As we enter the holiday season and the conclusion of 2024, thoughts turn to what lies ahead. To a large degree, trying to predict the future is a fool’s errand, but that doesn’t mean it’s not fun to try! In the very niche world of finished vehicle logistics, change traditionally has been incremental and not radical, occurring at the margins. Today, the ships, railcars, and transport supporting the North American market don’t look much different than they did ten or even twenty years ago. While the technology that helps organize, monitor and control vehicle distribution has improved, the overall process for ordering, building, and distributing vehicles is largely unchanged. But will this be true in ten years? What would be the catalyst to drive a major change?
Over the next three posts, I will share my thoughts on how the emergence of autonomous vehicles will change the fabric of the automotive industry and what those changes could mean for the finished vehicle logistics process.
Part One: Autonomous vehicles: a paradigm shift
Over the years, organizations like the EPA, the Federal Highway Administration, and the insurance industry have examined vehicle usage. On average, the typical private passenger vehicle is driven 6 – 10 hours weekly. Despite the convenience, for most people, the expense of owning and maintaining a car with such a low utilization rate represents a tremendous inefficiency. Yet, we are willing to take on the cost for the convenience of having a vehicle instantly available when we want it.
Until recently, self-driving technology had not advanced to "Level Four" autonomy, defined as the ability of a vehicle to handle all driving tasks in a designated area or within specific conditions without human intervention. Today, Waymo and Cruise offer autonomous rideshare services daily in a growing number of cities. Recently, Tesla announced that it expects its "Full Self Driving" to provide Level 4 autonomy beginning in 2025. Anticipated improvements in artificial intelligence and falling hardware costs for the sensors required to support autonomous operation should result in vehicles with Level Four capabilities being widely available in ten years. Perhaps even more importantly, there are already indications that the incoming Trump administration will prioritize the completion of the regulatory and legal framework to support autonomous vehicles at a federal level. But will, or should, consumers buy them?
This is a fundamental question. Suppose Waymo, Tesla, and others offer on-demand mobility at scale. In that case, a significant portion of the public may no longer feel compelled to own their vehicle, particularly if the value proposition of not owning a car is compelling. Yes, there will be use cases where it may still be more convenient to have a dedicated vehicle, but will it make sense for the average family to own two or three cars when an on-demand option can be reasonably employed to meet many of their needs instead?
Even for those who choose to own a car, full autonomy creates an interesting opportunity to generate income by making the vehicle available for rideshare service when the primary owner is not using it. This offsets some ownership costs while providing additional availability to those looking to access a vehicle on demand. The owner gives up some convenience, but generating income from what otherwise would have been an idle asset may be appealing.
In a future where an increasing number of trips are being made through either commercially owned fleets or private owners looking to monetize the idle time of their vehicles, what does that mean for the overall demand for new vehicles? Higher utilization should mean fewer overall vehicles are required to meet demand, but it also accelerates the replacement cycle as cars that spend more time in service accumulate miles at an accelerated rate. As large fleet operators like Uber or Waymo (or even existing fleet operators like Hertz or Avis, which also can be expected to get into this market) purchase a growing percentage of new cars to support autonomous rideshare, it is reasonable to predict the number of traditional retail consumers to either stagnate or drop. Do these factors balance each other out and result in annual sales to track within historical norms of fifteen to eighteen million units? This seems like a plausible outcome to me. But even if volumes don’t change significantly, the growing importance of fleet operators almost certainly will shift the distribution process to where the focus is more on meeting the demands of fleet operators rather than retailers.
In Part Two, I will explore how autonomous vehicles may change the wholesale and retail process.
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