Can Apple Make Ford, GM, Mazda Cool?

Apple Computer Inc. said Thursday it has sealed a deal with three top automakers to integrate the iPod into car audio systems.

General Motors Corp., Ford Motor Co. and Mazda Motor Corp. will offer integration in most cars. The new alliance means the tech-audio gadget will work in more than 70 percent of the 2007 model vehicles sold in the United States.

GM and Ford will provide the Apple feature in the majority of their 2007 models in the US beginning later this year, while Mazda's entire global 2007 lineup of cars and SUVs will offer iPod connectivity.

For GM, pulling together the deal and platform to install the add-on feature took about eight months. "We were able to integrate the module with some of the exiting electronics," said Nancy Phillippart, executive director, GM Accessories. "The iPod will tie into the XM Radio, which we have in all our vehicles, through a cable."

GM said it will offer the iPod integration as a dealer-installed option called "Personal Audio Link." An adapter integrates through the radio's digital XM Satellite radio band, no activation required.Consumers can use the buttons located on the steering wheel to control the iPod through the radio. The device will begin selling at GM dealerships for less than $160, plus installation, in October for some 2006 models, followed by others in 2007.

Credit Suisse First Boston analyst Jason Maynard said the move demonstrates the lead Apple has on Microsoft Corp. in the portable music market. "Microsoft is playing catch-up and it will take them some time to close the gap," he said.

Microsoft is just tying to make a credible entry into the market sometime this year, says Cowan and Co. LLC senior research analyst Walter Pritchard.

ThinkEquity Partners next-gen computing and communication analyst Jonathan Hoopes says the deal will drive more sales through the iTunes Music Store, and estimates Apple will sell more than 40 million iPods this year, up from nearly 32 million in 2005.

Giving consumers a method to integrate the iPod into their car could also boost podcast use, says eMarketer senior analyst James Belcher.

While the deal sings sweetly for Apple, it doesn't necessarily lockout Microsoft Corp.'s upcoming music player Zune and related music service. "We know Apple controls the largest share of MP3 sales, but we are always looking at other options to meet the entertainment needs of our customers," Philippart said.But can the music connection with Apple breath a bit of coolness back into GM and Ford? Earlier this week the two reported a drop in U.S. auto sales during from a year ago. The world's No.1 automaker GM earlier this week reported that sales fell more than 22 percent for a total of roughly 406,298 vehicles sales. Ford Motor Co. also performed poorly, selling roughly 241,339 cars and trucks, down from 366,548 a year ago.

Burnham Securities Inc. auto industry analyst David Healy attributes the decline in sales this year to an excellent employee discount program in 2005. Although adding an iPod adapter to the car might not seal the deal on millions of new-car sales, "having the ability to control the iPod through the steering wheel may tip one or two buyers over the edge to go for the car that offers the feature."