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by Paul Mampilly, Editor, Profits Unlimited
“Will we need to learn to drive?” my son asked me recently.
Before I tell you what I told him as an answer, I want to give you an idea of why he asked me this question.
You see, right now, we’re at a moment when things that once seemed permanent are now in question.
Cars and driving are one of these things. Just to get a sense of car history, consider this:
Nelson Jackson, Sewall Crocker and their dog, Bud, made the first successful transcontinental automobile trip in 1903. Car technology was primitive. They relied on stagecoaches to ferry spare parts.
One time a cow had to tow them. And another time, a team of horses had to be sent to get them out of a Vermont bog. The 4,500-mile journey took 63 days, 12 hours and 30 minutes.
Few then would have imagined what would happen next.
An Insane Level of Growth
Incredibly, the U.S. went from 800 cars in 1900 to 458,500 in 1910 to 8.2 million cars by 1920 to 253 million now. That’s an insane level of growth.
And car growth has exploded even higher in recent years. In 2016, U.S. vehicle sales totaled 17.55 million. That beats 2015’s record of 17.47 million and was the seventh consecutive year of unprecedented growth.
However, I’m incredibly pessimistic about car sales because I believe that we’ve seen their peak.
In 10 years, we’ll have fewer cars on the road. And fewer still in 20. That’s why I told my son it’s unlikely he’d need to learn to drive.
The reason I’m so pessimistic is because new innovations are going to wipe out cars as we know them.
A Total Wipeout for the Auto Industry
The average price of a car is $35,000, but the costs of traditional car ownership go far beyond the price tag. There is also interest paid on car loans, insurance, taxes, fuel and maintenance. Some expenses are nonobvious, such as parking, property taxes and construction costs for home garages, and the value of our time.
And according to research by the Bureau of Transportation Statistics, our cars are only used for about 4% of the day.
In other words, buying a car is one of the most wasteful expenses imaginable. If you take the 4% number at face value, it means a total wipeout for the auto industry. That’s because it means we could get by with 96% fewer cars if we had a system that uses the cars we own optimally.
This same study also says that, right now, as many as 25% of people are better off using ride-sharing services. These are services like Uber and Lyft that you can call from your smartphone.
I believe this study is right. The automobile of today is the equivalent of the horse and buggy-based transportation system of the 1800s. It’s primed to be replaced by a new transportation system that’s driven by electric, self-driving, internet-connected cars that will completely change transportation and, in time, life as we know it.
Waymo, the autonomous car unit of Google parent Alphabet, already has plans to start testing a new kind of transportation system.
“Because you’re accessing vehicles rather than owning, in the future, you could choose from an entire fleet of vehicle options that are tailored to each trip you want to make,” said Waymo CEO John Krafcik. People could claim the cars for a day, a week or even longer, he said. And, according to Krafcik, driverless cars could be completely redesigned, such as to include a dining area.
Now, many of you will think that this forecast is too strong. You’ll think that just because cars have endured for as long as they have, they’ll continue to be something that people rely on. And because of that, you’ll be tempted to buy car-company stocks as they go down.
However, don’t buy these stocks, no matter how cheap they look. They are doomed.
Regards,
Paul Mampilly
Editor, Profits Unlimited
{ 11 comments }
I like your logic, definitely will interrupt the status quo.
Paul:
I agree 100 percent with your assumptions. But, I must differ with your conclusion that today’s car manufacturers are tomorrow dinosaurs. Someone will need to manufacture, own and maintain all of the autonomous driven vehicles of the future. If I request a car for a trip to my doctor using my smartphone, where will that car come from if all of the manufacturers have gone out of business?, Who would have paid the electric bill to charge that car? who would make sure that the car is clean and that all of the mandatory sensors are working properly?
The automobile manufacturers will not simply fade away as you predict they will morph into new fleet manufacturing, ownership and maintenance companies and they will generate revenue by charging for the shared rides using their vehicles.
I am leasing a new car instead of buying. Dealers are leasing new cars all over this area. They have priced new cars out of this market. Depreciated value of new cars when you drive off the lot leaves you “underwater†on the loan even with a substantial down payment. Looks like car manufacturers have a bleak future.
I am a snowbird and drive to Fla. ( approx. 1250 miles) and stay for 4 months. Find out if you can rent a car and cross a border and how much it would cost.
Electric cars need 2 to 3 hours to recharge and can only go about half the distance in the winter. Would need a week to get there.
A gas vehicle takes me 21 hours driving time.The ownership, convenience and cost will beat any rental if you can get it.
I am sure that a lot of this is possible, and since I am a senior citizen, the balance of whose driving career may be limited by licensing and insuring my ability and right to drive. In the comments made in this article, people will be able to choose vehicles from a massive pool on a “reasonable” notice. Does this provide an unlimited number of vehicles? Who owns the automotive pool, possibly the Saudi’s, because they seem to have unlimited petro dollars, and they will need a place to park their petro dollars before they can’t sell any more oil products to fuel the internal combustion powered vehicles.
I agree that there will be massive changes in transportation, and that auto manufacturers must learn to adapt. But I also think that the advent of electric powered cars is going to be limited by availability of electricity, and substantial technology improvements in batteries and power sources
Would work well except for those persons living in rural areas where little or poor public transportation is available or for those who need vehicles to travel to and from work. Except for the large cities like NY, LA, Chicago, etc., this accounts for a good portion of auto usage.
you are so totally right, 10 points to you.
Paul, I think you are overlooking a major point. The future of cars may not be “as cars” at all. Cars are rapidly heading toward being fueled by electric (solar panels on house and garage) in much of the world (and in Japan heading towards possible fuel cells). Therefore, you should look to the Dutch who have become leaders in wind and solar. They found electricity storage was the expensive piece of the alternative energy puzzle, so they began using electric cars as a backup storage system for excess power. You charge cars at night when there is a surplus of wind, go to work (and can sell power back to the grid while at work- when demand is high and you can get a good price for it), and leaving enough power in the car to get where you need to afterwards. You then refuel again in off peak hours when energy is cheaper. Along the same line, using Japan’s fuel cell cars, you could essentially fill your car with hydrogen on your way home (preferably made from solar cell electricity used to split water molecules and collect the hydrogen- which could also be done by the homeowner) and then run your car all night in the garage (there is very little on the car that can wear out and the only by product from your tailpipe being hot water). In this way you power your house (or work, or both) from the fuel cell… or sell this power to the grid at at certain price point. Although the initial investment might be high, (the price of these cars will come down with mass production), because these cars have few moving parts ( maintenance is primarily changing the fuel cell membrane), you would need to buy very few cars in your lifetime, even if they were run all the time. The real value of the car, however, might be as your home generator, or from the value from selling power to the grid, rather than as transportation? If adapted on a large scale (as Japan is talking about) it is more likely that the utilities will take the biggest hit, not the car companies. The utilities would no longer make tons of money in power generation, but rather make money by finding better ways to move power from house to house efficiently. A good model for future utilities is more like Green Mountain Power in Vermont, which is giving Tesla batteries to some solar owners as a trial, in order to be able to control when the backup solar energy is added back to the grid (because VT is going gangbusters on renewable energy throughout the state, and already taking down power plants like the nuke plant at VT Yankee). But eventually, this also leads to a safer grid, as it is harder for a terrorist to take out every home and every car power plant in the country in order to knock out the grid. So personally, I am not selling cars short yet! But I agree we are at a major turning point for the directions of these car/power plants.
so bmw just made us an offer… they will take our 2014 bmw x1 for just $13,774 (it has
14,000 miles perfect condition) and sell us a 2017 x1 for only $42,000… should I say
lucky us… should we look at Tesla now or wait?
I spent my professional life in the automotive aftermarket, which has been faltering for years and is now in crisis mode. Just as the car manufacturers are facing annihilation, what do you think the AutoZones, NAPAs, and O’Reilly’ses of the world are facing? They have been doing it with mirrors anyway for the last 10 years. What do you think will happen to the auto repair business, especially the independent garage? Do you notice that you see fewer and fewer of these? It is indeed a brave, new world, although I’m not sure about the brave part. Best always. PM
Lots of ideas, some fanciful. How about merging two markets: own/lease, but sub out as “uber” when not in personal use? Battery technology promises to resolve the range/recharge problems and solar roofing has a bright future. The next jump would be pilotless aircraft, since cars are getting lighter all the time, robots can make them cheaply, and the pilot would be much easier to replace than car drivers (straight line, designated altitudes, no pedestrians or cross traffic with flight altitude corridors, less “pilot error”). One drawback: take off and landing. Vertical operation puts some severe restraints on the design (cost, reliability), so maybe “hubs” would be the answer. Fly from your country villa at 450 mph, then at the hub step directly over to a waiting “uber” for the last 2 miles to office or shopping.