Business Ideas

The concept of a car that drives itself is thrilling to some, disquieting to others. But it’s no longer preposterous.

By the middle years of this decade, several auto makers could offer technology to make vehicles capable of piloting themselves under certain conditions without the direct participation of the driver.

Joe White on Lunch Break points out a few things to know about how car makers could take more of the task of driving out of a motorist’s hands. Photo: Mike Sudal.

The auto industry has intensified its research on how to link cruise control, steering, brakes and the cameras and sensors used for collision-avoidance systems into an integrated system able to guide a car safely.

Cars that can “see” the road, sense potential dangers and steer, brake and control speed automatically could ease the drudgery of stop-and-go traffic or long drives, and prevent many accidents caused by drowsy, inattentive or impaired drivers. But that optimistic view would sour if consumers came to distrust the technology’s reliability, or suspect that the real goal is to give control of their car to someone else, such as a government agency.

The autonomous car idea got a boost in 2010 when Google Inc. disclosed its effort to perfect the technology. Google’s fleet of about eight cars uses sophisticated sensors and the company’s mapping data to locate the car precisely and plot a route.

“We want to improve the quality of driving,” says Anthony Levandowski, the project manager for Google’s self-driving-car effort. Still, Google doesn’t yet know exactly “what the business model is for a return on investment,” he says.

National Highway Traffic Safety Administration officials have shown interest in autonomous-driving technology and the agency is planning research to better understand the potential safety benefits. Nevada has passed a law allowing autonomous vehicles to operate on its roads, and California is considering similar legislation.

Here are five things to know about the self-driving car phenomenon:

Safety Is Just One Goal

Proponents of autonomous-car technology say that, once perfected, it will be safer and less error-prone than human drivers, and will help reduce the more than one million deaths each year world-wide related to auto wrecks.

As car makers have equipped vehicles with air bags, stability-control systems, computer-assisted antiskid brakes and more crashworthy body designs, traffic-safety regulators have shifted their focus to driver behavior—and various ways to control it. Among the risks of trying to minimize the driver’s role are that motorists will reject the technology.

Autonomous-driving backers cite other benefits. “If you free an hour of commuting time, that’s productivity,” says Nady Boules, director of the electronics and controls integration lab in General Motors Co.’s research and development department.

Google executives have talked about autonomous cars as a way to encourage car sharing, since a user could quickly and easily summon one.

Building on What’s Out There

Auto-industry officials say they will take a measured approach to introducing autonomous driving to the mass market, building on technology that’s already available and familiar.

GM’s Cadillac brand has demonstrated a feature called “Super Cruise,” which would allow a vehicle to drive itself on a highway, automatically adjusting speed, staying in a lane and avoiding other cars. That technology is still in testing, but the brand will offer models this year equipped with “driver-assist” features, such as “full range adaptive cruise control” that will slow the car to a stop if a vehicle ahead stops.

Christian Schumacher, director of engineering systems and technology for Continental AG’s North American automotive unit, says his company is working on a system it calls “Traffic Jam Assist” that would link the car’s cruise control, lane-keeping system, steering and brakes to allow the car to pilot itself at speeds below about 35 miles per hour.

Google’s approach is different, says Mr. Levandowski. “If you had the ability to invent a car from scratch today,” he says, “you would probably design it differently.” Proving the reliability of a fully autonomous system is Google’s main goal, he says.

Trust is Critical

Building a car that can drive itself won’t be enough, engineers say. The bigger challenge will be getting consumers to trust the technology.

“Are we going to let computers run our lives, and especially our cars?” Ford Motor Co. engineer Jim McBride asked, taking the point of view of customers during a discussion of robotic driving earlier this month at the University of Michigan.

Mr. McBride said customers have come to accept some driver-assistance features that effectively put computers in charge.

But he noted that human drivers, on average, will travel 70 million miles before being involved in a fatal car wreck. That’s a challenging reliability target for self-driving car systems. Google’s cars so far have logged about 200,000 miles.

Technology Isn’t the Obstacle

Liability concerns “could be an incredible barrier” to autonomous cars, says Gary Marchant, a law professor at Arizona State University in Tempe. By offering a fully self-driving car, auto makers could be assuming the risks if—or when—one of the cars gets in a serious accident.

Among the possible solutions, he says, would be legislation shielding auto makers from state liability claims, or arrangements in which car makers pay more for liability insurance, passing on the costs to car buyers with the understanding that insurers will charge them less because their self-driving cars are safer.

Dorothy Glancy a law professor at Santa Clara University in California, says legal complications make it unlikely that self-driving cars could provide independent mobility for people whose disabilities make it impossible for them to drive now. “It’s kind of an illusion that they’ll be able to drive themselves by themselves to a doctor appointment,” she says.

Saving the Romance of the Road

If every car is a pod that guides itself from Point A to Point B at a predetermined speed, on a set route, fewer people might feel the emotional tug required to spend $70,000 on a high performance luxury sedan. That’s not what car makers want.

“A car is not an appliance,” says Don Butler, vice president of Cadillac marketing. “We are not just a node in the network. I want people to enjoy the vehicle.”

Filip Brabec, product-planning manager for Audi’s U.S. operation, says the purpose of self-driving technology is to relieve the driver of mundane tasks. He says the company is working on systems that could automate driving in slow traffic, including systems that can read traffic signs. Half of the buyers of its A8 sedan already order a package of systems including radar-enabled cruise control and brakes that engage when the car senses a coming collision.

“Then, when you want to have fun and drive,” he says, “we want you to be able to drive the car.”

Write to Joseph B. White at joseph.white@wsj.com

A version of this article appeared April 18, 2012, on page D3 in some U.S. editions of The Wall Street Journal, with the headline: But Can It Find the Perfect Parking Spot, Too?.

By NICK TIMIRAOS

The Federal Reserve has pushed mortgage rates to near half-century lows, but millions of U.S. homeowners haven’t benefited from that because they can’t—or won’t—refinance.

Falling home prices have left many owners with little or no equity, making it harder to qualify for refinancing. Moreover, stricter lending standards and higher fees by banks and mortgage giants Fannie Mae and Freddie Mac and declining incomes have made it tougher and less attractive for borrowers to seek new loans.

Around 37% of all borrowers with 30-year conforming fixed-rate mortgages—who collectively hold about $1.2 trillion of home loans—have mortgage rates of 6% or higher, according to investment bank Credit Suisse. Many could reduce their rates by a full percentage point if they refinanced at current rates, about 5%. More than half could lower their rates nearly three-quarters of a percentage point, according to Credit Suisse.

But new refinance applications in January stood near their lowest levels in the past year. Weekly data compiled by the Mortgage Bankers Association also show that refinance activity has been muted, considering that rates are so low.

“Traditionally, these borrowers would be aggressively refinancing,” said Mahesh Swaminathan, senior mortgage strategist at Credit Suisse.

Click on image to enlarge

One indicator of the economic impact of refinancing: Loans that refinanced in 2009 will result in $3.4 billion in savings for consumers this year, according to a report by First American CoreLogic, a research firm based in Santa Ana, Calif. That will return an additional $17.2 billion in savings to borrowers over the next five years. That’s money consumers can potentially use to help spur economic recovery.

About a quarter of all mortgage holders are “underwater”—they owe more on the house than it’s worth—which normally makes it impossible to get refinancing: Banks want collateral to back the value of home loans they make. The Obama administration recently extended a program intended to help underwater homeowners refinance, but few people have tapped it so far. The program has faced logistical hurdles, delays and confusion from brokers and lenders.

Some people are so far underwater, refinancing ends up being out of the question. John Albright, a retired Navy officer in Manassas, Va., hasn’t been able to refinance because the value of his home has plunged. He figures its market value is now around $275,000, but he and his wife still owe more than $500,000 on their mortgage.

Their refinance application was turned down last year because they lacked equity in the home. He says his lender told him he could refinance only if he could come up with about $200,000 to pay down his mortgage. So they are stuck with an interest rate of about 6.5% at a time when his wife’s income has declined. “We’re going from paycheck to paycheck, but what can you do?” Mr. Albright says.

Some mortgage bankers say higher fees by lenders have undermined the effort to encourage refinancing. Fees that Fannie and Freddie began imposing in 2008, as loan delinquencies began to rise, have made it unattractive for some borrowers to refinance. For example, a borrower with 20% down and a 695 credit score seeking to refinance must pay fees equal to 1% of the loan amount. Those fees rise for borrowers with weaker credit scores, higher loan-to-value ratios, or other risk factors.

Overcorrecting for the abuses of financial institutions “has defeated the Fed’s purchase program,” said Alan Boyce, a mortgage-securities-market veteran. Those loan fees, he said, are partly “responsible for why there’s been no refi boom.”

The higher fees and tight credit standards show the tensions facing Fannie and Freddie. As the government-controlled companies try to raise revenue to offset their losses, those efforts can conflict with their basic public-policy mission: to help stabilize the housing market.

Fannie and Freddie have to strike a balance between risk and access to credit. Figuring out “where that line is involves some trade-offs,” said Edward DeMarco, acting head of the Federal Housing Finance Agency, which oversees Fannie and Freddie.

The last time mortgage rates were at current levels, in 2003, refinancing activity hit $2.9 trillion, according to trade publication Inside Mortgage Finance. Last year, refinance volume reached $1.2 trillion, the highest amount since 2003 but not nearly as much as expected, considering how low interest rates have fallen.

Traditionally, borrowers have an incentive to refinance when they can reduce their mortgage rate by one percentage point or more.

Borrowers who are refinancing tend to be those who need it least. Fannie and Freddie refinanced 4.2 million borrowers last year. On average, borrowers who refinanced through Freddie Mac saved $2,600 annually. But the savings on the whole have gone to “very, very good credit borrowers and it really isn’t going very far down the credit spectrum,” said Michael Fratantoni, the head of research and economics for the MBA.

The experience of Connecticut resident Cathy Grandahl shows some of the trade-offs borrowers must grapple with in today’s low-interest-rate, high-fee environment. She wanted to refinance two loans on her West Simsbury, Conn., home: a fixed-rate mortgage with a 5.75% rate and a second mortgage with an adjustable rate that she worries will rise sharply in coming years.

Refinancing would save them around $125 a month on their first mortgage while providing a fixed rate on their second loan. But extinguishing that mortgage by refinancing into one larger loan—considered a “cash-out” refinance—would trigger an additional fee. That, plus several thousand dollars in closing costs, ultimately persuaded the couple not to refinance after all.

“It’s not a matter of our credit. We just can’t get a good enough rate to make the refi worth it,” says Ms. Grandahl, a 53-year-old land-records researcher who has three children in college.

Her broker, Michael Menatian, said that sort of scenario “happens all the time” with qualified borrowers. “There’s nothing wrong with these people—good equity, good income—and you have to tell them, ‘I’m sorry, I can’t give you the low rate you thought you could get.’ “

Falling home values are one of the biggest factors raising borrowers’ refinancing costs. Borrowers with less than 20% equity may have to pay for mortgage insurance.

On Monday, the Obama administration said it would extend for a year a program launched last April to help homeowners with little or no equity to refinance. That program, which had been set to expire this June, was called a “failure” last week by analysts at Barclays Capital. While the administration had said it would benefit millions, so far just 188,000 borrowers who owe between 80% and 105% of the value of their homes had refinanced through December. Last September, it was expanded to include borrowers who owe up to 125% of their home value, but fewer than 2,000 borrowers have used that program through December.

The administration says it is also considering new ways to allow distressed homeowners to refinance through the Federal Housing Administration.

—James R. Hagerty contributed to this article.

Write to Nick Timiraos at nick.timiraos@wsj.com

By MELISSA KORN

INSEAD had big dreams when the business school ventured into Abu Dhabi in 2006: A lucrative executive-education program would draw wealthy midlevel managers from the Gulf region, and the campus would give the school a new research hub in a fast-growing economy to complement its existing operations in Fontainebleau, France, and Singapore.

The school, which launched its Abu Dhabi executive M.B.A. program in 2010, now has a 14-story building in the city—including a restaurant, library and prayer rooms—but just four resident professors and 30 executive M.B.A. students. Its nondegree executive-education courses have about 1,000 participants this academic year, about one-third the size of its Singapore program and one-fifth the figure in Fontainebleau.

Some professors are feeling discouraged about a program they see as adrift, and school administrators and government officials are reassessing the program’s future. INSEAD’s new dean says the process has been challenging, as is any new venture.

INSEAD’s case underscores the difficulties some schools are facing in the Gulf region, though other schools have gotten traction.

INSEAD began discussions with Abu Dhabi in 2006, formally establishing a presence in the United Arab Emirates capital in 2007. In exchange, INSEAD says, it received an upfront endowment contribution of between €50 million ($66 million) and €55 million, and annual payments from the government of between €1.5 million and €2.2 million for a decade. (INSEAD officials say the school invested “a few million euro” in the campus.) The Abu Dhabi campus hosted its first Global Executive M.B.A. session in fall 2010 and offers nondegree executive-education and research programs.

The Abu Dhabi government recently asked the school to restate its plans for the campus. Eric Ponsonnet, director general of administration at INSEAD, says the school is complying with the request and will present a new plan later this year. Abu Dhabi education officials say they’ve asked this of other schools, too.

There is a formal, written contract with the Abu Dhabi Education Council, but INSEAD declined to provide a copy, citing a confidentiality agreement.

One point of contention, according to some faculty and administrators, is whether the school agreed to start an M.B.A. program. While it may not have been in the original contract, according to INSEAD’s administrators and Abu Dhabi officials, the Abu Dhabi side appears confident that a program is in the works.

Even Dipak Jain, who took the helm as dean of INSEAD last July, says that he struggles to understand the murky particulars of the arrangement. “I am trying to understand very clearly what were the deliverables, [and] what was promised,” he says.

Mr. Jain says there is no plan for an Abu Dhabi M.B.A. degree in the immediate future, but says INSEAD will offer two-month M.B.A. courses for students beginning next year.

Jihad Mohaidat, who manages global partnerships for the Abu Dhabi Education Council, says those who express confusion over the arrangement “are confused themselves,” and maintains that an M.B.A. is “part of the vision going forward.”

By opting for a full-fledged campus branch rather than a joint venture with a local institution, “We have all the problems and all the opportunities of any global business,” says Hal Gregersen, senior affiliate professor of leadership and a resident faculty member in Abu Dhabi.

To be sure, some schools have successfully staked claims in the U.A.E. New York University, which signed an agreement with the Abu Dhabi government in 2007, enrolled 148 students in its inaugural fall 2010 undergraduate class. NYU says that demand has been strong, thanks to generous government-sponsored financial aid, and when the school moves into a new facility in 2014, NYU says it anticipates admitting an undergraduate class of 2,000 to 2,200 and several hundred graduate students.

In the business-school market, London Business School and City University London’s Cass Business School both launched executive M.B.A.s in neighboring Dubai in 2007. London enrolled 113 in its most recent class, and Cass another 116.

Others have had a harder time breaking in. Duke University’s Fuqua School of Business in November announced it would launch a Master of Management Studies in Dubai this spring. But creating the new degree program “has turned out to be somewhat more complex than we anticipated,” says Kevin Anselmo, associate director of public relations. The school declined to provide details of a new start date.

Mr. Jain, INSEAD’S dean, says there is little value in dwelling on past events, and the school must now turn its attention to future plans. To that end, he has helped to reconvene an advisory board stipulated by the original contract, with regular meetings to monitor the school’s progress.

Mr. Mohaidat of the Abu Dhabi Education Council says that Abu Dhabi’s relationship with INSEAD is “flourishing,” citing future growth prospects, and INSEAD administrators say there is no plan to shut down the campus—but there are likely to be changes ahead. “The big question is, what do we do next?” says Mr. Ponsonnet. “This is not solved yet.”

—Margaret Coker contributed to this article.

Write to Melissa Korn at melissa.korn@wsj.com