More often than not, technology is the catalyst behind market disruption. From mobile apps used to summon a ride to the airport, to connected refrigerators that can order more eggs when you’re running low, the underpinnings of market disruption are often technological advancement coupled with someone clever enough to leverage the new technology. In the case of ridesharing, market disruption was fast and furious. Before the public knew it, Uber was seemingly on everyone’s smartphone, leaving traditional public livery services scrambling to remain relevant.
Many auto dealers know that autonomous vehicles (AVs) are on the immediate horizon. In fact, the industry is already well along the continuum to full vehicular automation in which the steering wheel disappears and all occupants are passengers. New vehicles featuring frontal collision avoidance, adaptive cruise control, and lane-keeping assist have already achieved Level 2 on SAE International’s AV taxonomy, shown here:
In fact, the industry sits on the cusp of Level 3, where the vehicle assumes most full-time driving functions, and the human is relegated to the role of “guardian angel,” ready to resume control if needed. So, it appears that roadways full of AVs may become the future of automotive transportation. And yet unlike some other market disruptors, AV proliferation may take years before the technology’s full impact is felt. Enough time remains to begin aligning marketing and sales efforts with the trajectory of this expected disruption of the automobile market. Here’s the direction the industry seems to be headed:
- Steering wheels remain. Everyone thinks they’re a great driver, right? Near term, the majority of buyers will want to retain primary control of their vehicle, according to a recent study. Concerns about the safety of AV technology were considerable among those polled. Younger respondents, and particularly men, appeared to be relatively accepting of AVs, suggesting they may be an initial target market. Nevertheless, broader consumer acceptance, spurred by encouraging safety data, robust marketing efforts by manufacturers, and evolving demographics, will likely become more favorable over time.
- Keep on trucking. The long-haul trucking segment—for years beset by driver shortages that have only been exacerbated by recent, more restrictive federal limitations on the number of hours a driver can operate—will likely embrace AVs. Aside from fuel costs, driver wages and benefits represent the biggest expense involved in operating a truck on a per-mile basis. Imagine the competitive advantages of a fleet of long-haul AV trucks that only need to stop for fuel and to load and unload cargo. Perhaps that’s why in October 2016, a decidedly high-tech beer run occurred in Colorado, when a specially outfitted tractor-trailer hauled 2,000 cases of Budweiser nearly 120 miles without any driver intervention.
- Fewer vehicles. Fully autonomous vehicles won’t come cheaply, particularly at their onset. Lidar arrays, radar sensors, and stereoscopic cameras are relatively expensive, and the scientists who design them all need to be paid. Volvo estimates that in about five years, when the manufacturer begins selling cars with its IntelliSafe Autopilot suite of safety technologies, it will add about $10,000 to a vehicle’s cost. Thus, a number of potential buyers may get priced out of the individual ownership and lease market. In fact, compounding issues of high cost, the concept of personal vehicle ownership could begin to dissolve as AVs proliferate. One study reports that the typical privately owned vehicle is generally parked 95 percent of the time. Could autonomous vehicles be the perfect candidate for a shared-ownership model in which a consumer pays for transportation on a subscription or usage basis? Shared ownership could reduce or even eliminate the need to purchase an expensive, quickly depreciating asset that’s generally used only a portion of the day. Unlike today’s shared-ownership vehicles, a fully autonomous vehicle could be summoned as needed and not parked most of the day adjacent to potential users. Thus, dealers may do well to position themselves to sell to purchasers of commercial fleets as well as to individual owners.
- Faster turnover. Fewer vehicles may sound like discouraging news for a dealer, but all is not doom and gloom. Shared autonomous vehicles will often be used throughout the day and night. They’ll likely accumulate significant mileage over short periods of time, thus decreasing the duration of their service life. This dynamic has the potential to increase the pace of new vehicle sales per purchaser.
- Client base shifts. As mentioned, the price of AVs and their “at the touch of button” availability may depress sales in some circumstances. Yet, this same technology could simultaneously open the door to market segments previously unimagined. For example, the young, those with visual impairments, and anyone else without a driver’s license, present opportunities for vehicle sale or lease arrangements.
- City car emerges. For an AV, operating on limited-access highways is like playing a video game on the easiest setting. Such roads generally have clearly painted lanes, no pedestrians, and few, if any, intersections. That’s why many initial AV prototypes, including the aforementioned beer delivery, like to demonstrate their abilities on interstate roadways. Want to know where AVs will likely struggle to operate? The same environment in which humans hate to drive: congested urban streets with unpredictable pedestrians, darting bicyclists, and a litany of other road hazards. That’s why it may take years, perhaps decades, before AVs conquer cities. In the interim, manufacturers may be wise to divide the private passenger auto market. Essentially, they’d construct smaller vehicles, optimized for urban surroundings, perhaps with SAE Level 3 automation but requiring significant input from the driver. The large remainder of vehicles would be designed for suburban and highway usage and likely achieve higher degrees of automation sooner than their urban brethren. Dealers will need a keen understanding of their client base and the environments in which they plan to use their vehicles to realize another opportunity to add value to the purchase or lease process.
Time will ultimately tell if and when those predictions hold true. The most successful dealers will not only keep apprised of these emerging technologies, but will strive to understand their implications, converting insights into actionable steps to better serve their customers. Just as autonomous vehicles continue to evolve, so will customers in the broader automobile marketplace. Charles Darwin didn’t sell cars, but some of his lessons hold true: Those that adapt to the changing environment can flourish, while those that stagnate may struggle to survive.
Author: Andrew Blancher
Andrew Blancher is director of commercial auto products development at ISO Solutions, a Verisk Analytics (Nasdaq:VRSK) business.