Will Tech leave Detroit in the dust?

And Toyota says it is becoming a totally different company, a company that focuses more on the services that move people. "It's a question of survival or death," says General Manager Akio Toyoda.

The global auto industry believes it sees the future and an unprecedented transformation in business history is needed: the giant industrial sector must evolve into an agile provider of software and services.

This week, Uber Technologies Inc., which has reported operating losses of $ 4.8 billion over the past six quarters, is considering launching an initial public offering that bankers believe could cost him $ 120. billion. It's more than General Motors Co.,

Ford engine
Co.

F -0.12%

and

Fiat Chrysler Automobiles

NV combined.

Executives in the auto industry say they need to avoid a nightmarish technological scenario that will become a common refrain at industry meetings. They do not want to become the next "handset manufacturers" – commodity suppliers, helplessly monitoring all the profits of software makers such as

Apple
Inc.

and

Alphabet
Inc.

the parent of Google. Both companies are investing in driverless software.

"We are transforming our hardware company into a business that, piece by piece, will further contribute to the service economy," said Jürgen Stackmann, a

Volkswagen
AG

member of the board in charge of sales, in an interview with the Wall Street Journal this week.

Hollywood publishing and retail industries are similarly trying to transform themselves into technology companies in the face of Silicon Valley disruption.

In the automotive sector, executives face a well-established corporate culture and limited budgets in a low-margin business that is extremely vulnerable to recessions in the economy. They must maintain their profits in the traditional, exhausting, capital-intensive industry of creating millions of cars every year, while simultaneously trying to invest in costly future technologies, financial constraints to which competitors are not confronted.

Even with financial support, automakers will still need to change the mindset of their business and ensure that different parts of the company work together to support new businesses, said Doug Betts, an experienced leader of the company. automotive sector which also spent nearly two years working at Apple Inc.

"In general, automakers are not very good at this," said Betts, now senior vice president of global automotive operations at J.D. Power. "There are extremely powerful and huge silos that over the last 100 years have managed to do what they do and throw stones at everyone."

Software expertise is also a weakness, said Betts, because automakers have long relied on their suppliers to write code rather than create that talent internally.

The automakers point out that they have an advantage that newcomers to the industry do not own: vehicles.

"At the end of the day, you can have the best service platform, but if you can not afford it, it will not do you any good," said Sam Abuelsamid, Navigant Senior Analyst. Research. "This is where manufacturers have an asset in the hole."

Many analysts believe that companies such as Uber and Waymo LLC, Alphabet's autonomous technology subsidiary, will not have the appetite to embark on the capital-intensive, capital-intensive automotive manufacturing business.

Some executives in the automotive industry say they can retain their role as equipment providers while leveraging the growth of more profitable services. Stackmann said VW could earn millions of additional customers over the current market by offering transport as a service via a network of connected cars.

"They talk about scalability, but where is Uber's added value?", He said. "We have a technical base and will integrate connectivity into our vehicles to connect them and our customers to our ecosystem. In the long run, the question will be: why do you need Uber?

Uber's valuation of $ 120 billion is not guaranteed. These are among the proposals recently submitted to the company by the investment banks seeking to represent the supervisory company in an initial public offering that could take place early next year, according to people familiar with the question. The valuation takes into account various factors, including Uber's food distribution business and its holdings in Didi in China and Grab in Singapore.

This contrasts with the disappointing outlook for Detroit, where Ford and GM stocks are stuck at their lowest level for several years, even though both automakers have earned more than $ 50 billion in operating profit since beginning of 2016.

Tasha Keeney, an analyst at ARK Invest, who owns stocks in GM, Alphabet and

You're here
Inc.

She estimates that $ 120 billion "seems very expensive". While she sees a lot of interest in the autonomous car program, she said the challenges Uber faces could hamper its long-term growth, especially as rivals are advancing the technology faster. – fleets of taxis competing with his company.

Leaders in the auto industry have long been seeing the threats of the technology industry. Tesla's valuation of Elon Musk has soared in recent years, on par with that of GM, as it has shown that it can create an extremely loyal customer base for electric cars. Google began working on autonomous vehicle technology in 2009, and its self-driving Waymo unit is now considered a technology leader.

Meanwhile, more and more people are moving to congested cities and technology is giving them more options to move without owning a car.

While the demand for new cars and trucks remains robust and their sale will remain at the heart of the industry's business in the coming years, many executives believe that long-term earnings growth is limited because transport are increasing and more and more vehicles for the shared, harming sales.

Car manufacturers are trying to diversify into new business models that, like Uber, sell transportation as a service. The revenues are generated by the use, as opposed to a single vehicle sale, and as the service is not as capital capital as the construction and sale of cars, the executives believe that it can ultimately generate higher margins.

They envision automated vehicle networks, which drivers could hail via smartphones, like the current operation of Uber and Lyft Inc., but without a driver. By 2030, these parks could account for a quarter of the miles traveled in the United States, estimates the Boston Consulting Group.

Intel
Corp.

, the chip maker whose processors are used in some autonomous vehicles, provides for this new so-called passenger economy – when today's drivers become passengers of cars, shuttles and other driverless vehicles – generating up to $ 800 billion by 2035 and $ 7 trillion by 2050.

To make the change, many automakers are restructuring their operations in order to free up capital for new investments. Some car manufacturers, such as GM, Ford and

Toyota engine
Corp

TM -0.30%

, invest in new technology companies, buy artificial intelligence and robotics companies, and hire thousands of workers at technology hubs in California and Tel Aviv, Israel. Several automakers have acquired or invested in the manufacture of laser-based lidar sensors that help driverless cars navigate. Car manufacturers are exploiting the world of technology to find talent in software engineering, a skill traditionally insufficient in the automotive sector.

GM Cruise, the automaker's self-driving group, has grown from an acquisition of 40 employees in early 2016 to more than 900 people in San Francisco. In May, the company created GM Cruise as a self-sustaining entity to attract outside investment. This decision paved the way for an injection of $ 2.25 billion from Japan

SoftBank Group
Body

The Vision Fund, which is expected to provide the working capital needed to launch the driverless taxi service, which he hopes to debut in some cities in the United States next year. GM executives believe that such a network could, in the long run, generate profit margins of up to 30%, compared with a near 9% margin in the world last year.

Many companies also enter into alliances with potential technology rivals to spread the risks and costs of developing these new businesses.

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Co.

This month, the group is committed to investing $ 2.75 billion in GM Cruise and contributing to the development of this technology. Rival German carmakers BMW AG and parent Mercedes-Benz

Daimler
AG

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proposed to create a joint venture to combine car sharing and passenger transport services.

"It is obvious that every company would like to do everything by itself … except that we will not be able to do it," said Carlos Ghosn, head of the trilateral Renault-Nissan-Mitsubishi alliance, during a press conference. an event organized this month.

Daimler AG is planning to set up a separate unit next year called Daimler Mobility AG, which focuses on on-demand transport. Mytaxi, an Uber-type phone service created by Daimler a decade ago, has become popular in Europe. The mobility unit could eventually become a candidate for an IPO, as automakers sought to exploit the huge market valuation enjoyed by Uber, analysts said.

"As pioneers in automotive engineering, we will not leave it to others to shape future urban mobility," said Daimler Chief Executive Dieter Zetsche last spring.

Toyota is reducing its core business to free up money for investments. The Japanese automaker is also investing in Uber, pledging to integrate its autonomous driving technology into its own prototype.

Over the past year, GM has brought reporters and investors to a factory in suburban Detroit, where workers plan to build stand-alone Chevrolet Bolt electric cars without a steering wheel or brake pedal. The message: it has the manufacturing potential to create thousands of robot cars, while technology competitors such as the Waymo Alphabet unit must equip their autonomous systems with vehicles purchased from traditional automakers. Waymo has announced the launch of an autonomous car service this year.

"We are the only company with all the assets we need under one roof," said Mary Barra, GM's chief executive officer, for analysts earlier this year.

William Boston and Sean McLain contributed to this article.

Write to Mike Colias at [email protected] and Tim Higgins at [email protected]