How driverless cars and Uber will make car ownership obsolete

Driverless cars and taxi services such as Uber will completely change the transportation industry in coming years. Driverless cars have the potential to make car ownership obsolete for many of us. I predict new dynamics will lead to new dominant players, and several existing car companies will consolidate or declare bankruptcy. The only things standing in the way are government regulation and consumer attitudes.

In the future we will not own cars

Cars are one of the biggest expenses for many consumers, yet they sit idle the vast majority of the time. From an economic standpoint, it's a shame for an expensive asset to have such a low utilization rate. Wouldn't it be nice if your car could make money for you while you were at work during the day or sleeping at night? Driverless cars will make this possible.

No doubt, an Airbnb-like service will emerge to increase the utilization rate of cars for people that buy their own driverless car. However, Uber would like to make car ownership obsolete to begin with. Today, Uber doesn't own vehicles and their biggest expense is drivers. A driverless car doesn't require a salary. It also does not make its own schedule or respond to incentives such as surge pricing. In theory, a fleet of self driving cars would enable Uber to balance supply and demand much better while dramatically reducing the per-ride cost. (Of course, Uber will have to purchase or lease the driverless cars. More on that in a minute.)

Taxi services need a dense mass of people to work. 80% of Americans now live in urban areas, and urban areas are growing while rural areas are declining. It may not be financially viable to rely on taxi services in sprawling cities and suburban areas today, but these services will spread to less densely populated areas as driverless cars bring costs down and more consumers access them. If you're one of the 80% of Americans that live in an urban area, why deal with the expenses and hassles of purchasing, maintaining, and parking a car when one is always a tap away? Many city dwellers already rely on some combination of public transportation, walking, cycling, and taxis. Driverless cars will make this car-free lifestyle accessible to millions more Americans and plenty more worldwide.

Uber will be the most powerful car company

Taxi services have winner take all dynamics, at least within a certain geographic area. Nobody wants to check multiple apps every time they need a ride. All things being equal, users will flock to the service with the most cars available. In most areas today that's Uber and bad news for Lyft, Sidecar, and other upstarts. Perhaps there will be room for differentiated niche players (luxury, shared rides in vans, pickup trucks on demand, etc) but Uber is on track to be the leader for the mass market and that is why they are expanding geographically so aggressively. 

This has an interesting implication. Either Uber will be the largest purchaser of driverless cars by a wide margin, or they will build their own cars (likely through an acquisition). Either way they will have tremendous influence in the market for self driving cars. This is why Google is reportedly testing out a taxi service of its own, and why Uber is partnering with Carnegie Mellon to research self-driving cars.

The industrialization of passenger cars

It would seem logical that Uber focus on a select few models to streamline operations and reduce maintenance costs. I would expect Uber to approach the buying decision process (or development process) with different criteria than a consumer planning to own a car for several years. There will be a big focus on fuel economy, maintenance, and total cost of ownership. A consumer may be focused on the design and color, infotainment system, and the brand's prestige. Perhaps this will lead to a massive fleet of boring economical cars, with comfortable leather interiors and nice sound systems reserved for Uber Black Car and luxury consumer cars.

Implications for the rest of the industry

If my predictions are correct, the consumer automobile market will be significantly smaller than it is today. Automobile companies that aren't part of the Uber ecosystem will be competing for a smaller shrinking market. This will lead to consolidation to reduce expenses and some car companies will likely go out of business. There will still be a market for utilitarian vehicles and wealthier individuals. Companies like BMW, Tesla, (Apple?), and super-luxury brands may weather the storm.

I'd be very nervous if my business depended on other parts of the consumer automotive market: car dealers, service centers, car loans, component suppliers, aftermarket parts or installation, etc. Car rentals and sharing services such as ZipCar may be ok if they adapt and focus on situations where a driverless Uber is economical - family road trips, a drive to the beach or mountains, trips to Ikea, etc.

A net positive?

If all this comes to pass there will be a lot of positives and negatives to weigh. Many consumers will have affordable convenient access to transportation without the expense and burden of car ownership. If driverless cars are electric or hybrid-electric it will reduce air pollution in urban areas. Less space would be required for parking. Driverless cars also have the potential to be safer than human drivers.

However, many people from cab drivers to automotive workers may be out of jobs. A few huge companies will also own databases of people's movements, and Uber hasn't exactly been a good steward of personal data. 

Closing thoughts

For the last 6 years I've lived in Boston, Austin, and San Francisco mostly without a car. I've relied on public transportation, ZipCar, Car2Go, taxis, Uber, and Lyft. I also walk, bike, and get rides from friends. I don't like owning a car in the city. It's a hassle to find legal parking spaces and keep the car registered, insured, inspected, and maintained. It would have been much harder to go car-less without ZipCar and Car2Go. Uber and Lyft are practically ubiquitous in San Francisco, and I can see them eating into ZipCar's growth if they continue to spread and making it easier to live without a car.

Owning a car has been a right of passage of sorts for Americans for decades. But as people get more comfortable using car services, consumer attitudes may change. I expect many urbanites to adopt a car-free lifestyle and enjoy the convenience of rides on demand.