General Motors Buys Cruise Automation: What It Means

By Markets Fool.com

Cruise Automation founders Daniel Kan and Kyle Vogt with GM president Dan Ammann. GM said on Friday that it is acquiring the San Francisco-based driverless-tech start-up for an undisclosed sum. Image source: General Motors.

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What's happening: General Motors said on Friday that is acquiring a San Francisco start-up company that has developed an aftermarket autonomous-driving kit. The company's employees will join General Motors.

What GM said: GM said in a statement that it has agreed to acquire Cruise Automation "to add Cruise's deep software talent and rapid development capability to further accelerate GM's development of autonomous vehicle technology."

GM recently formed an Autonomous Vehicle Development Team, and Cruise will operate as an independent unit within that team. Cruise's roughly 40 employees will continue to be based in San Francisco, where the company has been developing and testing its technology in the city's urban environment.

"Cruise provides our company with a unique technology advantage that is unmatched in our industry," GM global product chief Mark Reuss said in a statement. "We intend to invest significantly to further grow the talent base and capabilities already established by the Cruise team."

GM said that the deal is expected to close in the second quarter. GM didn't say how much it's paying for Cruise, but Vox Media's Re/Code reported, citing "multiple sources," that the agreed price is "over $1 billion."

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What Cruise Automation said: "GM's commitment toautonomousvehicles is inspiring, deliberate, and completely in line with our vision to make transportation safer andmore accessible," Cruise co-founder Kyle Vogt said in a statement. "We are excited to be partnering with GM and believe this is a ground-breaking and necessary step toward rapidly commercializing autonomous vehicle technology."

What it means for GM: GM's statement suggests that this deal was in large part about acquiring talent, rather than technology.

For all of the global automakers, the rush is on to embrace the wave of technological changes that appear to be coming to the auto business -- or risk being left behind.

GM has moved aggressively over the last few years to stake out a leadership position with electric cars, vehicle-to-vehicle communications technology -- and more recently, self-driving systems. The upcoming Chevrolet Bolt, a 200-mile battery-electric crossover SUV with a mass-market price, shows that this effort is much more than just talk aimed at assuring Wall Street that it won't be "disrupted". Likewise GM's $500 million investment in ride-sharing company Lyft, announced earlier this year.

But building all of this advanced technology requires hiring and retaining the engineers and designers with the knowledge, skills, talent to create it. That has been a challenge for all of the traditional automakers: Those folks are in extremely high demand in the current market, but not a lot of them are willing to relocate to GM's traditional home base in southeastern Michigan. Instead, they're going to companies like Tesla Motors and Alphabet -- and to tiny start-ups in places like Silicon Valley.

Like several rivals, including BMW and Ford , GM has started building a presence in Silicon Valley to help it acquire the best available talent. And like those rivals, as well as major auto-industry suppliers such as Delphi, GM has also been acquiring or making significant investments in promising small companies in the region.

If Re/Code's report is correct, GM is paying a very steep price for 40 new employees. That suggests that there might be more to the story than GM is saying. It's possible that there's something in Cruise's existing technology that will allow GM to take a significant step forward toward fully self-driving vehicles.

What's next for GM: GM has been working for several years on a suite of self-driving technologies that it has tentatively named "Super Cruise." The first production iteration of that system was slated to come to market this fall on the 2017 Cadillac CT6 sedan -- but GM said in January that it has delayed the introduction of the system until sometime next year.

That suggests that while GM has been showing off prototypes of Super Cruise for several years, it isn't happy enough with the current state of its technology to bring it to market. It's possible that the team at Cruise Automation, or some aspect of its technology, will help GM bring a better system to market more quickly. We'll probably know more in a few months.

The article General Motors Buys Cruise Automation: What It Means originally appeared on Fool.com.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. John Rosevear owns shares of Ford and General Motors. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Ford, and Tesla Motors. The Motley Fool recommends BMW and General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.