Will driverless cars put Ford out of business?

Yesterday (August 16th 2016), Ford set out their goal of producing a high-volume, fully autonomous vehicle for ride sharing by 2021. This led to a number of follow-up articles including this one, which suggested that Ford’s vision would be counter-productive and would lead to a major drop in the number of privately owned vehicles and hence major problems for large car makers.

This is consistent with Uber’s long term goal of replacing private transport with on-demand cars and, certainly, fully autonomous vehicles would significantly reduce Uber’s costs. But it seems to me that the notion that taxi services such as Uber will make a huge difference to the number of private cars is based on a technical rather than a socio-technical analysis.

Let’s start with the technical analysis. The utilisation of private cars is incredibly low – mostly cars are parked and according to the above analysis the capacity utilisation is about 3%. It makes no sense economically to have a car if services like Uber are readily available with the low costs that fully autonomous vehicles will allow. So, your car will take you to work but instead of parking will then go off and take someone else to work.

BUT, if you live in a city with reasonable public transport and taxi services, it already makes no sense economically to have a car. The costs of car ownership significantly exceeds the costs of using public transport and taxis. Yet people still insist on having a car. Why?

  1. A significant number of people don’t live in cities but in suburbs or outside of the city. The problem with services like Uber is that in less populated areas, there isn’t enough demand for local vehicles so you have to wait a while for a car to arrive (typically, where we live on the outskirts of a city, we have to wait 10-20 minutes for a taxi). People who can afford it have a car because they don’t like the inconvenience of waiting. This will not change with driverless cars.
  2. People who live in a city often have leisure interests that take them outside of the city – they go walking in the hills, sailing, take their kids to the beach and so on. Taking public transport is a pain and, while renting a car is possible, it precludes last-minute decision making. Maybe if there was widespread coverage from companies like Uber outside the cities people would use them but I suspect they would still prefer the convenience of their own vehicle.
  3. A key benefit of car ownership is that it allows you to be reactive. You discover that you are lacking a vital ingredient for a recipe you are cooking, so you jump in your car to get it from the local shop; your son calls saying his football game has finished early and needs to be picked up earlier than planned; the sun is shining so you decide to drive to a local forest for a walk in the woods. The key point here is once you make a decision, you don’t want to wait and you want to be sure that transport is available – something that an external service will never be able to guarantee.

These reasons are all about convenience – we are willing to pay significantly for convenience and Uber-like services, autonomous or not, won’t change this.

Some time ago, I was involved in discussions about designing a computer-based system for so-called congestion pricing for road usage. The idea was to have a dynamically changing price for driving so that people changed their behaviour and staggered their journeys to work. We concluded it would not work for one simply reasons – kids all start school around about the same time.

While, for some jobs, the hours of work could certainly be staggered, this is not really an option for kids going to school. Many parents drive their children to school on their way to work or leave for work after their children leave for school. They don’t particularly want staggered working hours because they have to fit their working time around school days. So, we reckoned that while congestion pricing would theoretically work, its effect in practice would be quite limited.

The same issue affects demand for Uber-like services. To meet the peak demand in the morning and evening, car services would have to hugely over-provision and have an immense amount of spare capacity sitting around most of the time waiting for a call. The economics of this don’t make any sense so there will never be enough taxis to meet the personal transport demands at peak times. So people will continue to have a car because they can’t take the risk of not getting an Uber – their kids would be late to school. And, if they have a car, they will use it if possible.

For a number of reasons, I think their will be a falling demand for personal vehicles in the developed world. Cities, increasingly, are actively discouraging car ownership and better connectivity makes it possible for more people to work from home. Some people would not be significantly inconvenienced without a car and more and more of them will give up their vehicle. But this is not dependent on vehicle autonomy.

I reckon Ford have identified a market opportunity for driverless vehicles for ride sharing although I suspect that, while the technology may be available in 2021, the regulation simply won’t allow this. But, when it happens, I doubt if it will really make much of a dent in private car ownership.

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