Transformation takes the fast lane for automakers

Recently, the Ford Motor Co.’s new CEO outlined plans to aggressively cut costs and funnel the savings to electric, self -driving cars. The company plans on increasing its production of profitable trucks and SUVs, while de-emphasizing less profitable cars and sedans.

What a difference a few years makes in the fast-changing automobile business. Car companies all have big plans to transform from mere sellers of vehicles to businesses that touch all aspects of mobility.

There are now multiple sources of innovation in an industry that has seen relatively little change. For over a century, the business model was how many vehicles a firm sold. Now companies are looking at how to reconcile disruptive innovations with traditional products and services.

The transformation is being driven by a succession of innovations — the Internet, the cloud, big data, 3-D printing, robotics, machine learning, artificial intelligence, autonomous vehicles, connectivity, the internet of things, electric vehicle power trains, and shared mobility, as well as changing car ownership preferences. Each reinforces the others and accelerates disruption.

China, the United Kingdom, and France are talking about banning the internal combustion engine by 2030. Moreover, China’s government has implemented aggressive incentives for electric vehicles that favor local companies, which could give Chinese firms significant advantages and economies of scale in the world’s largest consumer market.

These innovations are causing automakers to rethink the way they do business. Given how central the automobile is to the economy and to people’s daily lives, it’s not a stretch to suggest that these innovations will change how Americans live.

In addition to traditional automakers, changes in mobility will impact industries such as energy, insurance, retail, public transit, and health care. For example, the National Highway Traffic Safety Administration reported earlier this month that total traffic deaths on U.S. highways rose 5.6 percent in 2016 to a decade high of 37,461. This is roughly the same number who die from breast cancer, gun deaths and opioid overdoses combined. The Centers for Disease Control and Prevention estimated that in 2010-2011 there were an average of 3.9 million annual emergency room visits caused by motor vehicle traffic injuries.

Driverless technology creates a potentially accident-free future with drivers exiled to old-fashioned leisure trips on Sunday afternoons. What are the implications for reducing health care costs as emergency rooms lose millions of patients each year and hospitals have hundred of thousands fewer patients who need to stay overnight?

Automakers face a number of existential threats. Besides traditional rivals, a wide range of players have been racing to get in on the action, including tech companies, ride hailing firms, logistics companies and auto parts suppliers. Tech companies view the car as a platform, like a cell phone body. They see the vehicle of the future as software on wheels, enabling drivers and passengers to devote their time to personal activities. As Elon Musk once said: “Tesla is a sophisticated computer on wheels.”

On the other hand, automobile companies think of it as a car with extra software. The only certainty is that it is uncertain who will come out on top: Traditional players or new entrants? The hardware or the software folksguys? Western or Asian firms? Product or service companies?

Automobile companies are making big strategic bets on autonomous technology, electric cars, and transportation services. Financial decisions have to be made in light of the need to serve two worlds; the traditional automobile industry and disruptive technology-driven trends that will ultimately take over the mobility industry. Defining the right balance will be critical.

In a pervasive modern view, the past is a burden that must be shed to give way to a new kind of life. This is the fundamental challenge facing so many industries that are being disrupted by a succession of innovations. While it is debatable when driverless cars will be available to the masses, there is no doubt that a driverless future will profoundly change society, even in ways we are not yet even considering.

Originally Published: Oct 28, 2017

Technology transforming the automobile industry

It’s obvious that the automobile industry is on the cusp of a technological revolution. Manufacturers and technology companies are working together to reinvent the automobile, much like the way Apple reinvented itself from a computer company to a cultural force or even how Madonna has remained a media icon by constantly adapting to new trends.

Although new technologies and consumer markets are still in their gestation stage, Ford, for example, is making major investments that will transform it from a company that just makes cars to one that touches all aspects of mobility.

Technology companies see a driverless world of autonomous or robotic vehicles as a software and artificial intelligence play. For them, the car is a platform, a commodity, like a cell-phone body. You can get the car body anywhere; the real smarts are in the software. The car may be the ultimate mobile device.

As the value of each vehicle becomes more dependent upon the software it contains, tech companies may be in a better position to capture this value than the automakers. New technologies are redefining boundaries between software firms and the lumbering dinosaurs of the automobile industry.

Opinions differ as to when widespread adoption of fully autonomous and commercially viable vehicles will occur. They could dot our roadways in five-to-ten years but saturation will take several decades.

Market penetration may not be uniform; it could start in trucks, for example, before private cars, or even as part of an on-demand commercial ride sharing fleet. In any case, it is not too early to start planning for the roadway management challenges that will be created by autonomous trucks and cars sharing the roads with driver-operated vehicles.

Autonomous vehicle proponents claim they hold the potential to dramatically reduce traffic casualties by eliminating human error. Activities like speeding and driving while texting are deadly. The National Highway Traffic Safety Administration says human error is a factor in 94 percent of fatal crashes. According to the National Safety Council, as many as 40,000 people died in motor vehicle crashes last year, a 6 percent increase over 2015. An estimated 4.6 million people were seriously injured.

When we begin seeing fully driverless cars hinges as much on the regulatory environment as advances in self-driving technology. Autonomous vehicles operating without a steering wheel, brake pedals, and human intervention pose questions about whether regulations can catch up to technological advances.

Market participants argue that realizing the safety benefits of autonomous vehicles will require a single national standard, not 50 sets of rules. Automakers complain that states are moving ahead with their own regulations, creating the potential for a confusing “patchwork” of laws under which autonomous vehicles operate. As of December, California, Florida, Michigan, Nevada, Utah, and the District of Columbia had enacted laws authorizing autonomous vehicle testing under certain conditions. Washington, Ohio, Pennsylvania, and Texas have active testing programs but no legislation.

On the same day Uber started to test its self-driving Volvos near its Bay Area headquarters, the state’s Department of Motor Vehicles ordered the firm to stop because its cars did not have the proper registration for such testing. Uber loaded the cars onto a self-driving truck and sent them to Arizona.

Michigan now allows companies to test self-driving vehicles without steering wheels, pedals or a human that can take over in an emergency. In contrast, California has a rule that self-driving vehicles can only hit the road with a safety driver.

It is uncertain how soon fully autonomous vehicles will enter the mainstream. When they do, avoiding the pushback that, for example, on demand mobility firms such as Uber and Lyft have faced in a variety of cities will require clarifying the proper role of all levels of government within the regulatory landscape. If autonomous vehicles are safer than their driver-operated counterparts, it is imperative that regulators not risk preventable injuries and deaths by unnecessarily delaying their deployment.

Originally Published: March 4, 2017