Daniel Sutter: Driverless cars and public transit
The first driverless car pedestrian fatality occurred recently in Arizona, almost two years after the first fatal crash. These tragic fatalities signal the ongoing development of this technology. Cars and trucks with drivers killed 5,800 pedestrians in 2016, so a driverless car pedestrian fatality was probably inevitable. Driverless cars will reshape our economy, as 2.8 million people currently work in transportation. One area of disruption which has flown under the radar is public transportation. A new Cato Institute study, “The Coming Transit Apocalypse,” highlights the looming wreck. How can we be sure that driverless vehicles will be on the road soon? Nothing is certain in life, but the Cato study notes that more than three dozen companies worldwide are experimenting with the technology, including auto makers, auto parts suppliers, and tech companies. Thus many companies believe that practical self-driving vehicles are within reach. Given that these companies are trying different approaches, it seems likely that at least one successful design will emerge. Public transportation is already hemorrhaging riders, with a 3 percent decline in the first half of 2017 following a 4.4 percent decline between 2014 and 2016. Seven metro transit systems have seen ridership declines of at least 27 percent since 2009. Although lower gas prices partly explain this, ride sharing services like Uber and Lyft are also having an impact. Ride sharing offers greater convenience than transit with door-to-door, on-demand service, but is currently more expensive. Driverless, shared vehicles are projected to be price competitive with transit. Consequently, the Cato study contends that public transit will be “extinct” everywhere outside of New York City and perhaps a couple of other markets by 2030. Mass transit has never been very popular since the widespread ownership of cars, and currently carries less than one percent of travelers in all but a few cities. One disadvantage of mass transit is geography: residents and jobs are too spread out in most American cities to generate high enough demand for either buses or trains on centralized routes. Culture also plays a factor, as many Americans simply prefer driving. Low ridership rates are not due to a lack of government spending, which has exceeded $1 trillion (adjusted for inflation) since 1970. Fares cover only about 30 percent of expenditures. Americans will not use even highly subsidized public transport. Many transit agencies have deferred maintenance on rail systems, which have a useful life of about 30 years before requiring substantial rebuilding. Washington’s Metro system turned 30 in 2006, and by 2013, incidents of smoke in tunnels were causing evacuations twice a month. Unreliable service makes transit less competitive with ride sharing going forward. An end of public transport, however, will not end taxpayers’ costs. Many systems went into debt building or repairing subway or rail lines, while others have significant unfunded health care and pension liabilities. For example, the Cato study estimates that Boston’s transit system has $3.4 billion in unfunded liabilities, which represent a portion of employees’ compensation. Transit systems have spent lavishly on new rail lines instead of ensuring that promises to employees will be kept. Regardless of exactly how quickly self-driving cars take over, further investments in transit infrastructure do seem dubious at this time. Nonetheless, Los Angeles County decided in 2016 to spend $120 billion, primarily on new light rail lines. The Cato study suggests that new rail lines being planned now will be obsolete before finished. Only government agencies spending our tax dollars can afford to be so short-sighted. The potential transit apocalypse illustrates a recurrent problem. Once political support for spending coalesces, government finds adjusting to changing economic and societal conditions difficult. Mounting losses do not cause proponents to sour on mass transit. Economist Mancur Olson claimed that the entrenchment of programs under democracy produced stagnation. Public transportation has helped many Americans, particularly those who could not afford cars. Changing conditions, however, require policy changes. I fear that we will still be building subways even after everyone has their own automated chauffer. ••• Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.
Chicken wings, movies and beer could get the most mileage out of driverless cars
When analysts at Morgan Stanley were trying to handicap the driverless car race, their thoughts kept turning to chicken wings. And the Disney film “Frozen.” And beer. Strange? Actually, it makes a certain kind of sense. The analysts concluded that it’s a fool’s errand to try to call at this point which tech outfits or automakers are on the road to building the best, most profitable autonomous models. Better to focus on the activities – and the companies selling them – that will fill our time when we’re hanging out in cars with no steering wheels to grip. Which is where the bank’s investment picks on snacking (Buffalo Wild Wings Inc.), movie-watching (Walt Disney Co.) and brews (Constellation Brands Inc.) come in. “If you never had to drive again, how much more would you drink?” said Adam Jonas, Morgan Stanley’s automotive analyst. “It’s all about the adjacencies. If you invest in that, you’re less likely to be buying an over-hyped situation.” When your car does the driving, you’ll spend the free time doing something, and that means an opportunity for a variety of companies. (Getty Images) As for the brands of the vehicles we won’t be driving, it’s not only the Morgan Stanley analysts who aren’t ready to definitively make that bet. Jonas and his crew like Tesla Inc. at the moment for its Autopilot feature, which has racked up millions of miles of real-world testing. Still, Jonas said, “it’s too early to call a winner.” Instead, as the bank said in a recent report, it’s smart right now to look at products and services that will benefit from a technology “that liberates hundreds of billions of consumer hours for monetization.” With so many companies, from General Motors Co. to Daimler AG to Volvo Cars, promising to have fully loaded self-drivers on the road within four years, it can seem like the competition is entering the homestretch. But none of the contenders has really broken from the pack. The finished product hasn’t hit the streets. Many players tend to be long on hype and short on details about their designs. And it’s a really crowded field. “There are at least 46 different companies building software to control autonomous vehicles, including automakers,” said Mike Ramsey, an analyst for researcher Gartner Inc. “There’s no way to actually assess the capabilities of the companies. People are doing it by marketing, employment numbers and how many vehicles they have on the road – which are not very good metrics.” It’ll be a while before better ones emerge. Autonomous autos will arrive timidly, in fits and starts, with a few robo-taxis here, some airport shuttles there, a smattering of buses on college campuses. “There’s no clear way to tell who is going to be the winner right now for something we’re not going to have full clarity on for a long period of time,” said Barclays analyst Dan Levy. Investors love a horse race, though, which explains all the speculation about the winning robot-ride strategy and the response when there’s a new development. Recently, fusty old car-rental companies Avis Budget Group Inc. and Hertz Global Holdings Inc. became Wall Street darlings after they did deals to manage driverless fleets for Alphabet Inc.’s Waymo and Apple Inc. The thing is, early leaders in any emerging technology often fade away when rivals improve on their innovation. Just ask BlackBerry, once the most prominent smartphone vendor, or Netscape, the web browsing pioneer that went from dominance to decline in less than a decade. ‘Not that simple’ “The history of technological innovation is littered with these stories,” said Mark Wakefield, managing director and head of the automotive practice at consultant AlixPartners LLP. “When a new thing comes in, it’s pretty difficult up front to predict who is going to be the winner.” Brian Johnson, Barclays auto analyst, compares it to trying to pick the next miracle drug. “You could have a promising early lead, and then realize it can’t get through testing.” That’s why the safest plays now may be on the margins. Johnson advises clients to look at suppliers, such as Delphi Automotive PLC. Besides beer and wings, Morgan Stanley recommends electric utilities that will support battery-powered driverless cars and chipmakers like Intel Corp. and Nvidia Corp. that provide super-computing power and artificial intelligence. The bank also suggests Facebook Inc. and Amazon.com Inc., figuring we’ll be busier with social media and shopping when we have a whole bunch of new time on our hands – by some estimates, 600 billion hours of it a year. Morningstar Inc. analyst David Whiston sees gold in abandoned lots on the outskirts of big cities. Autonomous cars are expected to be battery powered and will need places to recharge and recuperate after rush hours, so unsightly real estate on the edge of town could end up a good investment as future car parks and charge stations. “People think it’s just very black and white, ‘Do I buy Google or do I buy the automakers?”’ Whiston said. “That may seem sexy, but it’s not that simple.” If there’s a favorite among prognosticators, it would be Waymo, formerly known as Google’s self-driving car project. It appears to have the most experience developing the algorithms for the sensors that allow the car to “see” its surroundings. But in the Darwinian driverless race, today’s killer app could be tomorrow’s road kill. Waymo’s expertise could be overtaken as systems are perfected to allow vehicles to communicate with each other and roadway infrastructure. “The technology is changing so fast,” Wakefield said. “In 10 years, there will be nothing left of that algorithm people are spending tons of money on today.” It’s hard to keep up. In April, researcher Navigant crowned Ford Motor Co. No. 1 on its autonomous Leaderboard for having the most advanced approach. A month later? Ford’s board of directors ousted Chief Executive Officer Mark Fields for not moving fast enough. Republished with permission of Alabama NewsCenter.
