Automakers get boost as U.S., Mexico deal averts tariff doomsday

UPDATED: 8/28/18 4:06 pm ET

Judging from the jump in General Motors Co. and Ford Motor Co. shares, the market thinks President Donald Trump's accord with Mexico to replace the North American Free Trade Agreement will enable U.S. automakers to carry on business as usual.

This could be right, with one big caveat: The companies are going to need Canada to join the deal, too.

The preliminary agreement announced Monday allows carmakers to import vehicles duty-free if 75 percent of the content is made in the U.S. and Mexico. That's up from 62.5 percent minimum under Nafta. Under the U.S.-Mexico deal, as much as 45 percent of parts will also have to be made by workers who are paid more than $16 an hour, according to U.S. Trade Representative Robert Lighthizer.

“The vast majority of vehicles made in the U.S., Mexico and Canada are above the requirements,” said Kristin Dziczek, vice president of industry, labor and economics at the Center for Automotive Research in Ann Arbor, Mich. “If Canada doesn't sign on, it's a problem.”

To meet the proposed rules, automakers would need to be able to count the Canadian content on some of their current models, Dziczek said.

Dodged bullet

Prior to Monday's announcement, the Trump administration had been threatening tariffs of as much as 25 percent on vehicles imported from any country. That would hit automakers hard, including GM, Fiat Chrysler and Toyota Motor Corp. The three are the only carmakers that researcher LMC Automotive expects to sell more than 1 million imported vehicles in the U.S. this year.

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In addition to dodging that bullet, the agreement marks a significant backtrack from some of the initial proposals that the Trump administration floated in NAFTA negotiations, including an 85 percent NAFTA-sourced parts content requirement and a 50 percent U.S.-sourced provision.

GM and Fiat Chrysler shares each rose 4.8 percent on Monday in New York trading, while Ford finished up 3.2 percent, the stock's biggest advance since February. On Tuesday, GM shares closed down while Ford shares rose again.

If Canada signs on, all but a handful of cars would meet the requirements or come close, Dziczek said. Most of those that wouldn't hit the targets would be imported by European and Asian carmakers, including Volkswagen AG and Nissan Motor Co., she said.

BMW said it welcomed a “modernization” of the trade accord, adding that any final decision must ensure duty-free trade between the partners can continue. The new preliminary threshold on content to qualify for tariff-free access was “ambitious,” the carmaker said.

BMW produces SUVs and crossovers at its biggest plant in Spartanburg, S.C., and is set to start making sedans at a factory in Mexico next year. The luxury carmaker's shares rose 2.4 percent to 85.15 euros, and was 2 percent higher at 10:23 a.m. in Frankfurt trading. Volkswagen shares gained 2.1 percent and the Stoxx 600 Automobiles & Parts Index rose 1.2 percent.

Costlier cars

If vehicles don't meet the requirements, they'll be hit with a 2.5 percent tariff, the same levy faced by countries that have most-favored nation status under the World Trade Organization. That's not going to be enough of a tax to get companies to move an assembly plant to the U.S. from Mexico, but it'll raise the price of vehicles, said Michelle Krebs, a senior analyst with AutoTrader.

“We think car prices will rise,” Krebs said in an email. “The new agreement will push production costs higher on Mexican products -- parts and vehicles -- which will eventually be paid for by American consumers.”

The good news for carmakers is that Canada will likely sign on to a similar agreement, said Mark Wakefield, head of the auto practice at consultant AlixPartners. So long as a Nafta replacement doesn't penalize Canada's agriculture industry, it should be easy to get a deal.

“I don't see why Canada wouldn't be OK with the terms as is,” Wakefield said by phone. “At the moment, it looks positive.”

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Automakers must protect the promise of open-source code

You've heard the old joke about Bill Gates criticizing General Motors, noting that if the company had kept up with technology, then we would be driving $25 cars that got 1,000 miles to the gallon, or some such. And GM responds that if it built cars like Microsoft, then "for no reason at all, your car would crash twice a day."

Though the exchange never happened, it hints at the complex problem facing the auto industry today.

Cars have transformed from the buggies of Henry Ford's Model T into connected devices, streaming navigation, entertainment and other features through infotainment systems that vie to bring the capabilities of a smartphone, and more, to the dashboard.

The 2017 Autotrader Car Tech Impact Study is reported to have found that 53 percent of consumers expect their vehicles to offer the same level of technology as their phones, keeping them connected on the move.

However, manufacturers on their own are unable to produce enough software at scale and pace to keep up with demand.

A report from Visual Capitalist in 2017 showed that car software contains upward of 100 million lines of code. Only Google, with all of its services, was said to have more code in its products.

Automakers know how to make cars that get commuters from A to B. But they have realized that they are not application developers. To help produce the mountain of code that will be required to produce apps that are a joy to use — and not like those GPS interfaces that are reminiscent of Windows 95 — a number of automakers, suppliers and technology firms have come together to share code with one another.

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This is the promise of the open-source software movement, which turned 20 years old this year. The idea behind open source is to allow for developers to make use of the code written by others to build better software without the need to reinvent the wheel themselves every time or purchase commercial products.

Building blocks

The ability to reuse software that is developed and maintained by the community has made open-source code the building blocks of the software industry, allowing developers to work faster and more efficiently by gaining important functions and features for their applications, and concentrating their efforts on the "special sauce" of their proprietary products.

Open-source software such as Linus Torvalds' Linux, which was released in 1991, gave developers over the past two decades the tools to build their products, driving the explosion of innovation that we have witnessed over the past 20 years. The code base of modern applications on the market today is between 60 percent to 80 percent open source. The World Wide Web, smartphones, applications on our PCs — all have benefited from the availability of open-source software that would likely have otherwise evolved at a snail's pace.

To its credit, and out of necessity, the auto industry has embraced this model. One important initiative is the Automotive Grade Linux project under the auspices of the Linux Foundation.

Their Unified Code Base platform has drawn members including Toyota, Honda, Mazda, Oracle, Amazon and many more.

Their goal is to help speed up the development of code for infotainment systems from the glacial 36- to 39-month release schedule, bringing the ecosystem under one roof where all can benefit. The initiative is already bearing fruit, with the 2018 Toyota Camry sporting a system built on AGL's platform.

While infotainment is the jumping-off point, the project hopes to expand to other areas of vehicle software, including connected cars, telematics, safety and even autonomous driving. However, before they hit the road with these more ambitious endeavors, the partners will have to buckle up and prepare to deal with a significant speed bump that could send them veering off the road.

Fear of hacking, especially through the infotainment systems, is a serious consideration for car owners.

Just think about the level of anxiety that will come with self-driving cars. Trust is crucial when you are traveling at 70 mph.

Open-source software, with its clear advantages for developers, comes with security challenges.

Known vulnerabilities

A big concern for software containing open-source libraries and frameworks, or components, is the known vulnerabilities that are published by security advisories and databases such as the National Vulnerability Database so that users can perform fixes when vulnerabilities are found.

The problem is that hackers can see these published vulnerabilities as well, using them to target applications with open-source components without having to put in the work of finding the vulnerability on their own. Securing open-source code is not a simple task, as information regarding vulnerabilities is distributed among the "bazaar" of projects and sources, and not in a singular "cathedral" as we see with large commercial products.

There are also challenges of organizations not keeping track of the open-source components in their products, leaving developers to use vulnerable open-source components that have to be replaced, slowing down the process and adding to the costs.

Application security testing tools that are designed for proprietary software code aren't applicable to open-source components. Organizations need solutions that can give them control over their software development from start to finish, keeping out vulnerable open-source components, and alerting them when new vulnerabilities are discovered post-deployment.

Remember Equifax

As was seen in the 2017 hack of Equifax, which saw criminals make off with personally identifiable information of over 146 million people by exploiting a known vulnerability in the Apache Struts 2 framework, failures in securing open-source components can have serious consequences.

According to reports, the company was unaware that it was even using the vulnerable version of the component.

If projects such as AGL are going to succeed, and the automotive industry is going to continue to participate in sharing code, it will also need to address the issue of how to keep its software secure.

Open source can be the nitrous gas that sends automotive software speeding to the finish line, or it can blow up.

With great power comes great responsibility, and securing the open-source components in their products is something organizations need to prioritize on their journey to building more innovative software.

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Amazon makes it easier for automakers to use Alexa inside vehicles

The kit includes source code and function libraries that enable a vehicle to process audio input and triggers and handle interactions with Alexa.

Amazon Alexa typically is used in the home for basic tasks such as setting reminders or playing music. But now, Amazon is making it easier to incorporate Alexa into a vehicle.

The e-commerce giant has released the Alexa Auto Software Development Kit, which provides developers a way to integrate all of Alexa's core functions into in-vehicle infotainment systems, Amazon announced Thursday.

Alexa, the cloud-based virtual assistant developed by Amazon in 2014, traditionally powers devices including Amazon Echo, Echo Show, Echo Dot and more. Over time, the service has expanded from voice interaction to providing real-time information, serving as a home automation system and provide other services.

The kit includes source code and function libraries that enable a vehicle to process audio input and triggers and handle interactions with Alexa. It also provides the hooks required to connect to a wake word engine, local media player, local phone and local navigation system, the company said in a release.

The development kit's primary capabilities include: instructing the native calling service in the vehicle to place calls, enabling customers to stream audio and display media info to the head unit, setting the destination of the native turn-by-turn navigation system and searching for businesses and locations.

Along with hosting auto-specific features, the kit will include basic Alexa functionality such as providing smart home controls and weather reports, setting other custom skills and enabling notifications, the company said.

Automakers including BMW, Ford Motor Co., Volkswagen's Seat brand and Toyota Motor Corp. already have begun working to integrate Alexa into their vehicles. Developers including Anker and Garmin have built aftermarket devices that bring Alexa into additional models. The kit -- available on GitHub under the Apache License, Version 2.0 -- will allow other automakers and suppliers to do the same.

The development by Amazon is another example of tech companies entering the auto space, particularly with infotainment systems. A study from the AAA Foundation for Traffic Safety this year found Apple CarPlay and Android Auto were considered less distracting than several vehicles' built-in infotainment systems. It was based on how much visual and mental demand was placed on drivers for tasks including selecting or programming audio entertainment, calling and dialing, text messaging and programming navigation. It found many automakers' in-vehicle systems create high demand associated with completing these tasks compared with those created by tech companies.

View the original article here

Amazon makes it easier for automakers to use Alexa inside vehicles

The kit includes source code and function libraries that enable a vehicle to process audio input and triggers and handle interactions with Alexa.

Amazon Alexa typically is used in the home for basic tasks such as setting reminders or playing music. But now, Amazon is making it easier to incorporate Alexa into a vehicle.

The e-commerce giant has released the Alexa Auto Software Development Kit, which provides developers a way to integrate all of Alexa's core functions into in-vehicle infotainment systems, Amazon announced Thursday.

Alexa, the cloud-based virtual assistant developed by Amazon in 2014, traditionally powers devices including Amazon Echo, Echo Show, Echo Dot and more. Over time, the service has expanded from voice interaction to providing real-time information, serving as a home automation system and provide other services.

The kit includes source code and function libraries that enable a vehicle to process audio input and triggers and handle interactions with Alexa. It also provides the hooks required to connect to a wake word engine, local media player, local phone and local navigation system, the company said in a release.

The development kit's primary capabilities include: instructing the native calling service in the vehicle to place calls, enabling customers to stream audio and display media info to the head unit, setting the destination of the native turn-by-turn navigation system and searching for businesses and locations.

Along with hosting auto-specific features, the kit will include basic Alexa functionality such as providing smart home controls and weather reports, setting other custom skills and enabling notifications, the company said.

Automakers including BMW, Ford Motor Co., Volkswagen's Seat brand and Toyota Motor Corp. already have begun working to integrate Alexa into their vehicles. Developers including Anker and Garmin have built aftermarket devices that bring Alexa into additional models. The kit -- available on GitHub under the Apache License, Version 2.0 -- will allow other automakers and suppliers to do the same.

The development by Amazon is another example of tech companies entering the auto space, particularly with infotainment systems. A study from the AAA Foundation for Traffic Safety this year found Apple CarPlay and Android Auto were considered less distracting than several vehicles' built-in infotainment systems. It was based on how much visual and mental demand was placed on drivers for tasks including selecting or programming audio entertainment, calling and dialing, text messaging and programming navigation. It found many automakers' in-vehicle systems create high demand associated with completing these tasks compared with those created by tech companies.

View the original article here