the $50 billion mark in 2012, the car remains a very large— and largely untapped — captive market. Car production is rising at a steady 3 percent rate, according to iSuppli, but the automotive infotainment market will expand much more quickly, rising at a Compound Annual Growth Rate of 8 percent from 2006 to 2013.