In-Car Technology Sharply Accelerates

The battle for the dashboard is heating up in the automotive world, as car makers race to offer new in-car 'infotaiment' systems

When Microsoft (MSFT) Chairman Bill Gates appeared onstage with Mark Fields, Ford Motor's president of the Americas, at last month's Consumer Electronics Show, the jokes were ready: How do you "control-alt-delete" from behind the wheel? How do you prevent popup ads at 65 mph? The last thing Ford needs is a new way to crash.

But the jointly developed product the companies unveiled at the show, a 2008 vehicle option simply called Sync, is a serious attempt by Ford (F to tap into the ballooning market for automotive infotainment systems. This market consists of a broad range of digital car accessories at the intersection of the information superhighway and the actual highway.

For a price estimated between $500 and $700, Sync-equipped Ford cars will be able to smartly interface, via Bluetooth or USB connectivity, with a wide variety of gadgets, from cell phones and PDAs to Apple (AAPL) iPods. Drivers can access and play music, make phone calls, or listen to text messages out loud by using wheel-mounted buttons or through voice commands. Sync doesn't require models to have more costly navigation options, but in vehicles with both systems, Sync's functions can also be controlled through a touch-screen interface.

Sync drew attention at the show thanks to a bevy of unique features. Drivers can instruct their car stereos to "play similar," prompting the system to call up songs in the same musical genre. The voice system can also read common text-message shorthand, translating symbols into "smileys" for example. Better yet, the system's built-in software is upgradable. Gary Jablonski, manager of infotainment systems at Ford, says that this will allow the company to deliver new features in the future, ranging from support for new types of phones and devices, to possibly streaming music from the Internet.

Largely similar functionality has been available from aftermarket vendors and in many high-end luxury vehicles from the likes of BMW and Mercedes-Benz. But Ford's system pools previously disparate capabilities into one command center inside the dash and will likely be the first of its kind offered across a company's full product lineup. Sync will be available on a dozen 2008 models this fall, including less expensive cars like the Ford Focus and Fusion. By the 2009 model year, it should be available on nearly all Ford, Lincoln, and Mercury vehicles. For the moment, the system isn't intended for Ford luxury brands Jaguar, Land Rover, and Volvo.

That rapid timetable is partly an indication of outsized sales potential. In the U.S., the Consumer Electronics Association estimates that factory-to-dealer sales of all in-vehicle technologies will grow 11.5% to $9.6 billion this year from $8.5 billion in 2006. "We're hitting critical mass," says Megan Pollock, communications manager for the CEA. "Manufacturers realize that they can't be on a six-year cycle anymore. To keep up with technology, they have to accelerate."

Indeed, prospects for systems like Sync are bright. San Antonio-based consulting firm Frost & Sullivan reports that the annual North American infotainment sector—made up of products like Ford's and similar ones emerging from its competitors, but excluding pricier factory-installed navigation systems—will grow to $4.4 billion by 2011, up from $2.5 billion in 2005. Sandeep Kar, a senior industry analyst with Frost & Sullivan, says "The OEMs [original equipment manufacturers] are, generally, growing sales much faster [than aftermarket suppliers]."

A Boost for Ford

Because the company has yet to announce firm pricing, it's hard for analysts to predict how many Sync sales Ford could make. The Telematics Research Group in Minnetonka, Minn., which tracks sales of vehicle electronics, forecasts that the company could cumulatively sell as many as 3,335,000 Sync implementations by 2012, across its three core brands.

"These features are becoming incredibly important to consumers," says Phil Magney, a principal analyst with TRG.

Sync helps Ford in other ways as well. The embattled company, which announced record losses of more than $12 billion in January, is desperate to show it, too, can innovate. "There is definitely a strategic value for them," adds Magney. "It helps to have a technology portfolio that represents consumers' lifestyles."

The announcement could also help cast some positive light on a generally gloomy situation. Last November, for instance, its GPS guidance system took top honors in a J.D. Power and Associates survey of navigation satisfaction. Ford's system pulled ahead of ones found in much costlier Lexus, BMW, and Acura models. (Like, J.D. Power and Associates is a division of The McGraw-Hill Cos. (MHP).) If Sync is a hit, it could generate more positive press from the auto media.

Microsoft's New Market

The announcement is also a coup for Microsoft, which has been after the automotive embedded technology market for years. The high-profile partnership is likely to be a boon to the software giant's initiatives. The company had yet to make such a widely reported public announcement with a brand well known to consumers.

Industry analysts say the two companies had long been expected to announce such a partnership. Ford says the two companies' agreement includes a one-year exclusivity clause from launch this fall. That means Microsoft-powered systems with similar functionality could crop up in competitors' vehicles sooner rather than later.

But, Ford and Microsoft aren't alone. DaimlerChrysler's (DCX) Chrysler Group was first out of the gate with an advanced option called MyGig, which it developed specifically for its Chrysler, Dodge, and Jeep vehicles. That system costs more, at $1,700, but comes equipped with a built-in hard drive capable of storing about 1,600 songs. MyGig combines navigation functions with infotainment functions similar to Sync's, but is only available on a small range of models—the Chrysler Sebring, Jeep Wrangler, and Dodge Nitro.

"Interestingly, DaimlerChrysler is offering its system in volume models, rather than entering through the high end," says Kar of Frost & Sullivan. "MyGig is infotainment and then some," adds TRG's Magney. "It can do more, but it costs more."

More Devices Available

Aftermarket suppliers aren't standing still, either. CES was replete with new high-tech gear meant to be sold outside of dealerships. Eclipse and Pioneer both announced audio systems with sophisticated navigation features. A raft of portable devices meant to work in hand as well as in the car were on display as well. Prices for those systems, ranging from $500 to more than $1,000, are significantly lower than conventional navigation units.

That's likely to mean a healthy dose of competition between manufacturers and aftermarket suppliers, even as total sales grow. What's more, some advanced systems were met with derision, and even outright hostility, when introduced. BMW's first iteration of the iDrive control system wasn't warmly greeted by consumers. However, upgrades helped the company move past drivers' complaints.

Still, should Sync prove popular with customers, it could help Ford on multiple fronts. "Look, consumers still buy first and foremost on styling and driving characteristics," says Magney. "But this kind of stuff could definitely be used as a convincing tiebreaker."

Click here to see a roundup of all the latest in-car infotainment systems.

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