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

Oligopolies – and your wallet

The term “oligopoly” used to be a negative term to most people, just as “competition” had a positive connotation. Oligopolies occupy the middle ground between monopoly and the idealized world in which numerous firms compete.

An oligopoly is an industry in which a few firms dominate and exercise considerable stroke over consumers and suppliers. The goal of making those firms as profitable as possible is not served by facing off in never-ending cutthroat competition.

But what’s best for companies is not necessarily good for consumers. In an era of rampant consolidation, intelligent regulation is needed to promote competition.

Businesses work hard to insulate themselves from the “invisible hand” of the free market. The few firms in an oligopolistic industry are in the enviable position of setting prices, whether through collusion or silent agreement. The tendency is to cooperate with each other to minimize rivalry so as to maintain a common front against buyers and sellers, and create market power in certain geographic markets, or among particular consumer groups or product lines, which can lead to higher consumer prices and inferior service.

From the consumer’s perspective, oligopolies aren’t much different than a monopoly, where one firm has a stranglehold on a product or service for which there is no alternative. Moreover, oligopolies usually throw their weight around by exerting pricing power over suppliers.

There are oligopolies throughout the global marketplace, and concentration and consolidation appear to be increasing in U.S. industries from cable television, pharmaceuticals and airlines to banking and health insurers. As they concentrate further, profitability increases and consumers are disadvantaged. Left unregulated, these firms have enormous power to strategically restructure their industries and impose very high prices on consumers.

The airline industry is a prime example of an oligopoly, with 80 percent of all domestic passenger travel dominated by just four carriers. A wave of consolidation has been sweeping the U.S. airline industry: American Airlines merged with US Airways, United merged with Continental and Delta with  Northwest. Southwest acquired AirTran.

Consumers appear to be paying the price for this consolidation with fares and fees rising faster than inflation, and one or two airlines dominating particular markets. On June 30, the Justice Department announced it is investigating whether U.S. airlines have worked together to keep airfares high by limiting the number of flights and seats.

Another example is the banking industry. Despite reforms in the wake of the “Too Big to Fail” public bailouts, the five biggest U.S. banks now control nearly half the industry’s $15 trillion in assets. In 1991 the five largest banks controlled just 10 percent of industry assets. The concentration suggests that banking is not a competitive industry and it allows banks to jack up fees.

Health insurance is the most recent example. Over the last several weeks, Anthem reached an agreement to purchase Cigna and Aetna agreed to buy Humana. These two proposed deals reduce the number of for-profit health insurers to three.

But the bottom line is that these waves of consolidation hurt consumers by reducing competition. To change that, the “visible hand” of intelligent regulation needs to operate along with the invisible hand of market forces to promote competition and protect consumers.

Originally Published: August 15, 2015