Car Wreck, 21st Century Style

Aside from the climate-change induced challenges here in the U.S. – searing temperatures/ droughts/fires out west, hurricanes in the Gulf and Atlantic, flooding and great storm activity in the Mid-West and the Polar Vortex in the Northeast – there’s this further additional economic storm surge brewing out there. This is hardly just an American problem: No political system in the world has addressed the massive unemployment displacement issues that will inevitably rip and rage across the planet as artificial intelligence (AI) driven automation and robotics replace human labor at an accelerating pace.

What we see in growing income inequality, now rearing its ugly head in the developed world (especially in the United States), as the owners of these glorious machines now enjoy the income that used to be generated by their former employees. So much for reshoring manufacturing to create jobs. We’ve moved from the industrial revolution, through the information/knowledge age and are roaring toward a rather robust AI-automation era.

As employers, from the manufacturers and blue collar companies of today to the high-end service providers (doctors, lawyers, investment advisors, etc.) going forward, make microeconomic decisions to improve their individual competitive advantage and fire workers, the macroeconomic consequences will bring down entire nations and economic structures. As you may have guessed, the bugaboo is no longer “globalization,” an issue from an earlier era that too many old politicians believe still relevant, the backbone of increasing nationalism and populism. They kind of miss the point, missing the much, much bigger picture: automation will redefine social realities everywhere… made that much worse by the massive cost to take care of Malthusian population growth against that climate change backdrop. “Globalization” is rapidly becoming yesterday’s news.

We still have no scheme to replace the income tax that was/is currently being paid by individuals who work for a living who will lose their jobs and become social burdens rather than taxpayers. Do we tax the machines that replace them, change ownership rules or impose some other “make-up” economic system? How does this money, if we can figure that out, get back “to the people”? With all this job displacement, where will the consumers needed to buy these more efficiently provided products and services come from?

So in summary, there are three massive threats to mankind, issues that have given rise to increasing desperation, incalculable fear and hopelessness, conflicts and isolationism, that define the greatest challenges to the modern world: unsustainable population growth, out-of-control climate change and tsunamic shifts in technology. While the impact on borders, trade agreements and international relations will be radically changed because of these variables, “globalization” per se is no longer the driving force behind that change.

To illustrate my point today, I have picked an industry that is threatened with severe contraction based on these variables: car-making. And this is not about pollution controls or better and more efficient engines. This is about the social role of cars themselves in “future-world.”

While there are many experts who tell you that electric cars are not as green as the automotive industry may suggest – after all the charging electricity as often as not comes from power generation from a polluting source – consumers have not embraced electric cars in the droves predicted for two other major reasons: not enough range and it takes too long to recharge a car running out of electrical power. But every car manufacture of note, and more than a few information technology companies (e.g., Google and Apple), are focused on a new age of driverless vehicles… almost exclusively powered by electricity or hydrogen fuel cells. Their assumptions rest squarely on this vision of the future.

Younger generations are not as enamored of car-ownership as were their parents. The notion of car ownership is rapidly being replaced with car “access.” Lyft and Uber are the early manifestations of this phenomenon. Urban planners envision fleets of autonomous vehicles responding to on-demand consumer requests, returning to base stations only to recharge. What happens to the parking structures, garages, under this view? What happens to car ownership itself? And most importantly, what happens to the mass of “old world” cars that lack the technology to participate in this new automotive world? The transition could get downright ugly.

Ford Motors’ new CEO, Jim Hackett, thinks there is wake-up call for all car-makers to realize that consumers just might avoid purchasing new cars – already a U.S. consumer trend that moved from buying a new car every two years, when I was a boy, to once every eleven years today – because they sense that seminal new technology will trash aftermarket values. Hackett has proposed a "restructuring roadmap" to address these issues, particularly the expected contraction in consumer purchases of new cars.

“[Hackett’s] goal is to generate $12 billion in cost savings by 2022. [Morgan Stanley analyst Adam] Jonas scrutinizes a range of options, from layoffs to financial write-downs, but buried in the note is this: ‘We believe many of Ford's restructuring actions are meant to ensure the fitness of the company's operations during a highly uncertain time which may include a reduced value of its products in the second-hand market, particularly as Ford and its peers introduce superior technologies in critical areas such as connectivity, propulsion and automation.’" AOL.com, October 16^th. Huh? Simply, what will all these changes mean for the second hand car market, that “resale value” number that most consumers think about when they buy a new car? And how exactly will old-world cars be allowed to interface with new-world driverless cars (note, I asked this question backwards!)? When will old-world cars simply be banned entirely?

What is the value of a gasoline or diesel-powered vehicle in the coming after-market? How many filling stations will be required to service a dwindling number of fossil-fueled cars and trucks?  “It might not happen, of course. Electric cars were supposed to be on their way to 15%-20% of the global market by now; they currently make up about 1%. Self-driving vehicles are still largely in the experimental phase, and it's unclear whether consumers will be willing to shell out the thousands of dollars needed to equip existing vehicles with even just advanced cruise control, of the type that Tesla and Cadillac have rolled out. 

“But the markets want Ford to be ready for a used-car apocalypse regardless. And in fact that preparation might be valuable, as the used-car market is becoming flooded with vehicles that were sold during the record years of 2015 and 2016, when over 34 million new vehicles rolled off dealer lots in the US alone.” AOL.com. For the “smarties” who think this issue is solved by leasing instead of buying, remember that the cost of a lease is deeply impacted by the expected value of the vehicle at the end of the lease!

You also have to believe that range-driving distance issues will vaporize as improved battery technology or alternative fuel systems are deployed. The replacement of fossil fuel-burning electrical power plants – sorry King Coal and fracking advocates – with green alternatives is taking place as fast as these systems can be put online.

Sure there will be short-term surge in new car sales based on the losses of vehicles from recent natural disasters… but counting on natural disasters is hardly a sustainable business plan, and rising insurance costs may drive even more consumers from buying new cars. In the end, all of these variables require deep thinking, preplanning and a veering away from politics than is primarily reactive and not proactive. Think that is happening anytime soon? 

I’m Peter Dekom, and the mantra of “Make America Great Again” is a meaningless cry to push back the hands of time, one that simply is destined to fail in the face of changes that just will not go away by reason of statute or executive order.