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11.8.2017 -Free Investment Newsletter Bookmark

Technology
 
Truly not a day goes by where something "techy" doesn't catch my eye and make me marvel at it.  While I find some of it nothing but a waste of time ( like aps that let you put bunny ears on your selfie) others are so impressive, that I wonder how you could live without it.
 
This came to light recently for me when we were given a loaner car while ours was in for service. The vehicle they gave me had an option called "blind spot monitor" on it. While this has been around for a while, I'd never been in a car that had it. Even our 2015 Lexus didn't have it.

Anyway, if you're unfamiliar with it, the idea is simple. They put some form of "radar" like sensors on the sides of the rear bumpers. Then, if someone in the next lane is in your cars "blind spot" you get a little yellow light in the shape of a car in the corner of your rear-view mirror.
 
While that's pretty cool, the best part is that if you put your turn signal on,  AND there's someone in that blind spot, the vehicle actually beeps at you while lighting up the little yellow car in the mirror.  The idea of course is that if you're about to move from say the middle lane of a 3 lane highway, into  the slow lane to catch the next exit, if there's someone there that you could bump into, the car lets you know.
 
Now the detractors will say "you don't need that, you just need to use your mirrors right". Yeah, I get that. I've been driving for 43 years and I can honestly say I've never caused an accident. ( I've been hit, but I've never hit or caused one)  So I know how to use the mirrors.  But this isn't some toy or worthless gadget.
 
On one particular day the wife and I were heading to her office in the loaner car on the Interstate. I-75 is a wicked place and practically not a day goes by that there's not a significant accident.  Well, we're chugging along at like 74 MPH, and I was going to get ready to move over to the slow lane as our exit was in a mile. I checked my mirrors, no one there.

I put my turn signal on and started to drift to the right when all of a sudden that warning bell came on "beep! Beep! Beep!  I was startled. I had just looked. It was clear. But what I didn't see was some hero in a sports car that was probably going 90+ MPH, and weaving across all 3 lanes. He had gone from the fast lane to the slow lane in a heartbeat to try and pass everyone,  and I will admit, had it not been for that Blind spot monitor, I very likely would have run into him.
 
He went by us on the right, at a minimum of 90, but probably closer to 95. Had I moved into that lane, a horrific crash was probably the dish of the day. Which brings up the question, is technology going to save us from ourselves?
 
I want to post an opinion piece that was just published Tuesday.  Read this through and consider what the man's saying. Is he wrong? Is he too early? Will this ever truly happen? Or is it here already, little by little? Check it:
 
 
Bob Lutz is a former vice chairman and head of product development at General Motors. He also held senior executive positions with Ford, Chrysler, BMW and Opel.

It saddens me to say it, but we are approaching the end of the automotive era.

The auto industry is on an accelerating change curve. For hundreds of years, the horse was the prime mover of humans and for the past 120 years it has been the automobile.

Now we are approaching the end of the line for the automobile because travel will be in standardized modules.

The end state will be the fully autonomous module with no capability for the driver to exercise command. You will call for it, it will arrive at your location, you'll get in, input your destination and go to the freeway.

On the freeway, it will merge seamlessly into a stream of other modules traveling at 120, 150 mph. The speed doesn't matter. You have a blending of rail-type with individual transportation.

Then, as you approach your exit, your module will enter deceleration lanes, exit and go to your final destination. You will be billed for the transportation. You will enter your credit card number or your thumbprint or whatever it will be then. The module will take off and go to its collection point, ready for the next person to call.

Most of these standardized modules will be purchased and owned by the Ubers and Lyfts and God knows what other companies that will enter the transportation business in the future.

A minority of individuals may elect to have personalized modules sitting at home so they can leave their vacation stuff and the kids' soccer gear in them. They'll still want that convenience.

The vehicles, however, will no longer be driven by humans because in 15 to 20 years - at the latest - human-driven vehicles will be legislated off the highways.

The tipping point will come when 20 to 30 percent of vehicles are fully autonomous. Countries will look at the accident statistics and figure out that human drivers are causing 99.9 percent of the accidents.
Of course, there will be a transition period. Everyone will have five years to get their car off the road or sell it for scrap or trade it on a module.

The big fleets

CNBC recently asked me to comment on a study showing that people don't want to buy an autonomous car because they would be scared of it. They don't trust traditional automakers, so the only autonomous car they'd buy would have to come from Apple or Google. Only then would they trust it.
My reply was that we don't need public acceptance of autonomous vehicles at first. All we need is acceptance by the big fleets: Uber, Lyft, FedEx, UPS, the U.S. Postal Service, utility companies, delivery services. Amazon will probably buy a slew of them. These fleet owners will account for several million vehicles a year. Every few months they will order 100,000 low-end modules, 100,000 medium and 100,000 high-end. The low-cost provider that delivers the specification will get the business.

These modules won't be branded Chevrolet, Ford or Toyota. They'll be branded Uber or Lyft or who-ever else is competing in the market.
The manufacturers of the modules will be much like Nokia - basically building handsets. But that's not where the value is going to be in the future. The value is going to be captured by the companies with the fully autonomous fleets.

The end of performance

These transportation companies will be able to order modules of various sizes - short ones, medium ones, long ones, even pickup modules. But the performance will be the same for all because nobody will be passing anybody else on the highway. That is the death knell for companies such as BMW, Mercedes-Benz and Audi. That kind of performance is not going to count anymore.

In each size vehicle, you will be able to order different equipment levels. There will be basic modules, and there will be luxury modules that will have a refrigerator, a TV and computer terminals with full connectivity. There will be no limit to what you can cram into these things because drinking while driving or texting while driving will no longer be an issue.

The importance of styling will be minimized because the modules in the high-speed trains will have to be blunt at both ends. There will be minimum separation in the train. Air resistance will be minimal because the modules will just be inserted into the train and spat out when you get close to your exit.

The future of dealers?

Unfortunately, I think this is the demise of automotive retailing as we know it.
Think about it: A horse dealer had a stable of horses of all ages, and you would come in and get the horse that suited you. You'd trade in your old horse and take your new horse home.

Car dealers will continue to exist as a fringe business for people who want personalized modules or who buy reproduction vintage Ferraris or reproduction Formula 3 cars. Automotive sport - using the cars for fun - will survive, just not on public highways. It will survive in country clubs such as Monticello in New York and Autobahn in Joliet, Ill. It will be the well-to-do, to the amazement of all their friends, who still know how to drive and who will teach their kids how to drive. It is going to be an elitist thing, though there might be public tracks, like public golf courses, where you sign up for a certain car and you go over and have fun for a few hours.

And like racehorse breeders, there will be manufacturers of race cars and sports cars and off-road vehicles. But it will be a cottage industry.
Yes, there will be dealers for this, but they will be few and far between. People will be unable to drive the car to the dealership, so dealers will probably all be on these motorsports and off-road dude ranches. It is there where people will be able to buy the car, drive it, get it serviced and get it repainted. In the early days, those tracks may be relatively numerous, but they will decline over time.

So auto retailing will be OK for the next 10, maybe 15 years as the auto companies make autonomous vehicles that still carry the manufacturer's brand and are still on the highway.

But dealerships are ultimately doomed. And I think Automotive News is doomed. Car and Driver is done; Road & Track is done. They are all facing a finite future. They'll be replaced by a magazine called Battery and Module read by the big fleets.

The era of the human-driven automobile, its repair facilities, its dealerships, the media surrounding it - all will be gone in 20 years.


Today's automakers?
The companies that can move downstream and get into value creation will do OK. But unless they develop superior technical capability, the manufacturers of the modules, the handset providers, if you will, will have their specifications set by the big transportation companies.
The fleets will say, "We want a module of a certain length, a certain weight and a certain range."

They will prescribe the mileage and the acceleration and take bids.
Automakers, if they are smart, may be able to adapt. General Motors sees the handwriting on the wall. It has created Maven and has bought into Cruise Automation and Lyft.

It doesn't want to be the handset provider. It wants to be the company that creates the value and captures the vaue, and it is making the right moves to be around when the transition occurs.

I think probably everybody sees it coming, but no one wants to talk about it. They know they will be OK for a few years if they keep providing superior technology, superior design and have good software for autonomous driving.

So for a while, the autonomous thing will be captured by the automobile companies. But then it's going to flip, and the value will be captured by the big fleets.

This transition will be largely complete in 20 years.
I won't be around to say, "I told you so," though if I do make it to 105, I could no longer drive anyway because driving will be banned. So my timing once again is impeccable.
 
I don't know if Bob's right on the 20 year thing.. Since AAPL and GOOG and the others have been working on autonomous vehicles, I tend to think Bob's pretty spot on. What do you think? But I do know that the next vehicle I get will indeed have Blind spot monitors. It might even have more bells and whistles that help me stay out of a wreck.  Technology...amazing when it works.
 
The Market:
 
We continue to see "up" in the market. Yes some of the blush is off the rose, as we're not seeing giant up days as we've had in the past, this time it's more of a slow gentle grind higher.  
 
In fact, in the last 11 "sessions" we've really only seen on big up day and that was five trading days ago. I guess I shouldn't be surprised. While Wall Street wants to tell us that the world is wonderful, the "under the surface" view isn't so hot. Consider this:
 
Total consumer credit rose by 6.6% Y/Y, rising to $3.788 trillion as of Sept. 30. This was the single biggest monthly increase since November 2016. a new all time high, of $1.112 trillion for auto loans, and a record $1.486 trillion in student loans.
 
Some will suggest that rising credit means that everyone feels good enough that they're willing to take on that credit. Well there's a dark side too. Consider this:
 
US Credit Card Debt Rises Above $1 Trillion As Student, Auto Loans Hit All Time High
 
So people are piling into credit cards, auto loans and student loans at an almost record pace. Are we all sure that everyone's going to have the money to pay these loans? Or, are they taking on this debt because after 9 years of a stagnant economy, they're out of cash? 
 
Time will tell if we're brewing another 2007 like debt bubble, but from where I sit, it seems a bit "much" so to speak.  That said, we continue to make trades and so far so good. I think that we're still clear for more gains here in November, but December could change things.  We'll chat more about that on Sunday, so stay tuned. 

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