Adam Jonas, head of auto research at Morgan Stanley, is predicting the end of the auto industry “as we know it.” Or, at least, that’s what Business Insider is reporting–Jonas’ actual article appears to be behind a paywall.
As near as the Antiplanner can tell, what Jonas is actually saying is that self-driving cars will completely change the auto industry, and industry analysts who fail to account for that change will lose out. The actual title of Jonas’ article is “Death of an Auto Analyst.”
According to the report, Jonas “sees a world in which everyone rents a car instead of owning one.” This means the industry will have to change from one that sells cars to consumers to one that sells cars to car-sharing firms that rent them to consumers. He may believe that this will change the dynamics of auto making such that, for example, style becomes less important than functionality.
While self-driving cars may increase the number of people who car share rather than own, the Antiplanner is skeptical that we will ever see a time when nearly everyone, or even most people, shares rather than owns. People love to personalize their cars, something they won’t be able to do if they rent.
Believers in car sharing, including, apparently, Jonas, argue that the advantages of sharing will outweigh the disadvantages once the need for licensed drivers disappears. Instead of owning a general-purpose vehicle, people will be able to rent the exact vehicle they need for any particular use, which will often mean smaller (and more energy-efficient) vehicles. More car sharing will mean fewer cars will sit idle, some claiming that today’s cars are idle 95 percent of the time (which is only somewhat exaggerated).
Advocates of car sharing also realize that renting rather than owning changes the marginal cost of driving. If you own a car, your cost of driving on any particular trip is the variable cost, which is only about a third to, at most, half the average cost of auto ownership. In fact, if you own a car, the more you drive it, the lower the average cost, so taking one more trip not only imposes just the variable cost but reduces your long-run average cost.
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People who car share will have to pay the average cost–plus, no doubt, an additional profit for the car owner–for every trip. Since the average cost is three or more times the marginal cost, supporters of car sharing hope that more sharing leads people to drive less.
But this in itself will turn people against car sharing. People naturally separate capital from operating costs in their minds, and are willing to pay up-front costs in order to reduce their daily operating costs. Many will imagine that they can beat the odds and reduce their average costs by owning their own vehicle rather than renting.
People who need to drive during rush hours will have an extra incentive to own their own vehicles as the demand for rush-hour travel will no doubt lead to “surge pricing” of shared vehicles.
Is there anything in our society which the vast majority of people rent rather than own? Although there are rental markets available for just about everything, most people own their homes, cars, computers, the software they run on their computers, clothes, etc. About the only things the rental model dominates are things that are used just once in a while, such as in-home movies and rarely used tools or vehicles such as moving trucks. Since most car owners use their cars several times a week if not every day, they are likely to view rentals as undesirable.
I’m not making any predictions here. I believe these things are ultimately unpredictable, which means no one should make policy assuming one way or the other. But I am particularly dubious of predictions that everyone will car share in the future.
The Antiplanner will be joined by Marc Scribner of the Competitive Enterprise Institute and Adam Thierer of the Mercatus Center in a noon forum at the Cato Institute’s Washington, DC headquarters next Tuesday on the policy implications of self-driving cars. If you will be in the DC area, click here to register for the event or here to register for a similar noon event that will take place on Capital Hill on Wednesday.
Nevermind transportation, what will self-driving cars mean for the way we live? Once travel means you can easily do work, watch TV, nap or what not, how important will it be to live close to amenities?
“how important will it be to live close to amenities?”
Especially with Amazon’s drones delivering your purchases in half an hour.
“most people own their homes”
The home ownership rate is 64.7% and falling. In Seattle, that rate is 50%. NYC is about 32%.
Owning, whether a house or a car or a bicycle, is not necessarily superior—or most cost effective—than renting.
A few things the rent modelers fail to take into account are:
1. where will all these rental cars be stored? Right now millions of cars are dispersed in garages, driveways etc. If no one owns them, the number of rental cars will be huge and will need huge areas to park them until used.
2. how will people get to the cars when they need them? You can’t have a storage lot with thousands of cars in every neighborhood. Shuttle buses work fine until a lot of people need to get somewhere at the same time and/or there is bad weather.
3. Somehow governments will see that controlling the cars controls everything. The temptation to abuse this will be too great for most of our “leaders” to resist.
“where will all these rental cars be stored?”
How about on streets? Current car share companies, like ZipCar and Car2Go, park on streets. How about existing parking garage buildings?
“If no one owns them”
Of course, someone will own them. A company.
“the number of rental cars will be huge”
Any evidence or explanation why the number would be “huge”? Again, personal cars are parked most of the time. With advanced sharing, it should be possible to drastically reduce the total amount of cars needed.
” and will need huge areas to park them until used.”
There are already huge areas for parking. And your point misses the fact that cars are parked 90% of the time and the point I made above.
“how will people get to the cars when they need them?”
How do people get taxis or ride shares when they need them? Technology! Remember, these are self-driving cars. They show up to pick you up when needed.
“You can’t have a storage lot with thousands of cars in every neighborhood.” Wouldn’t be necessary. And again, there are already thousands of cars on the streets.
“Shuttle buses work fine until a lot of people need to get somewhere at the same time and/or there is bad weather.”
You’ve gone off topic here.
“Somehow governments will see that controlling the cars controls everything. The temptation to abuse this will be too great for most of our ‘leaders’ to resist.”
Perhaps. That could be said for a great many innovations, including the Internet. It’s not a good reason to avoid pursuing innovation.
Frank makes some good points. I guess as the process of rolling these out gradually goes forward, most of my issues will be answered.
Nice to have a website were people can actually discuss issues and ideas without having to constantly be on the attack.
Is there anything in our society which the vast majority of people rent rather than own?
It’s not a question of rent vs. own, it’s a service versus a good. With car-sharing you are buying an on-demand service, not a good. This is only economical where the service has enough subscribers to pay for the setup costs of buying the vehicle fleet and maintaining it. This happens to be dense urban places where, strangely, planners drink beer at brew pubs. Could it be part of their evil plan to control us?
Good point gilfoil. In terms of service, taxis are the same as car sharing. They have some minor differences in how they function at a low level. But overall you’re paying for the transportation service instead of buying the car itself. In that case, I’d imagine car sharing has the potential to spread anywhere that taxis go, maybe even more.
Telephones used to be rented to residential customers. As far as I remember, until the Bell monopoly was broken up residential customers weren’t allowed to used their own telephones. Instead you rented one for N dollars (or cents) per month.
“People love to personalize their cars, something they won’t be able to do if they rent.”
10%, maybe? Most people think of a car as an appliance. I don’t think this will be a major drag on car sharing.
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2. how will people get to the cars when they need them? You can’t have a storage lot with thousands of cars in every neighborhood. Shuttle buses work fine until a lot of people need to get somewhere at the same time and/or there is bad weather.
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~John1000
We don’t know how things will work if driverless cars do pan out. It’s hard to picture the above scenario working out well. But I think most people who picture then catching on, especially with something that resembles car sharing, assume it will be a lot more convenient.
A lot of people assume that you’ll be able to order up a car using an app on your smart phone. When you get downtown or to the mall, you’ll pay to have a hold on the car and tell it to go park itself ( ownership would probably work similarly ). Then when you’re getting done, you’ll tell it to come pick you up. Or if it’s a car as a service ( CAAS; similar to SAAS, software as a service ), you’ll pop open the app and let it know you’re ready.
The later though is a pretty big problem to solve. An advantage idea behind things like PRT, personal rapid transit, is that it has a limited number of modes. It’s a lot easier to build out software that can handle moving a couple hundred cars / pods around a network with a hundred or two hundred nodes than one that practically has infinite nodes like an automobile would have.
The question is, how long will it take for companies to build up the software and server power to implement? How efficiently can it work? A lot has been made about a car that can autonomously drive itself. But I haven’t seen much of anything for reporting on anyone building software that will ensure that cars can work together well as an overall system.
Because of that, I suspect the first generation of driverless cars won’t feel like a huge change. Sure, they’ll drive themselves. But until the network is a well oiled machine with a lot of AI behind it, I doubt we’ll see a shift from ownership to just buying a service.