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Why Google and Ford could be teaming up

They don't need each other, but they could use the help

If early reports prove true, Ford and Google will announce the development of a self-driving car initiative at the Consumer Electronics Show in Las Vegas early next month, a mutually beneficial partnership that could provide a blueprint for the next shift in the transportation industry.

Yahoo Autos reports that the two companies are creating an independent joint venture, a structure that protects Google and Ford from potential liability, to produce self-driving cars. It’s said to be part of a non-exclusive deal, meaning that Google could partner with other automakers as well. In recent weeks, both companies have been making news that could support this pending announcement. Google has been reported to be creating an Alphabet company to house its self-driving car research. Last week, Ford received approval to test autonomous cars on public California roads, where Google’s efforts have been focused.

What gives Google an edge is that it isn’t a car company

Google’s self-driving car program on public roads has helped it carve out its reputation as the breakout leader in a transformational technology that will fundamentally reshape the way we get around in the decades to come. It’s logged over 1 million miles of self driving on public streets in California and Texas. While Google is not the first to pilot autonomous features, its Silicon Valley roots have helped foster the perception that it’s poised to leave the legacy car industry titans behind. What gives Google an edge is that it isn’t a car company: it’s unencumbered by customer perception, dealer networks, and the politics that are indelible parts of the auto industry. Google can essentially afford to play and experiment in this space, which is exactly what it’s been doing for years. In doing so, it’s been able to develop software without being bogged down by the brutal economic realities of the auto industry and a customer base that’s wary of too much technology.

But in reality, taking the next step in the car business is not so straightforward — and Ford has much to offer a company like Google, if it wants to create a viable product based on its treasure trove of real-world driving data. So far, self driving has been a research initiative for Google with no demonstrative profit. Google lacks the traditional auto industry infrastructure to manufacture cars at the same speed that it produces software and services. By working with Ford, Google gains complex manufacturing, quality, safety, and environmental regulation know-how that dates back to Henry Ford’s invention of the assembly line. While Tesla’s efforts to work outside the traditional dealer model have punished its ability to consistently sell cars everywhere that it wants to, Ford’s expansive dealer and sales networks are already in place. And Ford is the second-largest automaker in the US and the fifth largest in the world; with 70 manufacturing plants worldwide, its sheer potential for volume is a lucrative asset.

It’s also notable that both Ford and Google have already started expanding to each other’s territories. While Ford has opened a Silicon Valley research center in Palo Alto, Google has expanded its Detroit-area offices this year as well, where Ford, GM, and Fiat Chrysler are headquartered, along with many of the industry's tier one suppliers and universities that specialize in automotive research. Nissan has kept its US research and development facilities headquarters in the area for this reason.

Before the report of the partnership broke, I spoke to Michelle Krebs, a senior analyst at Autotrader, who essentially predicted the viability of this kind of pairing. "The traditional automakers are clearly doing a lot of research and development and have been doing so for a long time on all kinds of electrification, autonomous features, and connectivity long before Apple and Google were interested," Krebs said. "But Google and Apple are clearly interested in now getting in the car business. I think what they are interested in ultimately is supplying what goes in the cars — not getting into the whole car business of running plants and logistics around all that and dealing with regulatory issues and safety. The auto business is not a high margin business. The electronics business is a very high margin business."

Ford has much to offer a company like Google

If the announcement does happen at CES, this partnership has probably been in the works for some time. Car companies tend to keep a tight lid on advanced product development. Last year, Ford managed to unveil the new Ford GT supercar at the North American International Auto Show without any substantive leaks. It took great pains to keep the development process under wraps, spearheaded by a small team of engineers and designers in a secret facility. Like all the major car companies, Ford has been testing autonomous technology for years and has the test facilities to do so far away from the public eye. Yet too often what’s dreamed up in the labs doesn’t make it into production, thanks to regulatory concerns, cost, or technological constraints. Ford and other automakers might be able to build autonomous cars, but could lack the fluid organizational structure necessary to integrate them across the product lineup, or to find the best business models for them.

Google's self-driving car prototype

So what Ford could gain from a company like Google is the lean versatility to operate at the pace of a tech company, where development moves and iterates faster. And this partnership would be part of a running trend for Ford: it’s been aggressive in recent years in its push to recast itself as tech leader, going back to its partnership with Microsoft to introduce Sync. While Sync wasn’t ultimately much further ahead than its competition, it marked a dramatic shift in the way Ford presented itself. That shift continued earlier this year with the opening of Ford’s Silicon Valley office. And this year, it has steadily unveiled more tech initiatives, including last week’s announcement that it’s gearing up to increase its electrification efforts. It has also recently touted its partnership with Techstars Mobility in Detroit, another effort to create a startup culture around transportation.

Ford also stands to gain by drawing in forward-thinking players. It has touted the growth of its intellectual property and is keen to draw more talent to its ranks — and above all else, get there first. This competition is classic Detroit, dating back to the heyday of the Big Three brands, and what still fuels local pride. In recent years, some of the auto industry’s most promising young talents have gone to Tesla and Faraday Future, among other Valley destinations. Ford needs to invest in its perception to woo employees.

Of course, it also makes sense that Google would also want to take this leap. Former Ford CEO Alan Mulally joined Google’s board last year. Mulally, once an outsider from the aerospace industry, earned the respect of Ford employees and is credited with turning the company into a financially healthy contender. He retired from Ford in 2014, but considering the wealth of knowledge about the industry that he built during his time there, it makes sense that he would be instrumental in putting this deal together. In addition, several former higher-ranking Ford employees — including John Krafcik, who now heads self driving for Google. "It’s daunting to set up a car company," Krebs said to me. "That’s the reason Tesla is the only one who’s done it [recently]. It’s a hugely capital intensive business, where tech is not."

"[Automotive is] a hugely capital intensive business, where tech is not."

Ford also recently announced a program to create a ride-sharing business for its employees that could serve as a model for a tech partnership, while Bloomberg reported that Google could be considering ride-sharing services in well-defined areas, like college campuses. It seems like for the foreseeable future, small, contained environments are the low-hanging fruit for self-driving car fleets, and a fleet business would be a great place for a Ford-Google joint venture to start. After all, before Uber, the Lincoln Town Car and the Ford Crown Victoria were ubiquitous black cars and taxis.

None of this is to say that Ford is necessarily the only car company involved with Google; in the long term, it could take on a role that mirrors traditional auto industry suppliers like Bosch, Delphi, and most recently Mobileye, which produce parts used in dozens of makes. Maybe Alphabet eventually wants to print its logo on cars made by Ford, Fiat, Ferrari, and everyone in between. (Google’s current self-driving cars are already assembled by Detroit mainstay Roush Industries, maker of custom Ford Mustangs.) But at a moment when self-driving hype is at a high, it certainly doesn’t hurt Ford to be first out of the gate.