walkitout (walkitout) wrote,

More about those auto analysts

This would be the half-promised post about Adam Jonas, Ravi Shanker, James E Faucette, Paresh Jain, Neel Mehta and Laura Lembke's September 4, 2014 "Industry View" "North America Insight" Morgan Stanley Research paper, "Rent-a-Car Meets Tech: Head-on Collision". As you may recall, I waste time online. A lot of it. Some of that time (an embarrassingly large amount of time) is spent reading Business Insider (I think of it as the soap opera and bon bons part of my day, neither of which I have ever actually consumed).

The note starts out asserting tech "will consolidate the taxi/livery market". As near as I can tell, the not-my-own-car market is divided up into taxis (hail), chauffeur/car service and car rental, with ride sharing services (Uber) and car-sharing services (Zipcar) as relatively new and disruptive entrants. The research team has some good observations to make. Fleet management competency is core to the car rental business. By getting good at fleet management in insurance rentals, Enterprise was able to step into the car rental business at a very high level and compete strongly. Part of this team's argument is that the taxi/livery market presents an opportunity to start up a new, big fleet manager that could then, sort of as an after thought, squat on the car rental market. Their thesis is that the mature oligopoly of car rental is a lot more precarious than it appears to be. I'm not prepared to argue with that. It's what they get into on the way to that that I have problems with.

(1) Will Uber really get into fleet management, or even "closer to the asset"? They have dipped their toe in -- and then pulled that toe right back out when it didn't go brilliantly. They might go a bunch of rounds on this before committing, if they ever commit. A bunch of established players think of Uber as a driver network, and that sounds more correct to me.

(2) Tech is probably going to put the airport counter down. National is an arm of Enterprise and something like National's sign up, state your preferences and walk out to pick a car (or to a reserved car, more likely, at higher priced levels through other names) seems likely. But getting rid of one step out of the airport and one line to wait in may have a lot less of an impact than it seems, unless airports back down on enforcement of contracts, which seems sort of unlikely. I do know that at Schiphol, you can rent a car without going anywhere near a counter OR a lot: a guy meets you, you sign on a tablet, he walks you out to the car which is parked in the pick up/drop off lanes. Drop off works similarly. Super weird, feels sketchy at first, and then you wonder why it isn't always like this. But airports can kill this kind of operation or fee it to death to preserve the existing players, and it is important to not lose track of that.

The next component of the argument involves tech organizing the massive market that is taxis, chauffeur, livery market. It is enormous, and the very biggest participants globally are well under the 1% size. This is where a significant piece of hand waving occurs. If someone says, getting 1% of a market isn't too hard, right? It is easy to think, 1% that's not much, sure, that should be do-able. Maybe not easy, but do-able. Well, if you get 1% of a ginormous thing, then you have a really big thing, big enough to squat on and crush some or all of the car-rental oligopoly. But if the reader/listener/victim actually thinks through the 1%, they won't agree to it and the argument goes *poof*.

Basically, IF Uber bought vehicles and IF Uber kept growing really fast for a while and IF they were not themselves disrupted by stuff like Lyft and IF IF IF, then Uber could put Hertz or whatever out of business. Possible? Sure. Likely? Well, the _last_ time someone produced a related argument, it involved Zipcar, and what happened to Zipcar? They were bought by Avis Budget. This is how oligopolies stick around and this is how businesses solve the innovator's dilemma: they watch the up and comers and buy strategically. Makes for a boring world for an analyst.

But the analysts are not yet done! The next chunk of the paper involves how little time we spend in our cars. Even people spending a couple hours a day in a car are massively underutilizing that capital expenditure if you compare it to a factory that runs a single shift a day. It's true, cars are massively underutilized and they are that way because we all want our cars for approximately the same few hours a day and only some of us can time shift and moving the cars around (removing the sippy cups, kid seats, stuff to drop off on our way to or from an errand) is non-trivial. The analysts make the same observation that every public transport, ride share and car pool advocate has ever made (you can double capacity and half the cost by sharing with just 1 other person!). And anyone who has ever taken public transport or participated in ride shares and car pools knows all the problems that go with that.

I've made the argument before that the easiest way to reduce the number of cars on the road is to reduce the number of cars in a household. Taking the last car out of a household is the hardest one to remove. Making the driving offspring share with a stay-at-home parent is sometimes possible. If public transport is available, the go-to-workers in the household may not need a car during the day. But the household has a hard time giving up the last car, and household size has shrunk. You'd never know it based on this report. (And this factor is often concealed by people who mock those who have range anxiety preventing them from buying a BEV. Inevitably, the mock-er has access to someone else's ICE or hybrid to borrow whenever the trip is long or complex.)

Some of the car-sharing issues would be reduced (but not all! We still have to deal with the sippy cups, special seating, garage door openers, stuff to drop off at the middle class guilt reduction station on the way home, sports equipment for the kids to use at their practice in the evening, etc.) if the shared vehicle could drive itself from where it dropped my husband off at work (he'll need a better place to store his bicycle, which currently lives in the back of the van) to whoever was going to use it to, say, go to Costco and then yoga (that would be Not Me, since I don't do either). And that brings us to the most incredible thesis of all: vehicles that don't need drivers, not at all.

There are a bunch of self-driving solutions out there, all partial so far (available only at certain speeds, in certain locations, etc.). It is easy to imagine a world in which self-driving solutions were less partial. It is less easy to imagine a world in which self-driving solutions are the norm. Much less easy. Predicating an investment decision (the car rental oligopoly is under threat) on self-driving vehicles behaving in this manner seems a little ... ahead of the world. But these analysts are here to put a price on the unimaginable:

"Our team estimates that a fully autonomous car requires about $3K of extra hardware content, plus initially $10K of R&D and profit margin which we expect to fall by one-half by [I really could not possibly make this up] 2020. Assuming an autonomous car could be sold for $8k of total additional cost, this is equal to approximately 6 weeks wages for an Uber driver. The robot car pays for itself in 6 weeks."

The _entirely imaginary_ robot car pays for itself in 6 weeks. It's no wonder the guys over at BI love covering the Morgan Stanley auto team. That paragraph is gonna stick with me probably forever.

Sensing that this might be a teensy bit aggressive (hey, I used to write code for a living. I know from aggressive estimates produced by inadequately supervised junior team members), they hedge. "even if the autonomous car cost an extra $60-70k, it can pay for itself in driver cost elimination in merely 1 year."

So, here is what they missed. There are no legal costs mentioned. And I am pretty sure there will be a fuck ton spent on lawyers trying to craft law to let self-driving cars drive around EVEN WITH A DRIVER RIGHT THERE. There will be a metric fuck ton spent on lawyers trying to craft law to figure out who is responsible for accidents involving self-driving cars driving around with a sleeping driver. And while, like Han Solo, I can imagine quite a lot of money, I cannot actually imagine enough money to pay off everyone to make it legal to have cars driving around without anyone at all in them ... before 2020.

They mostly calm down after this. Mostly. And they spend some time discussing how Enterprise might just decide to really compete, as opposed to play nice as part of the oligopoly, thus destabilizing the industry and presenting us with yet another opportunity (a la Wal-mart and Amazon) to discuss whether we should invoke utility regulation schemes and/or antitrust schemes to return to the more expensive and worse world of the then past.

ETA: FOR THE RECORD, some of my all time favorite sf stories are the Telzey Amberdon stories by James H. Schmitz. Telzey's world involves flying, self driving cars. I have no problem with flying, self driving cars in sf. None whatsoever. Zero. I am good with that. But I don't expect sf when I am reading research notes from Morgan Stanley. Next thing you know, someone is going to be saying we'll all be traveling with anti-grav jetpacks powered by fusion before 2030. And it'll be so safe you won't need helmets. Of course, they'll totally leave out all the other risks that helmets protect us from, like bugs impaling themselves on our faces, which anyone who has ever been on a motorcycle knows all about.

ETAYA: Looks like there's a bit of IHS fiction to blame for the Morgan Stanley group's numbers.

Tags: our future economy today
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