These days it seems the news is full of stories about autonomous driving.

The other day I came across the video below.  It shows what can happen when an unprepared person is placed behind the wheel of a self-driving car.  In this case, the car was a Tesla in autopilot mode and the driver was the owner’s mother.


The video highlights what can happen when standard expectations confront new modes of behaviour associated with technological innovation.  In this case the disjuncture is hugely discomforting for the lady sitting in a Tesla Model S.

But Tesla is not alone in developing self-driving cars.

The most well-known, of course, is Google’s Self-Driving Car Project.

google car

As well, Audi, BMW & Baidu, Daimler, Ford, GM, Honda, Kia, Mercedes-Benz, Nissan, Renault, and Toyota all have programs or plans to release autonomous-driving cars.

However it’s not just car makers that are in on the act.  Even a two-minute internet search will reveal a range of non-traditional companies wanting to disrupt the existing model of driving including:

  • Apple’s EV car project, Titan, which has now been reported as self-driving
  • Lyft (the 2nd largest ride-sharing business in the US) which recently accepted a SD$500M investment from GM to collaborate on creating a network of autonomous vehicles accessible on-demand through the Lyft app ; and
  • last year, Uber announced its own autonomous vehicle development program.

The potential impact of these developments is profound.

The car industry is about to be transformed

For a start, there’s the likely direct impact on the car industry…

A report last year by Boston Consulting Group predicted that self-driving cars may account for a quarter of global car sales by 2035.

And just three months ago McKinsey&Company came to even more transformative conclusions forecasting that, under certain conditions, nearly 100% of cars sold in 2035 will be what it terms ‘Conditionally autonomous’ (ie autonomous except that the driver may take occasional control).


Source:  McKinsey&Company Disruptive trends that will transform the auto industry

But it was an analyst’s report last year by Barclay’s Bank Research titled ‘Disruptive Mobility’ that highlighted the consequential impact of these trends.  The report predicted a large uptake in self-driving cars (similar to that of BCG and McKinsey) but then went on to identify the effect of this change.

By 2040, it forecast:

  • vehicle ownership could decline by 50%
  • car sales could decline by 40%
  • the cost of transport could decline by between 50%-80%
  • there will be fewer vehicles on the road producing less pollution

What?  Vehicle ownership down by 50%?  Car sales down by 40%? How could this happen?  Wouldn’t we all just be riding around in cars of our own, freaking out like Bill’s mom in the video?


A new driving model:  car-as-a-service (CaaS)

While the big driver behind autonomous driving initiatives is the potential safety benefit (eg Volvo’s ‘Intellisafe’ program ), the more far-reaching potential impact of driverless cars is that it points to the creation of a new driving model:  driving-as-a-service , or more commonly, car-as-a-service (CaaS).

The Barclay’s report identifies the impact of this and predicts the emergence of four vehicle types, of which the last three are different versions of CaaS.


 Source:  Barclays Bank Barclays Research Insights on Disruptive Mobility

This points to a potential massive change in how we use vehicles.  Instead of a large number of independent cars occupying garages, driveways and roads, each owned and operated by individuals, fewer cars will be operated and shared by groups of people.

I’m somewhat embarrassed to admit this but upon my eldest daughter turning 18, our family recently expanded from a two-car family to a three-car family.  Why do we need three cars?  At the moment, it’s all about convenience. I’m going here; my wife is going there; our daughter needs to be elsewhere; and that’s before we even consider the impact of the other kids and weekend sport…  But a self-driving Family Autonomous Vehicle (FAV) would allow us to share a vehicle:  once it was used by one family member it could be sent off to be used by another, and another, and another.

However, the extension of this model to wider groups of people is where the real potential lies for transport efficiency and convenience:

  • Shared Autonomous Vehicles (SAVs) would operate like a taxi or UberX or a chauffeur service, but without the driver;
  • and Pooled Shared Autonomous Vehicles (PSAVs) take the concept to the point of impacting on traditional models of public transport. At the cost of sharing a ride with others, the user could utilise a PSAV in much the same way as a bus – except that the vehicle would pick you up at your door and drop you at your destination, rather than a bus stop.

It’s not hard to see why Uber and Lyft are fascinated with the prospect of self-driving cars.  Their business model has been built on disrupting existing industry practice and removing the involvement of taxi company dispatchers.  Instead, users are put in direct contact with the providers of transport services via an app.

The advent of self-driving cars has the potential to remove not just the dispatcher from the scene but also the driver, further driving down costs.

As Uber CEO Travis Kalanick said two years ago:

“The reason Uber could be expensive is because you’re not just paying for the car — you’re paying for the other dude in the car.  When there’s no other dude in the car, the cost of taking an Uber anywhere becomes cheaper than owning a vehicle. So the magic there is, you basically bring the cost below the cost of ownership for everybody, and then car ownership goes away.”

Already we are seeing a reduction in the number of young people getting a drivers licence .  The advent of CaaS points to a future, potentially within our lifetimes, where it may no longer be important for individuals to know how to drive at all.

CaaS – its impact on car manufacturers and the world economy

The potential impact of these changes on car makers and the wider economy is daunting.

A shift to CaaS will massively disrupt existing businesses involved with every aspect of transportation, especially if SAVs and PSAVs become the common/dominant mode of vehicle access.  This is because under these models, vehicle ownership, operation, fuelling and maintenance will all be aggregated and centralised.

Areas of the industry potentially open to disruption include:

  • car manufacturers (obviously – a 40% reduction in sales will transform the industry)
  • dealerships (it’s possible to imagine these reducing substantially in number if not disappearing)
  • garages and car repair providers (if a large portion of vehicles are SAVs and PSAVs then the need for a distributed network of autonomous vehicle servicing facilities diminishes substantially as SAVs and PSAVs will be centrally maintained)
  • petrol/gas distribution networks (for the same reason as garages – and even more so given the associated likely shift to electric vehicles). In fact this change is likely to directly impact every downstream element of the oil industry



The direct impact on auto manufacturers would be enormous.  They would need to downsize dramatically. The Barclays report’s author, Brian Johnson has written:

“GM and Ford would need to reduce North American production by up to 68 percent and 58 percent, respectively.”

To put this in context, were GM and Ford to reduce their production by the extent envisaged by Johnson, the ensuing downturn in North American auto sales would roughly equate to the impact of the GFC.

It’s hard to imagine from our current perspective, but the advent of self-driving cars and CaaS could thus potentially lead a massive downturn in worldwide auto manufacturing, employment, investment and overall economic output.

Of course, the extent to which this occurs will be determined by the speed of the transformation to CaaS and also the extent to which negative economic impact is offset by investment, growth and employment in areas supported by the new technology.

CaaS – its direct impact on banking

Credit exposure and risk management

For banks the potential impact is challenging, not just because of the potential scope of the transformation, but also because of the anticipated timing.  No-one is clear on when these pressures will start to have a significant impact, although the advent of Uber, etc and the impact this is having on the taxi industry is a portent of things to come.

In the medium term, banks must obviously consider the impact that these changes will have on the viability of their exposure to a range of business categories associated with cars and transport:

  • car manufacturers and secondary suppliers
  • vehicle dealerships
  • car parts manufacturers and retailers
  • garages/car repair facilities
  • petrol/gas stations
  • driving schools
  • tow truck operators and smash repairs
  • etc

Offsetting this, of course, will be the opportunity for investments in new businesses associated with emerging technology and businesses that leverage new driving models.

Change/loss of business lines

A more fundamental issue though, is the potential downturn in business associated with car/auto loans that can be anticipated from CaaS.

If CaaS becomes common, then it is likely that vehicle ownership and operation will be managed through centralised arrangements.  Uber already leases cars to UberX drivers.

It’s therefore not hard to imagine a scenario in which:

  • Pooled SAVs are owned/managed through centralised platform providers (perhaps like Uber); and
  • SAVs are leased by groups of individuals from similar providers, with management and servicing handled as part of the package

In this scenario, fleet financing will be handled handled centrally, not through car loans to individuals.

Even the family-focused version of CaaS (FAVs) envisaged by the Barclays report, is not immune from this trend.  FAVs are just a ‘more tightly’ utlised version of SAVs (and even these are potentially usable within a wider framework).

Brett King has written of a scenario in which a FAV:

  • is booked by various family members at different times throughout the day;
  • completes its morning runs and then is free until the afternoon;
  • so during the middle of the day, recharges itself at a nearby charging station;
  • then makes itself available through, say, Uber as ‘an available self-driving vehicle’ and completes a few trips; and
  • finally presents itself for its first afternoon pick-up of a family member.

FAV’s thus, too, lend themselves to aggregated financing and management arrangements.

The potential impact of these changes on financing organisations heavily dependent on current models of independent car finance is obvious.

CaaS – its indirect impact on banking

More broadly, though, I think the potential advent of CaaS points to the well-recognised broader trend that is impacting just as much on banks and banking as cars and driving:  the development of platform-based digital and ‘as-a-service’ solutions.

Digital disruption is extending to every industry vertical and the same approach is evident in each case:

  • the dematerialisation/digitalisation of previously material products/services (think: digital images; videos; music; etc)
  • the demonetisation of previously profitable businesses/industries (think: record stores v iTunes; book stores v Amazon; newspapers v digital media; etc)
  • the democratisation of business models by linking networks of suppliers and consumers together via platforms (think: Kickstarter; Freelancer; Airbnb; Uber; etc)

Within banking these same pressures exist, leading to the emergence of new business models built on:

  • digital product/service delivery
  • rapid innovation through techniques like Lean UX and agile
  • customer-centric business models and organisational structures
  • integration of different service suppliers into the value chain
  • scale delivery through Platform-as-a-Service/Software-as-a-Service strategies
  • integration of P2P/social practices into banking delivery

The lessons for banks in the potential disruption brought about by self-driving cars?

  • We are all in this together:  every industry is being transformed by digital disruption
  • New entrants can take the place of established industry participants in a surprisingly short time
  • The big impact on banking is likely to be the advent of new financial services paradigms (blockchain?) that fundamentally transform the basis of the industry, as does CaaS
  • The consequential negative impact of change can potentially be serious

A final thought

Last year, Elon Musk was widely quoted when he envisaged a future in which owning a car would be like owning a horse.

“[In 15 to 20 years] any cars that are being made that don’t have full autonomy will have negative value. It will be like owning a horse. You will only be owning it for sentimental reasons.”

All of this points to one potential positive impact which I’ve failed to mention so far.  Just as I don’t have to (thankfully) give my kids riding lessons, perhaps it’s possible to imagine a future not too far away, in which dads will not have to teach their kids the time-honoured practices of giving way, hill starts, defensive driving and reverse parking.


(With apologies to Monty Python)

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