The Auto Industry: Smart and Smarter

A love triangle involving a 17-year-old misfit, his new girlfriend, and a haunted vintage car. Sounds like a spicy plot? It is.

This is the core storyline of Christine by Stephen King. King was all about sending a chill down his readers’ spine. In the process, he touched upon some of the nightmares – or dreams – of the heads of the auto industry today: a car that spins out of human control.

Ahead of the Paris Motor Show, which opens on 1 October 2016, the autonomous car is on everybody’s mind, and so are the risks associated with it.

In our special Economic Outlook report on the auto industry, we highlight two notable trends, on top of our thorough forecasts, market by market.

First, the greater intervention by public policy in market dynamics. Second, indeed, the growing fascination with – and related investments in – the autonomous car.

Whether in the United States or China, the United Kingdom or Spain, public policies will largely fuel the car sales engine. Tax incentives, low interest-rates, and political uncertainty explain why new car registrations are taking off in some countries and stagnating in others. The car remains the symbol of the middle class, and car sales figures herald a crisis or a recovery. Whether in Argentina or Iran, in Brazil or Turkey, open the hood and you will know what the situation is in the country.

On the manufacturing side, many countries have opted for greater competition on value chains and production sites continue to be fought for.
After a year marked by the obsession with clean cars, following the revelations concerning a major German carmaker, it would seem that the sector needs to obtain reassurance by reinventing itself.

There is, therefore, a fascination with the vehicle of the future, which drives and parks by itself. It is now clear that artificial intelligence is challenging the auto industry and will very quickly make it easier to do things that we couldn't do otherwise. Imagine reverse parking!

Machine Learning and Big Data have already accelerated knowledge and shaped experience in many sectors, from the web to the Internet of Things. Robots could even prove to have and possess artificial consciousness. Stephen King was might have been right! We might be facing a rosy version of Christine. She can go and fetch the children from school by herself. But what if she decides to go to a car wash by herself (with the kids inside)?

The search for the right algorithm, learning in varied road and weather conditions, and the resolution of legal and insurance gaps are all areas for investment by carmakers and tech firms. Making the user's life easier is essential, especially since the auto-machine would make better decisions than a human being. Increasing parts of our existence are controlled, managed and regulated by algorithms.

Algocracy looms.

Asset management, online sales, entertainment choices, and soon our cars will be guided by our past choices. Sadly, some might say.

What about the pleasure of driving, hair in the wind? Zigzagging on a deserted country road to impress the passenger next to you? Stalling on slopes? I have learned to love driving, and it would be silly if they took that pleasure (too).

Ludovic Subran
Chief Economist
Euler Hermes
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