Self-Driving Cars Stand to Overturn the Status Quo for the Automotive Business

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In the 107 years since the rollout of the Model T, the automotive industry has promoted the prestige and utility of private car ownership. Automakers have consistently promoted the idea that possessing an automobile is a desirable and beneficial proposition, with marketing and product positioning that focuses on factors ranging from luxury and performance, to economy and quality.

The business model of selling cars to private individuals has been massively successful, with the number of automobiles in operation worldwide rising to more than 1 billion in 2010, up from 250 million in 1970, according to WardsAuto.

However, the automotive industry’s approach to business may be on the verge of a major transformation that could be as fundamental and wrenching as Henry Ford’s invention of the assembly line to bring personal motorcar ownership to the masses.

The future of the car business may be less about making and selling cars and more about delivering services related to transportation. The rise of ridesharing services such as Uber and the advent of self-driving car technology point the way toward a future when automobiles increasingly become a pooled resource that deliver transportation on demand.

Autonomous Cars Go Mainstream

This vision of automotive transportation as a service is not just some Silicon Valley pipe dream. It’s true that tech companies have led the way in self-driving car technology. Since 2012, Google has been testing driverless vehicles on actual city streets. In June 2015, the company announced its cars have driven themselves for more than 1 million miles. Google expects to commercialize its self-driving cars sometime between 2017 and 2020. Apple reportedly is preparing to test autonomous cars as part of its rumored Project Titan. The company is said to be seeking a location to test its vehicles.

Additionally, established automakers including Ford and General Motors have jumped on the bandwagon with their own autonomous automobile development efforts.

For example, GM’s Chevy says it will conduct a large-scale test of self-driving cars at its Warren Tech Center in Michigan in 2016. The company will automate a fleet of its Volt electric cars that will be able to transport workers around the center’s 710-acre campus. Hyundai says it will have self-driving cars available by 2030. 

Electric car maker Tesla appears to have the most ambitious plans, promising it will be the first to market with a self-driving car. Many carmakers are offering some form of autonomous driving—such as self-parallel parking—as incremental steps to full autonomy.

Has Your Ford Driven Itself Lately?

But beyond studying self-driving, some carmakers have dropped hints they are coming to terms with the full implications of the service-oriented car business.

Ford CEO Mark Fields said his company is exploring new business models, including car-swapping and car sharing. For Fields, the issue at hand is his company’s very viability. 

He noted that new competitors to Ford are arising that the company never would have anticipated just five years ago. Moreover, Fields expressed concern that automakers may end up suffering the plight of some cellphone manufacturers—with their fortunes dependent on the business models of other industries, like the wireless communications segment. Fields gave the example of Nokia, whose hardware-oriented approach to cellphones led to its decline and eventual exit from the market. He contrasted this with Apple and Google, which have thrived because of their provision of a broad customer experience for wireless.

Ford now is collecting data on customer behavior and car usage in order to enhance the experience of automotive ownership—and eventually to develop the business model of car transportation as a service.

The Drive for Self-Driving Cars 

Analysts point to a future where self-driving cars provide transportation services, with users summoning robot taxis via their smartphones. Google reportedly is developing a fleet of “robo taxis” that would eventually pick riders up and autonomously transport them. The company has invested in Uber, opening the possibility that the ridesharing service someday could adopt Google’s autonomous car technology.

Beyond the technological enablers, experts point to societal factors that are contributing to the possibilities of robot taxis. For example, rising urbanization and increasingly crowded cities may make citizens and governments more amenable to automated ridesharing services. Furthermore, the car ownership level is low among millennials, with these young people obtaining licenses or buying cars at decreased rates compared to the baby boomers and Generation Xers.

Information Age Carmakers

However, the role of automakers could span beyond providing transportation services. 
The increase in car automation is going hand-in-hand with rising data collection. Vehicle-to-vehicle communications services are expanding the Internet of Things to the realm of cars, automatically gathering telematics information and sharing it with other automobiles and with embedded systems in the surrounding environment.

Such data can provide insight into motorists’ behavior that could be valuable to automakers, either for their own use or for sale to advertisers and others. This would follow the business model of Google, which has carved out a highly lucrative business by tracking user behavior online and monetizing that data for advertising, marketing, and analytics.

Getting on top of this trend, Ford has hired a data science and analytics expert to collect and analyze data gathered on motorists and cars. Ford envisions using this information to enhance the driving experience, working with smartphones to provide context-aware assistance. For example, if traffic is heavy on a driver’s customary commute, the car would communicate this information to a smartphone, which would warn the driver to leave early for work.

For Ford and others, a major portion of their future business could be derived from gathering and exploiting information on motorists and passengers.

Cars at Your Service

All these developments indicate that the car business is set for major changes that could transform the nature of the market. The focus of the automotive industry may shift from making vehicles to delivering services that are convenient and personalized to the needs of individuals.

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