What it is: Ford invested $1 billion dollars in Argo AI, a startup founded by former Google and Uber workers.
Auto makers like Ford and General Motors make the bulk of their income selling high-end vehicles such as SUVs, luxury cars, and trucks. They don’t make much money selling fuel-efficient vehicles, which is why the auto industry constantly fights government regulations requiring them to increase gas mileage for each year’s new cars.
Because the auto industry makes money selling expensive vehicles, they’re poorly positioned for a future where car ownership will no longer be a necessity but a luxury that many people won’t want because they’ll rely on far less expensive and more convenient car-sharing and ride-sharing services instead. Car-sharing involves renting cars and ride-sharing involves getting a ride in another car like a taxi. In both cases, people won’t need to own a car since they can inexpensively and conveniently rent them or ride in them instead.
So what does that mean for the auto maker’s current business model? It means it’s going away since people won’t need to buy an SUV, luxury car, or truck. Some people will still want one since it may be easier to own your own SUV for hauling a family of four around than constantly using ride-sharing services, but if the cost of a ride-sharing service is low enough and you can get a ride in an SUV inexpensively, what will be the point of owning your own vehicle and paying insurance, registration, and maintenance costs?
So Ford is wisely looking towards a future of self-driving cars whether people own them or ride in them through ride-sharing services. Ford hopes to have a self-driving car on the market by 2021, and it’s likely other auto manufacturers will have their own self-driving cars on the market at roughly the same time period.
Who will have the best self-driving cars? Most likely one company will emerge as the leader but technology will advance so quickly that the quality level will be fairly equal just like the quality level of today’s cars are roughly equal. A Toyota might be better built than a Chevrolet, but there’s not a vast gulf of difference between the two.
So the real question is if self-driving cars are the future, how will auto makers like Ford adapt to the new world? They can continue selling vehicles to people where the self-driving feature is just considered normal like cameras to help you back up or in-dash entertainment systems. However as car-sharing and ride-sharing services increase in popularity, that means fewer people will need or want to buy a vehicle.
That puts Ford in an awkward position. On one hand, they make the bulk of their money selling cars. On the other hand, car-sharing and ride-sharing services threaten to lower individual car ownership sales. Adding self-driving capabilities simply makes it even easier for car-sharing and ride-sharing services to offer self-driving vehicles to rent.
Self-driving technology will not only be an added feature for car buyers, but an added incentive for car-sharing and ride-sharing services as well, which could accelerate the shift to car-sharing and ride-sharing services. After all, if you can get a ride conveniently and inexpensively any time of the day through a self-driving car, what’s the point of owning your own car with all the hassles of maintenance and parking?
Self-driving technology will be convenient for car owners, but far more convenient for ride-sharing services who can then make money without hiring human drivers. With a fleet of self-driving cars roaming around, anyone can get a ride when they want. The tipping point will simply be when ride-sharing services cost way less than car ownership so it’s blatantly obvious to everyone.
At that point, what will Ford and other auto makers do? They currently survive on car sales, but when car sales inevitably drop, the company will still have the expenses of running a company based on car sales, but they’ll earn far less as a result. So no matter how much Ford invests in self-driving technology, they don’t need a technological edge as much as they need a drastic change in their business model.
Kodak depended on film but tried to shift to digital, yet the entire company was based on film so when film revenue dropped, digital revenue didn’t increase fast enough and Kodak went down the drain.
Blockbuster video depended on people renting DVDs from retail stores, yet when streaming video became popular, their retail stores were a major liability and the profits from DVD rental through vending machines and streaming video couldn’t increase fast enough to salvage the retail store expenses.
Both Kodak and Blockbuster Video tried to straddle between two worlds and failed because the new world didn’t increase fast enough to support the obsolete business model of the past. The same will likely happen to Ford and other auto makers.
That means if you want to bet on self-driving cars, expect Ford, General Motors, and Toyota to drop in power and influence, and expect newer companies like Google, Uber, and Tesla to take over. Older companies still have the albatross of their old business model to prop up (just like Kodak and Blockbuster Video did) while newer companies can focus 100% of their efforts on expanding the new world of the car business. The future belongs to the new companies and not the old companies trying desperately to transition into the new world.
Ford’s investment in self-driving technology is necessary, but that likely won’t save the company from a gradual decline in the long run. Ford doesn’t need new technology as much as they need to shed their old business model, and they can’t shed their old business model because it’s funding their drive to embrace new technology.
Ford and other auto makers are stuck in a dilemma that will likely result in a decline of power and influence. The Big Three auto makers will still be around. They just won’t be as big or as important as they are today, regardless of what technology they invest in. As long as automakers like Ford still have their old business model weighing them down, their future is far bleaker than the new companies of tomorrow.