Before I started my two decades in the automobile industry, in my late teens I sold life insurance. And one night in 1972, out in Euless, my appointment was with a man and his family who were of a certain solid religious belief. He graciously allowed me to make my presentation but then quickly informed me that the world was coming to an end in 1973, and therefore he did not believe in life insurance. As his family smiled and nodded in agreement with the paterfamilias, I pressed, “Then how about a two-year renewable term insurance policy just in case?” I was promptly thrown out.
Since mankind began walking the earth and communicating we have been predicting our own cataclysmic demise and, at least so far, it has failed to materialize. The same can be said for certain industries, whether it’s radio’s, newspapers’ or recording labels’ imminent disappearance being predicted. However, ratings show that radio is doing just fine and more people than ever are obtaining music they like. Likewise, more people than ever are reading news stories, several times a day. It’s just that no one wants to pay for anything anymore.
Of course along with radio, media and music, the other industry that everyone keeps claiming is on its last legs is automobiles. Forget that we purchased over 17 million new cars last year in America — a record year, by the way — while the Chinese purchased more than 20 million new cars; the word is that the day of private ownership of vehicles will end shortly. And a week ago we were warned that, if we want to save the planet from global warming we need to stop producing and selling gasoline-powered cars no later than 2035.
Still, most of the predictions for the end of the auto industry as we know it come from the media’s “flavor of the month” reporting on self-driving cars. This is mostly because Uber added a small fleet of those vehicles to the streets of Pittsburgh; they downplayed the fact that those cars may be self-driving, but at the moment they come with a live backup driver and an engineer on board.
Do what, now?
Not to be outdone, last Sunday John Zimmer, president of Lyft, said that in just five years we will crack the code and deliver vehicles that are actually capable of real automated self-driving. More important, he suggested that by 2025 human drivers will be gone from his company and the extremely low cost of self-driving cars will forever remove the need for private car ownership. Zimmer did acknowledge that for generations our automobiles have been symbols of our ultimate freedom and our identities. But, he said, that’s not true for the younger generation; and, as the cost of owning an automobile is $9,000 per year, private car ownership will not make sense in the future. The best guess here is that Zimmer surrounds himself with “yes men,” who constantly remind the boss how smart he is with his predictions.
First, while it may be true that if one adds the average monthly payment on a new car, plus insurance, gasoline and maintenance, the total might well be $9,000, most shoppers can find exceptional values in the new car market. Recently, for example, we’ve had Nissan Altimas on lease for $199 a month with just first payment due at delivery; and that can be calculated out to a $5,200 annual cost including gas, insurance and upkeep. Many individuals own cars fully paid for today, and that will continue into 2025; their cost to continue to drive would fall under $2,500 per year even counting insurance, maintenance and gasoline.
Further, it must be noted that the truly wealthy will still love their BMW, Mercedes, Lexus, and Genesis models, and annual costs will not concern them in the least. No, to kill an industry you have to create something that is demonstrably better and typically less costly than whatever came before.
Oh, and whatever you dream up must also be more convenient than what you’re currently using. Think of the progression that began with the large radios that entertained our grandparents and great-grandparents at night. Those behemoths were replaced by a much smaller, less expensive portable home radio, which was replaced by transistor radio. A Walkman, onto which you recorded your own music would replace the transistor radio and in time was replaced by a $45 iPod mini, where you downloaded your own music. Adjusted for income inflation, the original big home radio that would cost $1,200 in today’s money was replaced by a $45 iPod mini and that entertainment evolution took 90 years.
There’s one other critical factor involved: the undeniable convenience of having your own personal car in your driveway for immediate departure. True, the “self-driving car you don’t own” club believes they can have any vehicle to your doorstep in minutes — they can’t, and won’t ever be able to, because of the large number of people who want to be on the road at any given moment — but that’s still not as fast as we demand. Let’s face it, the speed limit between Fort Worth and Dallas on I-30 is 60 mph, but everyone does 80 because getting to Dallas seven minutes faster is, apparently, critically important. (And doing so wastes 35% of our vehicle’s fuel efficiency also.) So, do you think you’re going to wait that seven extra minutes just for a car to get to your house? And then sit in it doing nothing while it actually obeys the speed limits? Doubtful.
There’s also the matter of financing. Today we have millions of cars on new car dealers’ lots for sale, and the cost of stocking that inventory comes out of the dealer’s personal credit line. When cars are purchased, typically they are financed based on the consumer’s personal credit line. But self-driving cars on demand will be owned by the Ubers and Lyfts and so on, meaning those companies will have to finance their purchases. At its most extreme, replacing the nation’s 240-million car fleet with self-driving vehicles in one year, assuming the average cost can be maintained at today’s prices, the amount to finance comes to $8,040,000,000,000. Yes, quadrillion. Of course today the average individual owns his or her car for almost 12 years; the rollover for a private self-driving car fleet would probably happen over a similar period, assuming these business fantasies are correct. Therefore, the amount to borrow per year based on a 12-year turnover of the fleet would be $670,000,000,000. Even a company with a market cap of $50 billion might have a hard time getting a credit line like that.
As stated in earlier columns, there will be a huge market for self-driving cars. That’s the 79 million Baby Boomers as we age, become less mobile, and don’t want to give up our independence. Given the choice of assisted living or a car that can take you shopping and so on, we’ll go with the self-driving car.
But even using the math that the heads of Uber and Lyft keep throwing out, suggesting that their per-mile prices will drop like a rock once they get rid of their biggest expense — their drivers — doesn’t work. Slash the fares in half once you go driverless, and it still costs more for the average person to travel 15,000 miles per year than owning your own car does. These guys may be geniuses with complex software code and computer servers, but they still can’t do 4th grade math.
Nor are they historians of how business invention and consumer preferences happen and evolve over time. And neither one of those two realities favors their positions.