A Look Ahead: Finished Vehicle Logistics in 2035

As we begin 2025, 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? 

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 4" autonomy, defined by SAE International as the ability of a vehicle to handle all driving tasks in a defined area or within specific conditions without human intervention.  Today, Waymo offers 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 4 capabilities being widely available in ten years, with a decent probability that we will see fully autonomous Level 5 vehicles enter service by 2035.  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, 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 to a meaningful number of consumers.  Turo, which provides a platform for individuals to rent out their vehicles, is helping set the foundation for monetizing some of the hours when a vehicle is otherwise idle..

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.

Manufacturing and retail transformation

Globally, 27 OEMs produce at least 100,000 vehicles per year or more.  This is slightly more than in 2010, as companies like Tesla, Rivian, BYD, and Geely either did not exist or were an insignificant part of the market.  The increasing number of OEMs in the past 14 years flies against the long-held conventional wisdom that the automotive market would consolidate into just a handful of major OEMs.  While some consolidation has occurred, most notably the folding of FCA and PSA into Stellantis, the emergence of new EV-focused OEMs has expanded the number of global automotive producers.  But will this continue?

Even for the largest OEMs, the massive investment in transitioning from internal combustion engines to EV and other “clean” alternatives is challenging.  Former Stellantis chief Carlos Tavares has been particularly vocal in stating the need for massive cost-cutting and restructuring to fund this transition.  OEMs are also looking at technical partnerships, such as the joint venture agreement between Rivian and Volkswagen to develop software and electrical architecture.  Despite some recent slowing in EV adoption and renewed interest in alternatives like hybrid powertrains, the need to comply with increasingly stringent government emissions targets, as well as the fact that all autonomous vehicles will almost certainly be built on EV platforms, exerts tremendous pressure on OEMs to seek the scale that can only come from consolidation. If completed, the nascent merger discussions between Honda, Nissan, and Mitsubishi will result in the third-largest global automaker.  Finally, Nick Colas, co-founder of DataTrek Research and former senior equity automotive analyst for SAC Capital, said we may see an industry where Tesla and Toyota are the only remaining major manufacturers.[1]  Whatever the outcome, it appears that the long-awaited consolidation is accelerating.

OEM consolidation has ramifications for retailers.  For many years, the automotive dealer network has been consolidating into larger stores owned by big dealer groups like AutoNation and Sonic Automotive.  Concurrently, legacy OEMs like General Motors and Ford have reduced their overall dealer count, weeding out smaller, marginal franchisees.  Meanwhile, Tesla’s direct-to-consumer sales process was the first significant challenge to the long-dominant franchised dealer model that has defined the mass market retail marketplace in the US for decades.  New EV entrants like Lucid and Rivian have also adopted the direct sales model rather than the more traditional franchise model.  As autonomous vehicles, many owned by fleets, grab a larger share of the new vehicle marketplace in the next ten years, how will that impact the retail environment?

Most big fleet operators already order and take delivery of vehicles largely outside the franchise dealer system.  Assuming fleets represent a more significant (and potentially, majority) percentage of the market in the next ten years, the pressure for franchised dealers and the brands those dealers represent to consolidate will continue.  There are advantages to having a retail dealer network, which provides OEMs a way to reduce inventory carrying costs while delivering critical service support, a key part of customer retention.  Auto dealers also have accrued a great deal of political influence at the state level, with the ability to challenge and help shape any emerging threats to their market position.  If history is any guide, dealers will adapt to a new world of autonomy and find ways to attract and retain what will be a smaller but still meaningful retail market. 

So, what does all of this mean for finished vehicle logistics?

Let’s start with arguably the most important leg:  the final mile.  The good news is that if you own a trucking company, OEM and dealer network consolidation, coupled with a higher percentage of vehicles going to fleet operators, should result in fewer drops and more efficient use of equipment.  Innovations in process-driven AI will revolutionize and streamline the dispatch and routing process.  The downside is that fewer OEMs mean fewer customers, with the remaining OEMs exerting greater influence over rates and terms.

For the drivers of those trucks, even if the cars they are hauling are autonomous, it seems unlikely they will load and unload themselves in the next ten years without human oversight.  While autonomous commercial trucks are on the road to reality, the unique demands of car hauling, from inspections to load securement, navigating congested city streets, and adjusting to the multitude of conditions and demands encountered at every drop necessitates the continued presence of a trained professional.

So, what about rail? With roughly 70% of new vehicles traveling via rail at some point in the journey, rail transport will continue to be a critical part of the finished vehicle supply chain.  As the production of mass-market vehicles continues to occur in large, centralized production facilities, many of which are clustered in key manufacturing regions in the Southeast US, Michigan, Ohio, and the Toronto metro area, rail will continue to be the cheapest and most effective method of moving vehicles over long distances. 

Rail innovation will occur in areas like the evolution and refinement of Positive Train Control (PTC) and the expansion of the RailPulse real-time tracking initiative. While controversy remains over the costs and effectiveness of PTC, the trend towards greater automation seems inevitable. These innovations are not specific to finished automotive logistics, but automotive logistics will benefit from the operating efficiencies they generate. 

The one trend that could disrupt the use of rail in the movement of finished vehicles is if production is decentralized.  EVs are less complicated to assemble, and with expected advances in manufacturing automation, moving production closer to consumers is a real possibility, although probably not within the next ten years.  Even then, if batteries continue to be built at scale in gigafactories, moving those batteries to support decentralized production plants is a task that will likely involve the use of rail. 

Lastly, let’s consider what we can expect at the ports of entry and other larger distribution nodes over the next ten years. An auto-marshaling facility's tightly controlled and structured environment would seem ideal for autonomous vehicles.  Integrating vehicle telematics and connected “Internet of Things” (IoT) devices into advanced yard management and optimization software would provide facility operators with total, round-the-clock control of vehicle movements and the ability to monitor vehicle conditions in real-time, all while reducing theft and handling damage.  However, there are a couple of key challenges to this becoming a reality, at least within the next ten years.

First, and perhaps most significantly, many vehicle distribution facilities have unionized workforces, particularly at the ports of entry. As the dispute with the International Longshoreman’s Association highlighted, automation is seen as direct competition for labor.  Unions will not willingly give up jobs in the name of automation without gaining meaningful concessions.  Even if the cars drive themselves, that does not mean there won’t be a longshoreman sitting inside.  So, while we may see the introduction of automation in vehicle handling within the next ten years, any hoped-for reductions in labor costs likely will be muted.

The second challenge is that even ten years from now, facility operators will still handle a mix of autonomous and non-autonomous vehicles. Internal combustion vehicles will remain part of the new vehicle mix, albeit in declining numbers. To date, autonomous capabilities have been exclusive to EV passenger vehicles, with no OEM expected to incorporate autonomous technology into their gasoline or hybrid-powered cars. Human and AI-powered drivers will need to coexist.    

Whatever happens, it will be interesting

Admittedly, my predictions depend upon the growth of EV adoption and the advancement of vehicle autonomy. While EV adoption has slowed recently, EVs will almost certainly be the platform upon which robust and reliable autonomy will be based. Automotive purists may lament not directly piloting their vehicles, but for the majority of motorists who view an automobile essentially as a transportation appliance, the appeal of autonomy will be powerful. If those autonomous vehicles prove cheaper to insure, that will strengthen the appeal even more.  Once the market moves towards autonomous EVs, there will be pressure to remove any remaining legal or regulatory hurdles.

Because autonomous EVs represent a paradigm shift in personal transportation, profound changes will occur in the ways vehicles are built and sold, and those changes will also reshape the process of finished vehicle logistics. The next ten years should be fascinating!

[1] Compound and Friends #108 https://www.youtube.com/watch?v=V0dqoptI84s  minute 40:18