Auto Makers Enter Untested Waters as Technology Takes Bigger Role

By William Boston 

When the doors open at the Frankfurt Motor Show this coming week, Europeans will get a glimpse of how technology and a historic shift of wealth toward Asia have changed the global auto industry.

The rise of China and other emerging markets is testing the ability of the world's biggest auto makers to grow and adapt to shifting demographics. The digitization of the automobile presents car makers with opportunities to create new products and services, but it also poses challenges that are shaking the industry.

As mechanical engineering gives way to computer-driven innovation in the auto industry, the barriers to entry are falling and it could become easier for new rivals--such as automotive software startups like MobileEye Inc. or Silicon Valley tech giants Google Inc., Apple Inc. and Uber Technologies Inc.--to grab chunks of car makers' core business.

"It is certainly easier for Apple or Google to build an electric car than it would be to build one with a combustion engine," Volkswagen Chief Executive Martin Winterkorn said recently. "I definitely see a threat from new competitors."

That is why the car makers will use the biennial Frankfurt auto fest to show off their mojo when it comes to developing attractive, emotional automobiles packed with the latest technology.

The Germans, playing for their home fans, are pulling out all the stops.

BMW AG will show off its new 7-Series sedan, its top-of-the-line model that incorporates a blend of carbon fiber and aluminum construction to lower weight. The sedan has features such as gesture-control commands for its infotainment system and remote control directed self-parking. BMW built a 400-meter test track--the size of an Olympic running track--to allow visitors to test drive its cars. Rival Audi AG has built its own temporary exhibition hall to get more space. Mercedes-Benz will show off a new sporty convertible version of its S-class, the leading ride for executives.

One of the hottest rivalries that will unfold over the next few months will be on display in Frankfurt, starring a car that won't even be at the show.

American entrepreneur Elon Musk isn't planning to roll out the Tesla Model X in Frankfurt, but the battery-driven sport-utility vehicle that goes on sale this month has sparked a fierce response from Germany's premium brands.

Audi, the luxury-car maker owned by Volkswagen, will unveil a rival battery-driven SUV, a concept car that Audi says will have a range of 310 miles on a single charge. Dubbed the e-tron quattro, analysts expect the vehicle to debut as the Audi Q6 in 2018 and to sell as many as 40,000 vehicles a year.

Audi's rivals BMW and Mercedes-Benz, which is owned by Daimler AG, are believed to be working on their own "Tesla Killer," but they haven't disclosed any details yet.

Nevertheless, Audi's launch shows that premium-car makers are beginning to take seriously the emergence of Tesla as a formidable challenger in the premium-car segment.

Meanwhile, SUVs continue to grow in popularity in Europe and are expected to make up 27% of the new-car market by 2020, according to IHS Automotive. There will be a number of SUV launches in Frankfurt.

Ford Motor Co. will unveil a European version its Edge model, a large SUV that will complement Ford's SUV lineup of the Kuga compact SUV and the midsize EcoSport.

Volkswagen, Europe's biggest car maker by sales, will unveil a revamped version of its Tiguan compact SUV. Citroën, the French car maker that is part of the PSA Peugeot Citroën group, will launch the "Cactus M." Citroën says the open-roof car was "inspired by the surfer spirit," and it looks like a blend of the old Volkswagen Thing and a crossover sports car.

The SUV is also continuing to move upscale.

Bentley, the ultraluxury car maker owned by Volkswagen and known for its brand of conservative British luxury, will launch the long-awaited Bentyaga SUV, which goes on sale in the U.S. at a starting price of $229,100.

Jaguar will unveil the F-Pace SUV at the show, its first-ever SUV. There are few details known about the car, but it is expected to rival midsize sporty SUVs such as BMW's X4.

Other ultraluxury brands will roll out a number of new and revamped models, such as the Rolls-Royce Dawn and facelifted versions of Porsche's iconic 911 sports car. These cars reflect continued demand for luxury goods, driven by the strong U.S. economy and growth in Asia.

Industry executives come together in Frankfurt at time when the European car market is producing the fastest growth world-wide. China, long the anchor of global car sales, is weakening. Some analysts say China's weakness is the beginning of an extended period of slow growth or even a decline in car sales.

In Frankfurt, car executives will emphasize the positive. Car and light-vehicle production is expected to grow about 2% this to around 89 million vehicles. China remains on the path to producing 30 million cars a year in the near future.

Auto executives are still confident that the industry will soon produce more than 100 million cars and light vehicles a year, Elmar Degenhard, Chief Executive of auto supplier Continental AG, said in an interview.

"It's just a question of how fast that will happen," he said.

The Week Ahead looks at coming corporate events.

Write to William Boston at [e-mail]

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(END) Dow Jones Newswires

September 12, 2015 05:44 ET (09:44 GMT)

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