Fiat 500, headed for the U.S. market

The ongoing turmoil in Detroit might benefit Redmond – creating new opportunities for Microsoft Corp. to expand the footprint of its in-car information and entertainment system as financially troubled automakers seek new ways to appeal to increasingly technology-conscious consumers.

That’s the belief of some industry analysts, particularly after Fiat’s alliance with Chrysler gave the Italian automaker a new foothold in the U.S. auto market. Fiat was an early adopter of Microsoft’s technology, using it in its “Blue & Me” communication and entertainment system.

Increasingly, the cash-strapped auto industry could find itself without the research and development resources to keep pace with advances in consumer technology. That may lead automakers to look for more outside help from companies that focus on technology, said industry analyst Phil Magney, vice president for the automotive practice at the iSuppli Corp. research firm, in Minnetonka, Minn.

“What the industry is going through right now will be a catalyst to more outsourcing of telematics and infotainment,” Magney said, using the industry terms for information, entertainment and other data received and transmitted in a vehicle.

Overall, he said, the situation “bodes well for Microsoft.”

Microsoft already supplies the underlying technology for Ford’s Sync infotainment system. The Microsoft software doesn’t control the car but works in conjunction with mobile phones and media players to let people make hands-free phone calls, connect phones and music devices, control the vehicle entertainment system with voice commands, and access real-time information.

Chrysler has an existing in-vehicle technology system called “uconnect.” Microsoft hasn’t yet had specific talks with Fiat about expanding the Blue & Me technology to traditional Chrysler vehicles, said Velle Kolde, a senior product manager in the Redmond company’s automotive technology group.

However, he said, “I’m sure we’ll have those discussions.”

Ford says it has sold more than 1 million cars with the Sync technology. Marking that milestone during a May 26 event on the Microsoft campus, CEO Steve Ballmer declined to directly address the question of whether the economic problems in Detroit could improve Microsoft’s industry foothold.

“Economic downturn or not, the future is absolutely to provide more of the right services in-car, with the right level of safety, as well,” he said, citing the hands-free features. “We see a big opportunity on that. They talk about the size of the U.S. auto market – 10 million vehicles, 12, 14, 16, whatever it’s going to be, it’s a lot of cars, and then you project that out globally and we just see tremendous opportunity.”

Microsoft also works with Korea’s Hyundai Kia Automotive Group. Ford’s agreement with Microsoft doesn’t preclude it from striking similar deals with other U.S. automakers, said Ford CEO Alan Mulally, during the same event in May on Microsoft’s Redmond campus

Fiat CEO Sergio Marchionne emerged as leader of the new Chrysler Group LLC as a result of a deal between the companies that brought Chrysler out of bankruptcy. The Microsoft-based “Blue & Me system is available overseas in cars including the Fiat 500, a model the carmaker plans to bring to the U.S.

Microsoft may have a tougher time getting a toehold with General Motors. The U.S. car giant is in bankruptcy, but it has long used its OnStar system for in-vehicle navigation, communication, security and diagnostics. At the same time, analyst Magney noted that the OnStar system wouldn’t necessarily preclude Microsoft from working out a deal with GM to offer and interface for portable devices or other technologies as an additional layer on top of the OnStar system.

Microsoft offers in-car technology systems directly to automakers such as Ford and Fiat under the Microsoft Auto initiative. Under the related Windows Automotive program, Microsoft also offers components of its technology to Tier 1 automotive suppliers for use in in-car technology systems available in Hondas, Acuras and other cars.