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As a car-focused CES ends, why does Detroit still matter?

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With an intensely automotive-focused CES 2016 coming to a close, the show cars are being polished and prepped for the North American International Auto Show (NAIAS) that opens this coming week in Detroit. Once two trade shows that seemed at odds —  CES ascendant, NAIAS in decline — the shows seem to have morphed into a one-two punch driving home the same message: cars aren’t going away.

That’s not to say that CES and Detroit are in perfect harmony, and in the dissonance we find a host of questions that will need to be answered in the coming years. Who who will own cars, who will drive them, and who will we pay to make them? Will Uber take over the global auto industry? Will Apple seriously make a car? Will Ford become a supplier for Google?

There are signs that the deep divide between the traditional auto business and startup culture has recently begun to erode. In metaphorical terms, 2016 could be the year when Detroit and Silicon Valley converge. "The car companies have all figured out that if all they’re good at is bending sheet metal and drive trains, which of course is the lion’s share of what it took to build a car for the last century," says Steve Eglash, the Executive Director of Stanford’s Artificial Intelligence Lab and the SAIL-Toyota Center for AI Research. "If that continues to be their core competency, they are going to be at the low margin bottom end of the food chain. They have figured out that in addition to bending sheet metal and building drive trains, they need to be really good at software and sensors and artificial intelligence. It’s a kind of convergence of information technology with the traditional automobile industry."

Google's self-driving car prototype

Many factors are propelling this collaborative climate. The auto industry is back — and it’s making plenty of money. For the moment, Americans are buying lots of cars. In 2015, a record breaking 17.5 million of them were sold in the US. And profits mean that these car companies, made leaner by the 2008 crisis, will continue to have more resources to invest in growth. The pillars of this investment are rooted in R&D — making cars that can meet the upcoming more stringent environmental regulations, cars that are connected, and soon, cars that will drive themselves. And that’s where the Silicon Valley connection comes into play: resources from both the tech and auto industries are being poured into finding joint solutions to the future of transportation.

"There’s been a lot of talk of Silicon Valley versus Detroit and I don’t see it that way at all."

"Silicon Valley may be one of the handful of places in the world that’s particularly good at innovation and computer science and artificial intelligence, but it’s not like Silicon Valley has a monopoly on smart engineers," Eglash says. "As some of these cutting edge technologies become a little more mainstream, I think you’re going to see lots more software engineers and computer scientists in Detroit doing a lot of R&D there as well. You get it wrong if you just apply the new technologies to a legacy industry like the automobile. The way you get it right is you bring together the engineers and scientists and business people who understand the automobile industry from GM, Ford, and so on with the computer scientists. Google and other companies have done it in part by hiring people from Detroit." In reality, many of Detroit’s former car executives have found a second life in Silicon Valley, like former Ford engineer and Hyundai America CEO John Krafcik, who heads up Google’s self driving program.

New concerns have motivated the collaborative shift. Despite the flush times, the 2008 recession and the bankruptcies of GM and Chrysler shook the auto industry to the core. A healthier US economy, low interest rates, and the cheap price of gas contributed to the recent sales surge. But there’s a sense that these conditions won’t last — and the traditional car business has to change if it wants to keep up.

The shift in thinking is particularly evident on the ground in Detroit, the symbolic capital of the auto industry. "There’s been a lot of talk of Silicon Valley versus Detroit and I don’t see it that way at all," says Michelle Krebs, a senior analyst at Autotrader. "What we’re seeing is — in Detroit, the German companies, and Nissan — everyone is setting up research facilities in Silicon Valley. You’re seeing Apple and Google here in Detroit. It’s more of a bridge that’s going back and forth."

ford fusion hybrid research vehicle (FORD)

At CES, Ford’s substantive PR push included its early support of Techstars Mobility, one of several local efforts to boost Detroit’s automotive economy. Techstars, a startup accelerator, launched its mobility initiative last year, and is starting its second round of funding to woo transportation-oriented businesses to Detroit; Honda and Verizon have also contribute to the program. "Techstars Mobility operates to Detroit’s greatest strengths — its automotive dominance and its entrepreneurial resurgence. We’re at the intersection at both of those trends," says Ted Serbinski, the incubator’s managing director. "There’s been a lot of talk of Detroit versus Silicon Valley. It’s more Detroit plus Silicon Valley. We’re starting to see a lot more collaboration. We have over 300 mentors engage in the program from Chrysler, GM, Penske, Volvo, BMW. We saw that Detroit still has that critical mass of automotive expertise. Detroit still has that experience on the manufacturing, building and operating vehicles. I don’t know what Ford and Google may announce, but it ties into the Silicon Valley plus Detroit mentality," he says, referencing recent rumors that Ford may be partnering with Google to build self-driving cars.

Bill Coughlin, CEO of Ford’s Global Technologies division, was one of the players who helped woo Techstars to Detroit. "This is the still the Motor City and the capital of the industry. As the industry is evolving, we want to make sure this is the place where the best talent in the world will want to come and to develop the solutions that we all need," he says.

Other car companies with big Detroit presences are also using CES to show off investments in new business strategies. GM chose the Las Vegas show to debut its everyman electrified Chevy Bolt and to announce its $500 million partnership with Silicon Valley’s Lyft, for instance.

"It’s more Detroit plus Silicon Valley. We’re starting to see a lot more collaboration."

Nissan, a global company with its US headquarters in Nashville, maintains the company’s R&D center in the Detroit suburb of Farmington Hills — but it also has a research center in Silicon Valley. "It’s keeping your finger on the pulse of multiple areas. With the challenges of fuel economy and emissions, the powertrain side is really growing. At the same time, in the connected world, it’s an exploding star in all directions. Mechanical isn’t less important. You still have to engineer the regulations. It adds more people to the equation," says Chris Reed, a Vice President at Nissan Technical Center North America.

It’s not just the automakers themselves: suppliers like Delphi, Lear, and Roush, which builds Google’s self-driving prototypes, are all headquartered in Michigan. German giant Bosch also has a substantial presence in the area. "For Bosch, the linkage between Motor City and Silicon Valley has already been made," says Mike Mansuetti, the president of Bosch’s US subsidiary. "We feel that we have the best of both worlds. The speed, agility, and customer focus of Silicon Valley is complemented — and made better — by the high-tech innovation and manufacturing know-how that the auto industry has long demonstrated," he says. Bosch has worked with a host of car companies on the hot-button topics of CES like automation, electrification, and connectivity. "We have multiple teams collaborating on this effort, including teams in Palo Alto and Abstatt, Germany who work in concert with colleagues based in Michigan."

faraday

Detroit's push-pull relationship with the Valley is creating opportunities elsewhere, too: along with Tesla’s Gigafactory, Faraday Future has said that it will soon build its cars in Nevada, for instance. "There’s a lot more flexibility and ability to change things," says Nick Sampson, Senior Vice President of R&D and Product Development at Faraday Future. "And that’s what driving the types of people and the locations that we’re all being based in. That’s a shift away from the traditional places like Detroit or like Stuttgart. Companies are setting up new locations where the types of people we need and the environment and cultures reflect a different kind of lifestyle."

In the more distant future, moving forward means not only a shift in geography, but a shift in how industries are categorized. Some day there may be no divide between automotive and technology. "I see there’s all kinds of blurring of traditional industry boundaries," Eglash say. "Google’s a car company. Might Microsoft or Twitter or Facebook or Amazon become a car company in the future? Might Ford or GM become a social network of information technology company? We’re seeing those boundaries blur."