The coming nightmare for the car industry

I have often written on the challenge facing existing automakers in the world of robocars. They need to learn to completely switch their way of thinking in a world of mobility on demand, and not all of them will do so. But they face serious challenges even if they are among the lucky ones who fully “get” the robocar revolution, change their DNA and make products to compete with Google and the rest of the non-car companies.

Unfortunately for the car companies, their biggest assets — their brands, their experience, their quality and their car manufacturing capacity — are no longer as valuable as they were.

Their brands are not valuable

Today if you summon a car with a company like Uber, you don’t care about what brand of car it is, as long as it’s decent. Even with the “luxury” variants of Uber, you don’t care which type of luxury car shows up, as long as it meets certain standards. For companies who have most of their value in their nameplate, this is nightmare #1. The taxi service (Uber or otherwise) becomes the brand that is seen and valued by the customer.

When you are buying a car for 5 years at the dealership, you care a lot about the brand, both for what it means, and for what it says about you when you show up driving it. When you buy a car by the ride, you don’t care a lot about the brand, because you are only going to use it for a short time.

Their brands might be tarnished

There will be accidents in Robocars, unfortunately. Those accidents will cost money, but they will also cause problems in public image. The problem is, “Mercedes runs over grandmother” is a headline that will make people less likely to buy any type of Mercedes. As such, Mercedes has plans to market self-driving car service under their Car2Go brand. You may not even know that Car2Go is Daimler, and they might like it that way. “Google car runs over grandmother” is bad news for the Google car project, but is not going to make anybody stop doing web searches with Google. (Except the grandmother…)

The non-car companies don’t have a car brand to tarnish, but they do have famous brands. They can use those brands to attract customers without the same risk. Big car companies have famous brands but may be afraid to use them.

They might just be the contract manufacturer

Companies like Uber, Google, Apple and others don’t plan to manufacture cars. Why would they? There is tons of car manufacturing capacity out there. They can just go to carmakers and say, “here’s a purchase order for 100,000 cars — built to our spec with our logo on them.” It will be very hard to turn down such an order. Still, some companies will be too proud to do this, or too unwilling to sign their own suicide note.

If they don’t accept the order, somebody else will. If nobody in the west does, somebody in China will. China is the world’s #1 car manufacturing country, but the cars are rarely exported to the west. They would love to change that.

A likely model for this is the relationship of Apple and Foxconn. Foxconn makes your iPhone, but many don’t know that. Foxconn makes good money, but Apple makes much more, designing the product and owning the customer. The car companies don’t want to be Foxconn in the world of the future, but the alternative may be to be much smaller.

(BTW, Foxconn has said it is interested in making cars.)

First-rate quality might not be that important

Chinese manufacturers don’t have the quality of the current leaders. But they may not need to. Just as Apple taught Foxconn how to make good iPhones, they might follow the same pattern here. But they don’t need to. That’s because a less reliable robocar is not the same sort of problem an unreliable personal car is. Sure, it should not break down while you are riding in it — but even then the company can quickly send you a replacement to pick you up in just a few minutes. If it breaks down otherwise, it just goes out of service. This costs the fleet manager money, but they saved a lot of money with the lower quality manufacturer. When cars can move on demand to service customers, breakdowns are not the same sort of problem. When your own car breaks down it’s a nightmare, and you will pay a lot to avoid it. For a fleet, it’s just a cost. All cars are down for maintenance some of the time. Cheaper cars will be down more, but if they are cheap enough, it still saves money.

Customer perception of quality is still important. The vehicle must maintain the level of comfort and interior quality the customer has paid for. Safety related failures are of course much less tolerable.

New car designs will be radically different

The robocar of the future will look quite different from the cars of the past. Existing car companies can handle this, but they lose some of the advantage that comes from decades of experience. The future robocars are probably electric and much simpler, with hundreds of parts rather than tens of thousands. It’s a new world and experience with the old may actually be a disadvantage. Only Nissan and Tesla have lots of electric car experience today, though GM is building it. Electric platforms are much simpler and ripe for creativity from new players.

new business model?

Good points Brad. I'm wondering if in the context of mobility as a service, fleets, etc. the hardware be separated in two or three different business entities. The car chassis + power train are more standard and fabricated in large scale by global companies. The body is made more custom and local by multiple companies. The sensors and software is a different business for other kind of global companies (like google). It has similarities with today's bus and truck where the engine and power train are not necessarily made by the same company that makes the body.

Exactly. And it may be even

Exactly.
And it may be even simpler than that since the entire "power train" will eventually consist of nothing more than an electric motor (probably AC induction) built right into each of two or four wheels. These modules could also include brakes and steering gear. At the first sign of trouble a robot or human technician would simply attach a new wheel module. Thus, reliability and repair-ability easily surpass what we have today.

By power train I mean

By power train I mean wheels-steering-motor-breaks-battery. Steering is, of course, by wire only. A robust configuration could include two motors (front and rear) for redundancy (and AWD), but also two steering gears (front and rear) for best maneuverability and redundancy. The battery could be divided in two sections to drive independently front and real power trains, also for redundancy. A pretty flat chassis with all these elements is possible, given multiple possibilities for the car/microbus body be built on it.

Car company threats

One you didn't mention: the migration from single owners to on demand fleets will mean fewer buyers (even if the number of new cars remains constant, which it probably won't). That means the auto market ecology will be less diverse. Even if you still need heavy and light pickup trucks, do you need a half dozen models of each? It will be really tricky for a company that depends on its variety of models to defend market share to transition to selling a smaller variety of vehicles to a few big mobility companies.

Shared vs private ownership

Your conclusions flow from the assumption that the robotaxi model will (mostly) displace individual ownership. I don't see that as the most likely scenario. As long as ownership of self-driving vehicles is the same or only slightly more expensive than current vehicle ownership, I believe at least in the USA, most people will still prefer private rather than shared vehicles. This market force will drive the types of features and innovations we will see in self-driving cars. I also don't agree with your assumption that robotaxi cost savings would necessarily flow down to the consumer. Early self-driving taxis could be promoted as a superior option to a human-driven taxi (no driver to bother you, cheat you, scare you with his aggressive driving) and therefore charge a premium. Indeed, mirroring the early history of the automobile itself, the self-driving vehicle will be marketed as a luxury item sold at a premium price, even though the cost may be less.

Likely most multi-car

Likely most multi-car households will draw down their inventory to one general-purpose vehicle and rent rides (and hauls) for everything else.

You go to work, your wife

You go to work, your wife shopping, your mother visit a friend , older son go to play basket, younger girl to school, everybody at the same time, how many robocars do you need to own?. Better to join a robocarclub (cheaper than call a robocartaxi everytime). Instead to own one or 2 robocars, better to join robocarclubs, will be cheaper and you will have always a car ready for any member of the family, with not need to have a parking place at home. Agreement between robocarclubs will permit to share cars between members when necessary. You join robocarclub with neighbours or workmates, or any group of people you frecuent, so no risk to share the trip with them when necessary. The cars of the club will be used more intensively than private cars so will become older faster, so can be changed to new models faster and cheaper than a private one. You still can have one private robocar, if you want and can afford, but the robocarclub will be a lot more useful. Your own car need to go, let you at work and come back home to pick up your wife, wasting time and electricity (even may be need to waste more time recharging battery). A car of the club just will go to the near passenger and another car will pick up your wife. If in some case not enough cars at the club, can take a car from a friend club or finally call a robotaxi. Always will be cheaper than own a private robocar, that many times cannot bring all members of the family to different places at the desired time.

You go to work, your wife

You go to work, your wife shopping, your mother visit a friend , older son go to play basket, younger girl to school, everybody at the same time, how many robocars do you need to own?. Better to join a robocarclub (cheaper than call a robocartaxi everytime). Instead to own one or 2 robocars, better to join robocarclubs, will be cheaper and you will have always a car ready for any member of the family, with not need to have a parking place at home. Agreement between robocarclubs will permit to share cars between members when necessary. You join robocarclub with neighbours or workmates, or any group of people you frecuent, so no risk to share the trip with them when necessary. The cars of the club will be used more intensively than private cars so will become older faster, so can be changed to new models faster and cheaper than a private one. You still can have one private robocar, if you want and can afford, but the robocarclub will be a lot more useful. Your own car need to go, let you at work and come back home to pick up your wife, wasting time and electricity (even may be need to waste more time recharging battery). A car of the club just will go to the near passenger and another car will pick up your wife. If in some case not enough cars at the club, can take a car from a friend club or finally call a robotaxi. Always will be cheaper than own a private robocar, that many times cannot bring all members of the family to different places at the desired time.

Clubs

Yes, I describe such clubs in my articles, for those who want to focus on having a particular fleet at their disposal (for example, all red BMWs.) But it’s an interesting question what the ownership value is, when you can summon specific vehicles when you need them or want them. In a club, you can keep a standardized “kit” in the car of stuff every club member wants access too, but not your specific stuff (like keeping your own camera or golf clubs in the back.)

a pink carnation and a pickup truck

"Even if you still need heavy and light pickup trucks, do you need a half dozen models of each?"

Consider also that 99 per cent of people who drive a pickup don't need a pickup. Same goes for SUVs, though the figure there is 100 per cent.

Don't recall offhand reading

Don't recall offhand reading or hearing any thoughts on how one aspect of the car economy's going to be affected. Namely, rental cars. One could argue that Enterprise is semi-implementing the self-drive model with its "We'll pick you up/give you a short lift when you return the car" policy. But that'd seem to be the closest other than taxi business model to what folk propose self-driving cars ending up as. Any thoughts on whether they'll adapt to self-driving, or are they just a different dinosaur?

Dinosaur

When there is self-driving taxi service at under 50 cents/mile, you would only rent a car if driving outside the service area of the self-driving taxis. So they must work together with them, or die entirely.

Enterprise “we’ll pick you up” has a lot of friction in it, because they come to you, then you have to drive to their office to do paperwork, and then go on your way. That friction is surprisingly large, more than the difference between Uber and a taxi.

And you have to do it on return, too.

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