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Lighter, self-driving cars; no parking lots; lower revenue from traffic violations: What does the future of mobility promise? Tanya Ott spoke with Deloitte’s Scott Corwin about how industry incumbents must figure out where to play and how to win.
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TANYA OTT: This is the Press Room, Deloitte University Press’s podcast on the issues and ideas that matter to your business today. I’m Tanya Ott, and the North American International Auto Show—sometimes called the Detroit Auto Show—is this month. Thousands of industry leaders, analysts, researchers, and journalists will gather to ooh and ah over the latest designs and concept cars—including one described as an “American take on a super sports car.” It, reportedly, sports a $300,000 price tag.
That number may seem incredibly indulgent given what the auto industry has been through in the last 15 years:
SCOTT CORWIN: Tanya, I’ve had the—I don’t know if it’s the good fortune or the misfortune, I’ll leave that to others to decide—to have actually spent a lot of time with the automotive industry through that entire period.
TANYA OTT: That’s Scott Corwin. He leads Deloitte’s Future of Mobility initiative. His work with the auto industry started back in 1994, and he helped one of the two big US automakers write the viability plan that they submitted to the president and the US congress to get federal aid. He was one of the few outsiders to do that.
SCOTT CORWIN: So I had a window seat on all these events.
TANYA OTT: At the peak, the market in the US was selling about 17 million units. At the trough, it ended up being 9 or 9. 5 million units. Today, the US market is at about 16 or 16.5 million units—almost back to that original peak. So the market is incredibly competitive—and lucrative.
SCOTT CORWIN: The industry in the United States generates $1.9 trillion, almost $2 trillion dollars of income annually.
TANYA OTT: That’s about 12 percent of the total gross domestic product in the US. We’re not just talking about vehicles rolling off the assembly line. We’re talking about revenues for oil companies and gas stations. We’re talking about after-market parts and services. Rentals, taxis, limos. Advertising on the radio and outdoor advertising like those billboards you see on your commute.
SCOTT CORWIN: That whole value chain has basically been unchanged really almost going back to the time of Henry Ford a century ago.
TANYA OTT: But Scott says right now there is historic change going on. He’s watching five trends—the convergence of which is allowing a very different form of mobility to emerge. Trend No. 1 . . .
SCOTT CORWIN: Maturing power-train technologies and the shift from gas to diesel to electric or, potentially down the road, hydrogen fuel cells.
TANYA OTT: The second trend? Lightweight materials.
SCOTT CORWIN: We now have the emergence of (through chemistry and physics and other things) materials that can take really significant weight out of the vehicles. So a good example of that is what Ford did with their F-150 truck, [where] they used aluminum instead of steel, and they took 600 pounds of weight out of the truck without doing anything to diminish the occupant safety.
TANYA OTT: The third trend is rapid advances in connected vehicles.
SCOTT CORWIN: We are getting to the point that, in the not-too-distant future, through vehicle-to-vehicle and vehicle-to-infrastructure technologies and sensors and the ability to detect where things are, every vehicle will know where every other vehicle is, as well as where they are in relationship to the fixed environment they’re moving in.
TANYA OTT: The fourth big trend is shifts in mobility preference.
SCOTT CORWIN: I’m a Baby Boomer, and the minute I could afford to get a license, I bought a used car with all the money that I saved up cutting lawns and odd jobs and all that kind of stuff in high school. And it was freedom. But what we’ve seen with Millennials, and particularly in more densely populated areas, is that people are choosing and opting consumer mobility on a per-use basis—either per mile or based on time—as opposed to a capital transaction where they buy the vehicle and then use it if they need it. It offers them convenience and all those things we’ve grown up with.
TANYA OTT: That’s only possible because there are all kinds of new mobility products that just didn’t exist when Scott was younger—or even when I and my fellow Gen Xers were younger. It started with ZipCar, but now we’ve got Uber and Lyft and all kinds of other services that have emerged.
Now the sexiest of the new trends—the one that grabs the most headlines—is autonomous drive. Self-driving vehicles. They used to just be science fiction. But today, they’re science in action.
SCOTT CORWIN: Google has driven 1.3 million miles and done it very safely with a modified autonomous drive vehicle. And so the technology actually works, and it’s been demonstrated to work. Interestingly, there are some analogs. Airplanes have been able to fly on autopilot for a very long time, and in the military, they’re increasingly using unmanned vehicles and doing so with great success. So it’s not surprising that it would find its way into the passenger automobile.
TANYA OTT: Scott, you talked a moment ago about Uber, the smartphone app that allows you to order a car to show up and take you somewhere. Have you used it?
SCOTT CORWIN: Have you used it?
TANYA OTT: What do you think?
SCOTT CORWIN: I travel a lot, so it’s incredibly convenient in distant cities. I’m a New Yorker, so I still have a tendency to go out and raise my hand and let the yellow cab pick me up and take me where I’m going if I’m not using public transportation.
TANYA OTT: So you’re old school that way. You go out and raise your hand for the cab rather than Ubering? Or you do it in equal measure right now?
SCOTT CORWIN: No, in New York, I’m a pretty die-hard yellow cab user.
TANYA OTT: Interestingly, one of the consequences of the rise of companies like Uber has been increased competition for the taxi industry. I was reading, I thought this was kind of interesting, taxi drivers are required to purchase the medallions that allow them to be authorized taxi drivers, and they’re kind of restricted, which means the prices have been high. But according to a recent Wall Street Journal article, taxi medallion prices are plunging in some US cities. In New York, in your city, medallions in 2013 were valued at $1.3 million. They’ve dropped to just about $800,000 in 2015. Banks and credit unions that traditionally offer taxi medallion loans have seen the effects of this. So it’s a very interconnected ecosystem, with some unintended consequences, I guess.
SCOTT CORWIN: It was a model built on a fixed supply. As long as demand was there, you could buy a medallion and, assuming that the taxi and limousine commission helped you with rates, you could earn a pretty good return on that capital investment. But now with the rise of these ride-sharing businesses, it’s introduced a whole new basis of competition where the prices, in a lot of places, are equal or cheaper, and quite frankly [it’s] a little more convenient because it’s door to door. You don’t have to stand out there with the rain or snow at the shift switchover and wait for someone to come pick you up.
TANYA OTT: Some people would label that a disruptive force. Others would call it a catalyst for transformation. I guess it sort of depends on your perspective.
SCOTT CORWIN: I think it is disruptive because I think it’s changing the fundamental modes of how people [engage with the] consumer and supply markets. At the end of the day, yes, you’re still getting in a vehicle, and it’s transporting you from place to place, but it’s kind of hard to imagine even 10 years ago that you’d let literally a stranger come and pick you up and take you someplace and trust them. And that you’d have the convenience of being able to do it from an app on your phone that tells you exactly where they are. There’s a payment system attached to it that’s also quite convenient. Some argue it’s a better mousetrap. I think it’s profoundly different, and it’s changing behaviors. By the way, we haven’t yet seen the growth levels sort of top out. Anecdotally, there’ve been stories that these ride-sharing services are not so much cannibalizing taxis or even public transportation in major urban areas, but what’s in fact happening is that people are opting to use their car even less. And the statistics are pretty overwhelming. Today, in sort of a national average, people only use their car one hour a day. That’s a pretty limited amount for a fairly large capital purchase.
TANYA OTT: I work in Atlanta, and I think the one hour a day is like the average commute one way to work!
(Scott Corwin laughs)
TANYA OTT: Just saying! Not for me, but for many, many people in the metro area. Another potentially disruptive force, or catalyst for transformation, [is] the autonomous vehicles you mentioned earlier. We see a lot of headlines about self–driving cars all the time. And you envision a world where, we’ll just tick through this, vehicles would hardly ever crash. Why is that?
SCOTT CORWIN: Well, there are a bunch of things that come from the disrupter view. If you follow logically the benefits that they believe [in]—and some of these I think are real, and some of these have yet to be proven—one is that in theory autonomous vehicles will never crash or nearly never crash. The history so far is when accidents have occurred, it’s been when other cars actually crashed into an autonomous drive vehicle.
When we get to a point when there’s a reasonable number of these vehicles on these road, and we reduce the number of accidents, a couple of things can happen. One is that the weight and mass of these vehicles can come down dramatically—particularly in urban areas where you’re not driving that quickly. In addition, the spatial distance between them can shorten because they will know exactly where they are in relationship to every other vehicle, and they’re moving together, and that will help with congestion. If you take weight and mass out of the vehicle, it allows for electrification, so battery-powered or electric vehicles become way more viable in the sense that you don’t need nearly as large a battery, and you can go further on a single charge. So, particularly in urban environments, I think you’re going to begin to see significantly greater electrification.
TANYA OTT: Let me just draw the line through that scenario that you’re envisioning there: Because the autonomous cars are safer, because they can sense how far away they are from each other and that sort of thing in this future world, you’re able to reduce the weight and mass because you don’t need the weight and mass to protect the bodies inside the car, and because of that you’re more able to become electric.
SCOTT CORWIN: That’s correct. In the future, we fully believe there are going to be people who will continue to own and drive their own vehicles. I can easily imagine that farmers and ranchers will continue to drive pickups in the numbers that they do today. There will certainly be people who will own classic sports cars that they want to continue to drive. Where I think you’ll begin to see this shift, at least in autonomous drive, is in more densely populated areas. You know the story you talked about in Atlanta: If you’re going to sit in bumper-to-bumper traffic, and that increasingly is the MO in every major city, not only in the United States but in many parts of the world, wouldn’t you rather be able to let go and use your time in other ways? Whether you want to use it to spend time with other occupants in the vehicle, your family, or for work reasons, or just for leisure and consuming media and information. I think it’s a pretty compelling value proposition, if, in fact, it can be proven to be safe.
TANYA OTT: But here’s the thing. Scott Corwin isn’t just talking about you and me having our own self-driving cars in our garage. He says it’s likely one day there will be large fleets of self-driving cars. You request one to pick you up. You get in. You can check your email, maybe watch the latest episode of Game of Thrones or whatever, while it drives you to your next location.
SCOTT CORWIN: It can drop you off and move on. So in many ways it’s like Uber or Lyft without a driver.
TANYA OTT: One of the other things you talk about in the future world is that autonomous vehicles are programmed not to exceed speed limits, and so law enforcement no longer has to worry about policing traffic. But that got me thinking. For a lot of police and sheriff’s departments, traffic tickets are a pretty significant portion of their revenue stream.
SCOTT CORWIN: Yes, they are. So in the study, we actually look at the impact on different industries. The public sector today earns on the order of $250 billion in terms of revenues from sales taxes, registration fees, traffic enforcement, tolls, public transportation, and even street-side parking. In the future, 10 or 15 years from now, the number of vehicles on the road could go down. The amount of parking needed will go down. Traffic enforcement, particularly for autonomous vehicles, will go away.
What will happen is the public sector, because we need them to continue to build roads and the infrastructure, will need capital to do that. And one of the things we envision happening, and the disruptors do, is that we’ll move to a dynamic model of taxation for the use of the infrastructure. With the technology, we know where every vehicle is. You would be able to be charged based on the time of day, supply, and demand. For your friends in Atlanta with the commute, if they’re going at a peak period, they might, in fact, if they’re traveling 10 or 20 miles, pay more than if they went at an off-peak period. If they used primary roads versus arterial roads, [they] could be charged a different rate. If they’re using a lighter-weight vehicle versus a heavier-weight vehicle, [they] could be charged differentially. And with the technology and big data and smartphones, you could know ahead of time exactly what that might cost.
TANYA OTT: One of the other things you envision, or the disrupters envision, is that parking lots would disappear.
SCOTT CORWIN: I think initially they won’t disappear, but what will happen if we move to electrification [is that] a bunch of them will be used for recharging. [It’s] one scenario that has been painted, particularly in urban areas where we might have little pods running around: one-, two-, four-person pods that are shared. These are no different than the medallion owners of taxis, or it could be other fleets owners. So these would be available, and you would call them on your smartphone, and they would come and get you. They probably will be parked and housed in a marshaling yard on the edge of the city, and you know that’s where they’ll get recharged and get cleaned, no different than a car rental company does, and maintained and then put back out on the road, so they’ll be in constant movement. They won’t need to park because they’ll move from passenger to passenger and move from point to point. What that creates is a separation of the vehicle from the individual owner.
TANYA OTT: Another vision of the future is that with fully autonomous networks of long-haul trucks, we could send and receive products faster.
SCOTT CORWIN: Yeah, this is really exciting in my view and probably one of the real early areas. Freightliner has created and shown an autonomous drive–capable long-haul truck, where a driver can let it go on a highway from point A to point B. The logical extension of this is that we will get to a point in the not-too-distant future where you could easily conceive that trucks would be driven by drivers to the on-ramp of a highway. They would be put on that highway, and the drivers might get off, and [they would] continue to travel across the country, for example, on Route 80 in an HOV lane and stop to refuel or recharge or whatever it is and keep going. The reason that is an interesting prospect is today there are work rules about the number of hours that drivers can drive and mandated rest periods. Each of the major carriers today, whether it’s FedEx or UPS or any of the long-haul trucking companies or the Postal Service, work very aggressively on optimizing routes and shortening times, but they’re all constrained by these rules and have to live with them. This would be a real game changer. You could easily imagine, there’s a company that’s building the technology to daisy-chain trucks. You could also easily imagine that we could do remote-control operations similar to what we do with drones, so we know exactly where it is and navigate it. I don’t think that works so easily for the last mile, particularly in crowded urban environments. But I think on the open highway it’s a very interesting prospect.
TANYA OTT: So that’s got a lot of benefit for consumers who might receive their products faster, but, man, immense benefit for the supply chain, for equipment getting from one place to another for businesses.
SCOTT CORWIN: Yeah, and in combination with that, I’m not an expert in these areas, but we’re seeing with 3D printing the making of goods closer to the consumption. We’ve seen the compression of supply chains. We’ve seen much more agile movement of goods so that they’re closer to where they need to be. This is just another piece in that puzzle. There are others who’ve talked about, and I don’t quite know how this would work, the idea of using autonomous drive vehicles for delivery in the last mile. And I don’t quite know how we’ll handle the dropping off of packages and getting [them] out of the vehicle to your doorstep or to your front door. But I could imagine that for certain things, that might work. Obviously there’s all this talk about drones. In cities, drones will be a bit challenging. This may be a better alternative.
TANYA OTT: I want my Jetson-style robot to do that last mile and drop off my shoes I ordered online, that’s what I’d like. (Corwin laughs) Because she could then smile at me and say “hi” and ask me how my day was.
SCOTT CORWIN: Yeah, there you go.
TANYA OTT: Just a few minutes ago, when you talked about the disrupters, you said, “The disrupters would believe this, and we would, or I would as well.” So does that mean you’re on the other side of the equation, the insiders’ view?
SCOTT CORWIN: Nope. Our team in writing this tried to be very objective. We do a lot of work with the key players across all the subsectors that make up today’s $1.9 trillion automobile industry in the United States. We work with energy companies and large gas retailers and insurance companies. And I have great empathy for them because, look, they built business systems that have generated really powerful economic returns on a set of assets that they’ve invested [in] very heavily. Logically, in many ways they view the convergence of these forces [as] not dissimilar to other things that we’ve seen. And they fundamentally want to try to see a more natural and incremental evolution. They appropriately raise the point that there’s regulation and making sure that we conform with standards that have been set. So they are kind of protecting their economic assets, and they’re making a bet, by and large, that change will be a little more incremental and that they can, in fact, if not control at least heavily influence how this all unfolds. By and large, a lot of these companies, and we’ve talked to a lot of the CEOs and senior leaders, are beginning to recognize the disruptive effects of this, and have launched various initiatives and teams to think about it.
From my vantage point as a strategist, you step back and you say, wait a minute, there really are two fundamentally different views of the future, and how this is going to unfold and what the implications are. As I said, we’re talking a pretty significant part of our economy. So in the end, we conclude that it’s still pretty early. But change is happening at a pretty fast pace. And that change is inevitable, and therefore those in the industry-incumbent camp that are in a bit of denial . . . that’s probably not the wisest place to be. Because industries do rise and fall, and while cycles take long periods of time and this may seem really axiomatic, change is inevitable.
TANYA OTT: Inevitable, says Scott Corwin, because the changes he’s talking about can offer improved safety, convenience, impact to the environment, and economics. Scott says the traditional automakers and other legacy players should try to figure out where to play and how to win. What they don’t want to do is think there’s plenty of time, because if they do that, change will leapfrog them, and all they built could be dismantled by this disruption.
Scott Corwin and his colleagues have studied the issue. Their article is The future of mobility: How transportation technology and social trends are creating a new business ecosystem. Check it out at dupress.com. I’m Tanya Ott for the Press Room, a production of Deloitte University Press. We post new podcasts twice a month. And check out our archives, where we’re talking about things like that thing Scott Corwin says he’s no expert in:
SCOTT CORWIN: I’m not an expert in these areas, but we’re seeing with 3D printing the making of goods closer to the consumption . . .
TANYA OTT: The experts call 3D printing “additive manufacturing,” and we talked to someone who knows a lot about it.
KELLY MARCHESE: We’re seeing the most interested industries are those that require highly customized parts. So you think about the health care industry, life sciences. You’ve seen a lot of additive manufacturing used in hearing aids or braces or even hip joints. Or automotive, where there are parts that are out there that have been produced decades ago and they need a replacement because they’ve broken down, and perhaps those suppliers don’t even exist any more.
TANYA OTT: Subscribe to the podcast series. Tell your friends and colleagues about it. And tell us what you’d like to see us cover. You can leave a comment on the podcast page, email us at firstname.lastname@example.org, or tweet us @du_press. Thanks for listening, and catch ya next time.
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