Longer Term Changes From Self-Driving Cars

This was sent to us by Brian Henry, Assistant Professor of Finance at Benedictine College and listener to the show. Thanks Brian!

Cars are going to drive themselves, this is no longer an if, but a when. Right now people are focusing heavily on regulation barriers and safety as well as public perception surrounding autonomous vehicles. I would like to look a little farther down the line.

Safety is a prerequisite, but as soon as they are safer than human drivers, and significantly so to convince the luddites, I think adoption of the technology will be swift assuming affordability. Once we have lots of vehicles driving themselves, our world is going to start looking very different.

In a lot of ways our country is shaped by the car. The interstate system being the most obvious example, but drive through an East Coast city and then a Midwestern one and see what a city developed pre and post automobile looks like. Infrastructure follows energy, transportation, sanitation, and increasingly technology. That infrastructure will look different with self-driving cars versus human guided. Also, some businesses are built for auto services and those are going to be greatly affected, and in some cases may disappear in favor of new business models. I will start with the infrastructure changes and then how those and the technology will shape the businesses surrounding automobiles.

As self-driving cars become a big thing, there are several changes I assume will happen. The most important of these is that fewer people will own cars as they transition into a service rather than a necessary asset. Monthly ride time plans, bundled with your cell service and cable! Okay, hopefully not that. This leads to more efficient use of each vehicle, and fewer vehicles overall as one car can take me to work and then spend the day taking other people around town rather than sitting in a parking lot. Ford or General Motors would be scared of that, but GM's buying into Lyft points to them trying to be ready if they need to shift their business model. They might sell fewer cars mostly to ride service providers, or they might produce cars and generate revenue from them by being the provider of ride services like Lyft is already doing.

This idea of cars as a service leads to several infrastructure changes. The first is that parking lots will become significantly less necessary, which is a great benefit to cities that have to build parking structures and such in high demand areas that might need other things on those parcels of land. Plus, it means we don't have to find parking spots, a pretty nice quality of life change. I also think roads will change in meaningful ways. Rush hour demands lots of excessively wide roads in busy commuter cities, but cars that drive themselves that are safer can probably drive closer together and with less variance relative to each other. Also, if people rent it would make sense to have one passenger cars pick up solo passengers, thus reducing the average size of vehicle as well. Roads that are smaller are cheaper to maintain, though the way we finance roads could change too.

Gas stations are somewhere in between the infrastructure and business discussion. If GM is renting a fleet of vehicles, I find it unlikely that they will want to have the cars gas up at thousands of random stations strewn about the land. Part of not owning cars will mean most people no longer stop to gas up unless they are on long trips that need more than one tank. The answer to this is likely service providers having their own stations set up, and that likely means a lot of old gas stations being part of that system or big changes in how they operate. Rest stops and other things built to serve the trucking industry would be in a similar boat as truckers go the way of the dodo.

The infrastructure impacts will be less significant in my opinion than the business side. First think about all of the car industry offshoots. Custom wheels, trees that smell good, those weird sun blocker things for the windshield, etc. If a lot less people own cars, these are not things people will buy. Cars are already heading more and more toward technology as we see at auto shows. Tech will likely be the most important attribute of autonomous vehicles. People who are freed from the need to drive are going to want to stream music and movies, do work, play video games, read books, and all manner of other things as they travel. For family road trips I want a pod rather than a car where we sit in a circle and can play cards on a table in the middle. My dreams are huge, I know. I can't wait for the fight before that because the kids would rather be on their devices than playing cards with dad.

The desire for entertainment will push for good wireless connections in the vehicles, and subsequently increase demand for streaming services among other things. It might even lead to whole new business ideas that are trying to capture the attention of people stuck in a small space with little to do. Restaurants only for cars maybe, you order a car and what you want for breakfast at the same time. General Motors or Uber as the leading fast food restaurant would be quite a shocker.

Delivery services in general are likely to significantly change as well. Flowers, pizza, groceries, lumber, a baseball bat, or almost any other consumer good becomes easy and cheap to deliver. If you don't have to pay someone to deliver things then delivery becomes much more practical for both sides of the transaction. No tipping and a smaller fee for delivery are likely to happen if the car can ping you when it pulls up outside your door. You go out and grab your delivery, done. Amazon's drones might beat the cars to the punch on this one though.

Emergency services are the last one I can think of at the moment, there are likely others I am not considering. Right now ambulances, fire trucks, and police cars rush to wrecks all the time. The need for this is going to go down because we will not adopt self-driving cars unless they are safer than us. That means fewer accidents due to driver error, teenagers being allowed to drive, drunk driving, and other hazards of the road. We have seen with modern materials a decline in the instance of house fires, and so far that has not lead to a decline in fire stations that need to be run and staffed. Fires are rare, but when they happen we need a fire truck there quick. Instead of reducing the number of emergency responders, what we may need is to find other productive things for their time. For police I don't think this is at all a challenge. For the others I am uncertain on what sorts of things they can do while still being prepared for their main task.

Transportation has been relatively similar since commercial airlines came on the scene. We have a lot more amenities in our cars now than 50 years ago, but more cup holders has not significantly changed how we get around. We are now on the verge of the largest disruption to transportation in a very long time. My even longer range vision, since DTNS has convinced me hyperloops might eventually be a thing, is that cars only operate in cities or to get to nearby towns while we shoot around in tubes at 700+ MPH for trips of any significant length. All I know is that I am very excited to see where we end up, and to get grading done during my commute so I don't have to work on weekends as often.

Brian Henry
Assistant Professor of Finance
Benedictine College