Death of the Dealer greatly exaggerated: Koblenz

The approaching arrivals of electric and autonomous vehicles, and ride-hailing services, are supposed to herald the death knell of the retail automotive dealership. However, that is far from the case, NADA executive vice-president and chief legal counsel, Andy Koblenz, has told the AADA National Dealer Convention.

Speaking at the General Session on Tuesday, 10 September, Mr Koblenz said many were proclaiming the advent of the revolution, but the voices of those who matter most were not being heard.

“There’s a lot of talk in the industry about changes that are coming, and change is clearly afoot,” he said.

“But what’s real, and what’s hype? There are lot of voices out there: we hear from the OEMs, we hear from Silicone Valley, we hear from Wall Street, we hear from consultants, we hear from the media, we hear from government, we hear from think tanks.

“What voice are we not hearing in all of that I just picked over? The missing voice in there is of the consumer. So, when we look through the lens of the consumer, some of the disruption and the coming changes to our industry look a little different.”

Andy Koblenz assured Dealers time was on their side

Electric uptake slow

Although vehicle manufacturers are investing heavily in electric vehicle development, the uptake by consumers remains miniscule. In the United States, just 1.3 percent of sales in the second quarter of 2019 were electric vehicles.

“In California, where they’ve done everything to encourage the purchasing of some of the vehicles – their infrastructure and incentives – it’s only 5.6 percent of the market,” Mr Koblenz said.

“And here I believe it’s only 0.3 percent of the market. And even more telling than those statistics is one that we just received, which is what happens when people who’ve bought electric vehicles dispose of that vehicle and buy their next vehicle, and 41 percent of them are going back to something that’s powered at least partially, if not fully, by petroleum.”

Mr Koblenz said that with range issues having been largely solved and prices moving closer to parity with conventional vehicles, the main sticking points with customers were refueling time and the residual value of electric cars.

“A huge percentage of the population in America doesn’t park their car in the same place every night – they don’t have a designated garage or designated space – and therefore they would have to have charging stations all over the place to make it work practically from their perspective,” he said.

“The number of chargers is still not there: we have a little bit of a chicken-and-the-egg problem – there’s 160,000 gas stations in the United States, but only 22,000 charging stations, and when you add the number of pumps, the distribution gets much greater. And here in Australia, I believe the numbers are 64,000 gas stations and only 330 charging stations. That infrastructure just isn’t there yet.

“Also, the speed of refueling an electric vehicle. Right now, to get a full charge you’re talking 45 minutes to an hour, and I know that when I go to refuel my petroleum-fueled car, if I have to see one person ahead of me in line, I’m just going to go to a different station, because I’m not going to wait the five or six minutes that it’s going to take.”

The other concern making consumers hesitate was uncertainty regarding the residual values of electric vehicles, which would possibly decrease by two-thirds over eight years.

“So, until we resolve those issues, I don’t think the consumer uptake is going to come, but when we do resolve them, I think that you’ll start to see consumers buy them. When it meets the needs of lots of consumers, I think you’ll see people buy them in greater amounts,” Mr Koblenz said.

Autonomous vehicles: not yet

“You’ve heard it: autonomous vehicles are coming – I’m talking here about driverless vehicles – and they are, but at what pace? Are they nearly here?” Mr Koblenz asked.

“Well, in the United States the main driver of people saying they’ve got to get them in quickly and they are going to get here quickly, is because of the safety benefits they can deliver. In the United States, we have 37,000 deaths every year from accidents on our roads – 94 percent of those deaths are caused by human error. This is unacceptable, the argument goes – and this sounds compelling: if we can solve that, that human tragedy, that would be a wonderful thing.”

Proponents of autonomous vehicles make their argument in two parts: that humans are bad drivers, and we need to get them off the road and prevent 94 percent of fatal accidents, hand-in-glove with the idea that “computers are great – we’ve got to get them on the road as quickly as we can“.

“So, let’s ask a bit deeper into those questions: are humans that bad? Contrary to conventional wisdom, humans perform very well – they’re phenomenally good drivers,” Mr Koblenz said.

“Let me ask you a question: does anyone know how many vehicle miles traveled there are per death in the United States? Five hundred thousand? A million? Here’s the answer: 90 million miles of vehicle miles traveled. For every death in an accident in the United States, there are people driving 90 million miles of good driving, or safe driving. It’s like the kid who take a math test and gets a couple of answers wrong – yes, he gets those answers wrong, but he gets 98 percent of the questions right. We don’t have lousy drivers, we have very, very good drivers who sadly are not perfect. And that’s with today’s cars. If we can make those cars a little bit better, we could find out that the accidents would drop tremendously.”

Research from the United States’ National Highway Traffic Safety Administration states that with advanced driving assist technologies, we could reduce life-taking vehicle accidents by almost 90 percent.

“We’re not talking about things that are years or decades away, we’re talking about things that are here today or are coming tomorrow,” Mr Koblenz said.

“Things like connected vehicles to everything, lane-keep assist, not just warnings; automatic braking, not just adaptive cruise control. Proximity monitors, blind spot monitors, drowsiness protection. We think that soon, with the deployment of advanced driver assist technologies, safety is going to be removed as an impediment and when the political imperative goes away, we think that the rush to make autonomous vehicles is more going to become just a business model choice, or a convenience choice, and not one driven by safety.”

Mr Koblenz referenced research conducted by Triple A that showed that even with today’s technology, if drivers were trained properly – something Dealers could help with – the US could reduce its 37,000 road toll by 9,000.

The other side of the equation was that computers are not yet good enough to replace human drivers. Consumers would have to be satisfied that the vehicles were safe, and that their data was secure, before they would accept them.

“The right questions are being asked and we’re not there yet. In fact, earlier this year, Consumer Reports wrote that one OEM’s autonomous system is far less competent than an average human driver. So, that’s the current state of things: we have a long way to go to get to autonomous vehicles,” Mr Koblenz said.

Will ride hailing change the way the model works?

The predicted impact of the arrival of autonomous vehicles is they would combine with ride hailing services to make automobile travel the same as air travel: mobility as a service – buying a seat for a trip rather than owning a plane or a car.

“Who’s saying that? And more importantly, who’s not saying it?” Mr Koblenz said. “It all starts with Wall Street.”

He quoted a Morgan Stanley analyst who argued that cars are the most underutilised, polluting, time-consuming, dangerous machines on Earth, with “an invested capital base equal to 20 trillion dollars, sitting on the side of the road, in your driveway, in a parking deck, at a car Dealer, just waiting, rusting, leaking fluids”, and that cars are only used four percent of the time.

“Economics cry out for greater utilisation, and when that greater utilisation – ride hailing – comes, it’s going to push down the cost of driving a mile, down, down, down, until it’s less than private ownership, and that’s when the tipping point will come.”

The McKinsey Consultancy predicted that by 2030 one in 10 cars sold would be a shared vehicle. The Boston Consulting Group said that “the next car you own may be your last”, and Rethink X predicted that 95 percent of the miles travelled in 2030 would be in autonomous, electric, shared vehicles, and as a result of that, car Dealers would cease to exist by 2024.

Naturally, Mr Koblenz disagreed with these arguments.

“It’s far from clear that the primary premise that they have is true: that the advent of AVs will drive down the cost of driving miles sufficiently to displace private ownership,” he said.

“In fact, there was a report issued earlier this year that MIT researchers concluded that ride hailing will still be more expensive than conventional ownership on a per mile basis.”

However, even if that report was wrong, the arguments failed to take into account the desires of the consumer, so NADA conducted its own research, speaking to consumers, including oversampling Millennials to see if they were different.

“There was one big finding: people have little interest in giving up their cars in favour of exclusively ride hailing,” Mr Koblenz said.

“They like ride hailing, as a complement, as a supplement to their current situation, but not as a substitute. They want both. And this was true even after we made the best arguments: things like cost, and convenience, for ride hailing. Only one on 10 people overall – it was two in 10 for Millennials – but when you drill down a little deeper into the Millennial group, you found that the younger Millennials, who were not married, and still living in the city, were more likely to say that they would ride hail, but as soon as they get married and have kids, move out of the city, they act just like the rest of the population that we surveyed.”

Contrary to the argument that cars were only used four percent of the time, over 90 percent of respondents said that every moment their cars provide value in the form of independence, freedom, and flexibility, to go where they want, when they need to.

 

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