This article was first published at The McAlvany Intelligence Advisor on Friday, May 22, 2015:
SAVs are “shared autonomous vehicles” – driverless, robotic automobiles – and they are already raising serious questions that GM and Ford are just starting to address. Questions like: what business are we in today? What business will we be in tomorrow? Twenty-five years from now? Will we be in the car business or the transportation business? What does that mean? What do we do now so we’re still around and profitable then?
GM spokesman Jim Cain put the SAV revolution in the best possible light:
Intelligent and connected technologies hold tremendous potential to enhance driver safety and convenience, and they will create new mobility options for many drivers.
We’re not going to speculate about future sales [but] we’ve looked over the horizon and contemplated how [this] technology may change the market. Our designers, scientists, and engineers are working at the cutting edge, and we’re confident that GM will be very successful.
It’s not known if Cain was around when GM last had its brush with death, only to be resurrected with taxpayer guarantees granted by Obama. But underneath, GM is scrambling. Daimler AG is already at least two years ahead of it, having established in 2013 its mobile services subsidiary, Car2Go, which has more than 750,000 customers in 27 countries, able to ring up a Smart car at a moment’s notice using their smartphone. One day, very soon, those cars will show up without drivers.
Google’s experiment with its SAV last fall was instructive, and likely unnerving for GM. Using a tricked-out Prius and a pre-determined course, Google’s car succeeded in making its way around corners, avoiding construction sites, accelerating onto highways, avoiding collisions and in general impressing the engineer-driver, who only had to touch the steering wheel a couple of times to keep it on course.
Also likely unnerving to GM and Ford and other traditional carmakers was the report released on Tuesday by Barclays Bank called “Disruptive Mobility.” This title no doubt was an oblique reference to Austrian economist Joseph Schumpeter’s comment that the free market was forever and always in the “process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one.”
The author of the report, Brian Johnson, sees the day 25 years from now when there are just 100 million cars on American roads (there are 250 million now) and fewer than 10 million new ones being sold every year (fewer than were sold in 2009, the bottom of the Great Recession). He sees a day when Ford has shrunk to three-fifths of its current size, while GM, if it’s still around at all, will be at least two-thirds smaller than it is today.
Each of those SAVs will cut vehicle costs drastically. Researchers at the University of Texas estimate that each SAV could replace up to nine traditional individually-owned vehicles and cut costs by nearly 60 percent. If a vehicle were shared with one other passenger, costs would drop even lower, to an estimated $0.16 per mile.
The driverless car revolution will have impacts elsewhere. Tesla might find its high-end high-performance cars going begging, but its battery business exploding (so to speak!). Elon Musk is already pushing his company in that direction. GM and Ford might be forced to change their business models under which they have operated for decades, just as the British firm Riversimple has. That company builds fuel-cell powered two-seaters, but doesn’t plan to sell them. Instead they will offer transportation services with them. They find themselves in the transportation business rather than in the car business.
Environmentalists will have one less thing to complain about. With 60 percent fewer cars on American roads, that means at least an equivalent shrinkage in those horrible terrible unthinkably awful pollutants that they are using as an excuse to expand government. Families will see how silly it is to have two or more $20,000 cars in the garage, eating up car payments and suffering depreciation while only being used for runs to the store and to soccer practice. Especially when, with their smartphone, they can call up an SAV – think Uber without a driver – to take them there. Researchers at the University of Texas have already estimated that vehicle costs for the average family will drop an astonishing 60 percent using SAVs. And if the kids catch a ride with others on the way to practice, the cost per mile becomes a rounding error in the family budget.
It will also impact the decision oldsters will be making when they discover that they can no longer drive their own cars. Decisions about moving to a retirement home will be put off, perhaps permanently.
Schumpeter was right. Left alone, the invisible hand of the free market will create (and destroy), in the process of making life better for everyone. Just as the Model T replaced the horse, so will SAVs replace them both!
Detroit Free Press: Analyst: Driverless cars will cut U.S. sales by 40%
The Nature of Things: The Future is Driverless Cars