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5 Reasons Why Automakers Shouldn't Fear Google Inc's Driverless Car

Google Inc’s (NASDAQ: GOOG), (NASDAQ: GOOGL) driverless car creates the feeling that anything's possible. Last spring, Google announced that it is “mastering city street driving,” an effort toward building a future in which cars can drive themselves in any set of conditions.

Google Vs. The Car Makers

Google's not alone in pursuing autonomous cars. Traditional automakers are entering the field, although they are taking a different approach.

Ford Motor Company(NYSE: F) and Nissan Motor Co Ltd (ADR) (OTC: NSANY), for example, have autonomous vehicle projects in place.

Ford displayed a driverless car in Barcelona in February, saying it is preparing for a future in which cars will communicate with one another and the world around them. In 2013, Nissan, announced that it plans to release driverless cars as early as 2020.

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The main difference between Google’s autonomous vehicle project and that of traditional automakers is scope: Google is trying to develop fully autonomous vehicles, while traditional automakers are taking an incremental approach that enables a driver to take control at any time.

While some argue Google's approach, if successful, is a major problem for automakers, their incremental approach might be the better one. At worst, it might benefit from Google’s approach. Here are five things to consider.

1. Insurance

Insurers are likely to charge extra-high premiums on at least the first set of fully autonomous cars. Consider the case of electric vehicles, or EVs.

EVs are more complex than gas cars, and have higher replacement costs. For these reasons and perhaps others, EVs owners have had to pay insurers, in some cases, 25 percent more than regular combustion engine car owners. The same can be expected of driverless cars if –- when -– they finally make it into the market.

In fact, considering that driverless cars will be completely new –- with unknown issues –- owners might have to pay an even higher insurance premium compared to traditional auto owners.

2. The Manufacturing Stage

As of now, only automakers have the capacity to manufacture vehicles on a large scale; Google doesn’t. Therefore, if Google can make a fully autonomous vehicle that works, it will need manufacturing help. It could collaborate with established automakers in a hands-on way or simply license its technology to automakers. Either way, Google’s project would benefit automakers on the long run. Only if Google acquires an existing company with the manufacturing capability could Google move into true head-to-head competition.

3. War Of The Lobbyists

Even if Google designs a fully proven, autonomous car, laws would have to be updated to allow them on the road. Thus Google would need the backing of legislators at the state and federal level. If the automotive industry opposes the car, that backing would have to be strong enough to defeat automotive lobbyists.

So far automotive lobbyists have a strong hand; the recent breakdown of a driverless car brought by Carnegie Mellon University for members of Congress to test didn't help the driverless car case.

4. Hackers’ New Best Friend?

The more internet-oriented the world is, the more vulnerable to hackers it becomes. Therefore, the idea of allowing a fully autonomous car on the street will be worrying. Since Google’s project has no driver-in-the-middle, no built in manual override, hackers could in theory take over the car.

The Telegraph reported a recent issue with a Prius that illustrates the point. By installing a device in the Prius, "hackers" were able to control it remotely. However, Toyota noted that true hacking wasn't involved, since the device had to be added to the Prius. Nonetheless, the heavy computerization of the car and others hackers tested revealed some vulnerabilities.

Perhaps the best protection against hacking will be automakers’ incremental strategy, that keeps a driver-in-the-middle.

5. Media Martyrdom

The first driverless car that fails, in any way, will be martyr. The way the media has taken up the Carnegie Mellon car’s breakdown suggests how bad it will be. Depending on the nature of the failure, the media firestorm could have a material impact on the company that made the car.

The bottom line: Google is working on a great project, but automakers needn't fear it will put them out of business.

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