General Motors GM Chief Executive Mary Barra likes to say the auto industry will change more in the next five to 10 years than it has in the past 50 years.
That’s exciting, but also risky for traditional automakers, who are trying to adapt to the growing popularity of car-sharing services like Uber and Lyft, and the rapid advance of self-driving car technology.
Dan Malik, an analyst with ALG, the forecasting division of TrueCar, developed an interesting model to examine the potential impact of self-driving cars on vehicle demand.
He admits it’s hard enough to predict car sales for the coming year much less the impact of new technology on sales 15 or 20 years from now. But take a step back, Malik says, and it’s fairly easy to create an algebraic formula with just three variables:
Ownership mix – what’s the balance between shared and privately owned vehicles?
Occupancy – how many passengers does each vehicle carry?
The upshot is that car-sharing alone won’t impact vehicle demand because the cost per mile is still higher than privately owned vehicles ($1.54 vs. $.90, using DeutscheBank figures). “But when you take the driver out of the equation, the cost of car-sharing looks more attractive,” Malik said.
He offers three potential scenarios for 2030, all of which depend on how people will be using vehicles in the future. Why 2030? The first fully autonomous vehicles aren’t expected until 2020, and it takes more than 10 years for all the vehicles in operation (the so-called “car parc”) to be replaced, so 2030 is the earliest timeframe to start looking for any impact.
By then, it’s reasonable to assume that all taxis, liveries, shared cars and rental fleets (6 percent of all cars) will be self-driving. Let’s even assume 1 in 5 personal luxury cars are autonomous. While that’s bad news for taxi and Uber drivers, it doesn’t impact vehicle demand under Malik’s model. Cars are still used the same as they are now, and they last about the same amount of time (200,000 miles for taxi-like fleets and 160,000 miles for personal cars.) Vehicle occupancy remains the same because without a driver, shared cars can handle an extra passenger.
But what if by 2030 more people are willing to embrace self-driving cars? All the legal and regulatory issues have been ironed out and people have grown comfortable with the idea of riding rather than driving. Under this scenario, 30 percent of cars belong to shared autonomous fleets. Another 23 percent of privately owned cars are fully autonomous. Only 47 percent of the cars are private conventional vehicles.
This shift to higher-occupancy, longer-lasting vehicles would result in an 8.6 percent decline in vehicle sales (compared to the baseline 16.5 million units that would be needed to meet organic demand in 2030 if nothing changed.)
In the most extreme scenario, the number of cars on the road would fall by half because more people would rely on shared, autonomous vehicles rather than privately owned vehicles. (Call Uber for a ride, and a robot car would pick you up, or take a train to the city, and hop in a driverless cab for the last mile. Even families could share one autonomous car.)
Those shared vehicles would rack up miles faster, however, so they would need to be replaced sooner. The net result for automakers: a 26 percent drop in vehicle demand.
That’s a pretty big hit to automakers’ core business (though not as bad as the drop they experienced during the 2008 financial crisis) but remember they’re also planning to tap new sources of revenue from various mobility services.
Malik isn’t making any predictions for how this will play out; it’s much too early to predict how consumers will react. But everyone from insurance companies to car dealers and auto parts suppliers need to start studying the math.