Original URL: http://www.theregister.co.uk/2013/07/11/driverless_cars_death_knell_of_the_motor_biz/

Are driverless cars the death knell of the motor biz?

Wired cars with brains aren't tied to their owners

By Richard Chirgwin

Posted in Business, 11th July 2013 06:02 GMT

If you're a believer, then the autonomous car is a gateway to a brave new world in which you'll never have to waste an hour looking for a parking spot, ever again.

An obvious challenge to this vision is whether it encourages traffic-choked, polluting and wasteful behaviour: instead of parking while you visit the supermarket, just set your car to circle while you choose between brands of cola.

But here's a different outcome of a world in which driverless cars exist, and operate: a sales crisis for the motor industry.

For this thought experiment, I'm using figures from Australia where numbers are needed; feel free to adjust to your local data.

According to the Australian Bureau of Statistics, there were around eight million car commuters in Australia last year, and around six million of those travelled alone. Various sources give the average driving commute time as around an hour.

What I don't have data for is the number of vehicles that travel outside the commute (because the owner uses it during the day), but let's assume that half of all commuter cars – four million – are idle from nine to five. and don't get many hours of use other than for commuting purposes. Those assumptions mean they're spending the overwhelming majority of their time doing nothing.

That presents a huge opportunity for the cars to be multiplexed: sent on other trips carrying other passengers while they're not needed for the commute.

“No way,” I hear you say. “Why would I let strangers use my car while I'm at work?”

To which my response is “why should it be your car?”

Why own a car at all?

Already, there's a trend among “millennials” away from car ownership: they use taxis for short trips. In Australia, many have accounts with car-share operators like GoGet for longer trips. IKEA Australia even has a deal with GoGet that allows shoppers to rent one of the company's vans for the hour or two needed to get flat-packed furniture home.

The driverless car offers a hybrid car-share/taxi business model: a fleet of half a million autonomous cars, backed by someone with funds, computer power and a smartphone app, operated under the same subscription-plus-usage model that car-share already uses, with the ad-hoc booking model of a taxi, and cheaper than both.

It's cheaper than a taxi, because you don't need to fund the driver's salary, the (in Australia) expensive taxi plates, the radio network and other expenses.

There are two reasons the model could be cheaper than car-share operators.

Right now, car-share operators have to get insurance for all kinds of drivers; if autonomy works, it'll be cheaper to insure a pool of known drivers. Second: car-share has limited “multiplexing” – if I take a car 20 km to a meeting and park it for four hours, I have to pay for the idle time.

If I subscribe to an autonomous car service with a big enough fleet, smart enough software, and the right trip price, I can treat it as a taxi: request my trip on the app, walk out the door, and get in the car. If it happens to be peak hour, I may see others in the car for the same trip. At other times, perhaps not.

It's more efficient than car-sharing or ownership. Trips can be shared on an ad-hoc basis (rather than by some formal arrangement), simply because the computer can identify requests that dovetail with each other; and the same computers can minimise the vehicles' idle time, meaning that I don't have to pay rental on a parked car.

Looking at the numbers

I don't pretend that the multiplexed car will eliminate car ownership entirely. Some people will still need to own cars, and some people will want to no matter what. But if the price is right, an awful lot of people will think “why take on debt to buy something if I don't need to?” – not to mention the running costs, insurance, registration and the rest.

The Royal Auto Club of Victoria (RACV) puts the cost of owning one of Australia's most popular cars, the Holden Commodore, at more than $AUD200 a week.

In that scenario, and excluding other trips (which will, after all, be spread across the second car that most car-owning households maintain), the daily commute comes at a price of $20 per hour.

So let's work to a price: the autonomous car comes at $10 per hour (not per kilometre, because as any taxi stuck in a traffic jam will attest, that's an unprofitable way to run a business), but instead of operating two hours per day, it can be in profitable service for six hours a day.

Ignoring times when there are multiple passengers, that's a daily take of $60: nearly $110,000 over five years. If you can put the car on the road for $40,000, the remaining $70,000 should be enough to operate it with a profit margin available, and the customers are getting transport cheaper than if they bought their own car.

And on shared trips (with a discount for each individual), extra over $10 per hour is cream.

The same exercise is harder to calculate for America, either because of the data the Census Bureau publishes, or because I'm not so adept at finding US census data. While it's easy to find out that the average commute across America's 50 largest cities is 23 minutes, the Census table I found din't state the average drive commute time (“Travel to Work Characteristics for the 50 Largest Metropolitan Areas in the United States by Population”).

However: since 73 percent of Americans in the sample drove alone, their drive time can't be too far away from the average. Every other sample is too small to make a significant difference.

According to the AAA, the annual cost of owning a car is $US9,000, and the quicker commute means a longer idle time – which means, on the same basis as I used for Australia, the cost of owning a car for commuting is $US32 per commute-hour.

So on a like-for-like basis, America is a better place to try autonomous-car-as-a-service than Australia. It's also got a much bigger population, making it easier to justify investing in a decent size fleet to begin with.

In either case: it's at least feasible that once the (considerable) startup costs are covered, a business model exists under which people will use autonomous cars, but never own one.

That's a deadly threat to the motor industry: like all businesses, they need growth to survive. A contraction in the market following the 2007 financial crisis was enough to send car-makers to governments seeking bailouts.

If a driverless fleet cut new car sales by just five percent, it would be a crisis for the industry. A contraction of ten percent would be catastrophic. ®