Tag: Economics

For Sale: 2014 Porsche 911 Turbo S …because it’s not self-driving.

The guy who built the house in which I live oversized the garage so he could store his (fairly sizeable) boat at home over the winter. So as garages go, it’s a bit ridiculous. Lots of empty space…and you know what happens when you apply Carlin’s Law of Stuff to empty garage space: Some of that cavernous emptiness fills with cars.

I have many character flaws and an enthusiastic addiction to sculptures you can drive is near the top of the list. I love the kind of four-wheeled, drivable plumage that turns a weekend at a grand-prix style road course into a rollicking, adrenaline-set life experience.

Putnam Park Hot PitThough it’s not my usual track car, I’ve created a few such memories with my 991-series Porsche 911 Turbo S. Until recently, its 560hp and all-wheel drive made it the fastest accelerating road car Porsche had ever put into wide production. But 0-60mph in as fast as 2.6 seconds, and 0-120mph in a hair over ten seconds is only half the story. The car’s torque-vectoring dynamics, electronically controlled limited-slip rear differential, single-rear-wheel brake application, and rear-wheel steering, give the car the cornering ability of a cheetah …or maybe a gazelle running from a cheetah.

But it’s a 2014 — a model year when even the most advanced production cars only sported “Level 1” autonomous capabilities. So it needs a new home, before it’s too late.

Level 1 autonomous operation? What’s that mean?

Oh, come on. Certainly, you know by now that cars come in five important classifications:

  • Level 0 autonomous: Complete human-piloting required. The current source of over 32,000 deaths in the US per year.
  • Level 1 autonomous: Some automatic oversight to decrease the severity of human failures in skill or judgment. The car has some nanny systems, like stability control or automatic braking (for when that idiot driver in front of you stops without first checking his rearview mirror to see if you’re busy texting or not). This is probably what you’re driving now, unless you’re still in a level 0 car.
  • Level 2 autonomous: Limited semi-automatic operation, like lane keeping (the car will stay between the lines on the highway and either go the speed limit or pace the car ahead of you, stopping if necessary). This is perhaps the most dangerous level, because the car can do a surprising number of things without needing a human much, for most scenarios. This prompts overly-trusting, underly-sentient drivers to stop paying attention to what they’re (or their car is) doing, despite manufacturers’ warnings that the driver is required to be in control of these cars, with their hands on the steering wheel, at all times.
  • Level 3 autonomous: The car can do everything without driver intervention for many circumstances, and is (theoretically) situationally aware enough to know when it can’t, in which case the mostly-autonomous car will give its passenger sufficient time to take over as driver without creating a laundry emergency. These aren’t out yet, and will probably quickly give way to…
  • Level 4 autonomous: The holy-shit, whiz-bang, be-all-end-all of self-driving evolution, where the car is expected and able to do everything, under (almost) any conditions, without any guidance (other than being told where to go). Most experts include vehicle operations without any requirement for a human to even be in the car in this level, while other hair-splitters consider that a level 5 classification.

This is important to you (and gets to the reason underlying the sale of the car featured in the article headline) because:

(1) your current car is at best a level 2 car (if it’s an appropriately-optioned Tesla model S), or a Flintstone’esque level 0 or level 1 (everything else, as of May, 2016); and

(2) level 3 cars will begin driving families around public roads in some countries in early 2017, with wider availability in 2018, and the first level 4 production cars from many manufacturers are scheduled for release into world-wide markets in 2019.

Joe and Jane Mainstream really aren’t paying much attention to this yet. But that’s going to change over the next year, and when it does, Joe and Jane will have no interest in your pain-in-the-ass, obsolete, level 0 or level 1 (or even level 2) car anymore. Not when level 3 or level 4 cars are affordable (and they will be) and will allow them to get from point A to point B — including handling their heretofore miserable daily commute — without interrupting their Netflix bingeing.

As a result, all those level 0 through level 3 cars will, over the course of a very short time, become 21st-century Edsels. And sure, those who own specialty cars (like this 911 Turbo!) may be insulated from the kind of demand vacuum that hyper-depreciates undesirable cars [<cough>Volkswagen diesels</cough>], but only for a time. Because sometimes even sports car drivers would rather chill on Instagram rather than inch agonizingly along in stop-and-go traffic jams.

Which brings us back around to the Porsche 911 in question. Which is truly and honestly for sale to a good home (ideally to someone not paying attention to the blistering pace of automotive technological change or the market changes they will bring). Normally, Porsches — especially high-performance Porsches — hold their value well. But with only level 1 autonomous capability, this car’s value will begin plummeting in two years or less.

Hey, you there — staring at your computer/mobile phone/tablet screen! Looking for a good deal on a really fun, late model 911 Turbo? It’s adaptive cruise control and automatic braking is the cat’s meow (…for now). And lemme tell ya: It’s a very high-tech car (for a 2014). You won’t want anything more (..for at least two years)! Autotrader will provide serious inquirers with the necessary contact information.

Kevin loves driving cars (whenever there’s no traffic). And he loves buying cars. And once upon a time, he sold cars for a living (although not very well, as you might have guessed). And he loves this one weird little three-dollar book that could save you or someone you know thousands of dollars in automotive expenses over the next few years!

Putting Off the Decision to Buy a New Car May Be the Smartest Decision You Make

Then again, used cars will soon begin losing value at an accelerating rate, too — what’s a person to do?

The US auto industry had a record year in 2015. After surviving the sales trough tied to the financial and housing market implosion of 2008, US auto sales have been steeply up and to the right since the middle of 2009. In fact, the skyrocketing growth in car sales over the last six years is the strongest recorded by the car industry since World War II.

Looks rosy, doesn’t it? Then again, so did the housing market in the years before 2008. That’s the nature of economic bubbles.

Looking under the covers, we see some dirty sheets. Analysts have discovered negative equity ratings in almost a full third of car owners. They’re “under water,” in the parlance of the auto industry. The number of car owners who owe more on their car than it’s worth has rapidly almost doubled. Meanwhile, during this last six years of “growth,” average loan lengths have increased by two months per year, allowing more people to finance cars that they might not have been able to afford under older, more conservative, financing guidelines.

And an almost record number of those loans are “subprime,” meaning at higher risk of default. So now the auto industry growth is beginning to look like something we might see in a sequel to the 2015 Oscar-nominated movie, “The Big Short.”

Adding risk is the fact that millennials are showing increased apathy toward the historical “thrill” of car ownership. Falling percentages of them are even bothering to get a driver’s license. On-demand ride sharing has already eroded many city dwellers’ interest in car ownership. That trend began causing used-car prices to fall in 2015 and is forecast to continue through 2016.

Now we introduce a new specter, the age of autonomous cars. Their revolutionary technology and ability to transform the transportation experience looms to begin pulling more blocks from the bottom of this financial Jenga tower. What does that mean to you?

google-car-otto (800x444)

Assuming you don’t live in one of the few cities in the US where it’s common for people not to own a car, you or your family probably owns at least one, and maybe multiple automobiles. Within a few years, the value of those cars — your ability to sell them when you no longer want them — will begin to fall through the floor.

Probably beginning around 2020, but perhaps as early as 2019 for some cities, great masses of people are going to collectively decide that not only would it be stupid to buy a new car, they no longer want the expense of owning their old one. They’re going to anticipate the leap to new autonomous, on-demand transportation services. For many, that buy-in will be lock, stock, and barrel.

Within a couple years, markets will be flooded with used cars, for which there are decreasing numbers of buyers. The rest is basic economics, supply and demand. Five years from now (2016’ish), if you’re still hanging lovingly onto your old family horse, you’ll be lucky not to have to pay someone to cart it away for scrap.

In some parts of some countries, in the next few years, if you buy a new car without the capability for fully autonomous operation, you’re setting yourself up for major losses. Unless that car appeals to some specialty market (perhaps well-to-do folks with a passion for driving a sports car, for example), you should expect that new car to depreciate at devastating speeds. If you finance much of your car’s purchase price, you may never get to the point where the car is worth more than your loan payoff.

This will be exacerbated by additional financial realities. Those in the lower income brackets, young people entering the labor force, and the semi-skilled laborers who create most of the market for used cars are: (1) certain to be hardest hit by the coming changes, because historically that is the population most impacted by times of technological and economic disruption; and (2) the demographic who will probably find the cost savings of on-demand transportation most compelling.

As the demographic who comprise most of the gently-used-car market’s buyers become early adopters of autonomous on-demand transportation, the demand for used cars will evaporate. There will suddenly be an overwhelmingly greater supply of used cars than demand. Prices will plummet.

Your non-autonomous trade-in’s value will plummet with it. Even in areas where on-demand transportation does not quickly reach critical mass, forcing you to own your own car, the financial and quality-of-life incentives for owning a new self-driving car will still dampen the demand for the obsolete car you’re driving today and will soon be anxious to sell.

The used-car market implosion will begin in the cities, where autonomous on-demand car services will first appear and gain adoption. As demand ramps and the number of self-driving cars increases to meet that demand, people in those areas will begin divesting themselves of (dumping!) their cars. That will cause local used car values (for non-autonomous cars) to plummet. At the same time (if not before), new car sales in those areas will slow as people realize they’re decreasingly interested in taking on that unnecessary expense.
For a time, there may be some business opportunity in moving cars from regions where the supply of used cars is ballooning (causing falling prices) to areas of the country (or neighboring countries) where on-demand transportation has yet to become available. But that will last no more than year or two.

That domino effect of a glut in the used car market and softening new car demand will ripple outward from cities, into the suburbs, and finally into the country. With the ripple, car dealerships will contract in volume. The number of people they employ will decrease. Then used-car dealerships will begin to fold up their tents.

As on-demand transportation becomes ubiquitous, the only people buying “old fashioned” human-driven cars will be those who’ve figured out a way to make money from disassembly or scrap, or by moving them to regions of the world where autonomous cars are unsupported or disallowed.

Or people who’ve taken up driving in demolition derbies…

Smart people need to begin watching the market and the developing autonomous technologies. Timing, or mistiming, when you ditch your non-autonomous car could save you, or lose you, thousands of dollars.

This article is an excerpt from the first edition of the book, “Self-Driving Steamrollers (Your Guide to a Future Featuring Autonomous Cars You May Never Buy)”. It’s available for Kindle on Amazon.com. “Self-Driving Steamrollers” is an example of “Book 2.0,” encouraging collaboration. If you have something to say on the subject, you can submit your suggested essay or additional chapter(s) for inclusion in the next edition of the book. Editions come out often!

If you like this article and/or agree that thriving in the future is more likely when you’re prepared for its possible differences, please recommend it to others. That will help others discover it — and maybe their future will be better for it!

Self-Driving Steamrollers (Your Guide to a Future Featuring Autonomous Cars You May Never Buy)

Laurence Peter once said, “There is only one thing more painful than learning from experience, and that is not learning from experience.” My second book, this one non-fiction, is now live on Amazon in ebook format. Time will tell where I as an author fall in L. Peter’s spectrum.

You can find it here: Self-Driving Steamrollers.

google-car-otto (800x444)

Don’t wait for our near future to hit you like a driverless truck with a faulty collision sensor. Your world will soon change and this book is an entertaining introduction to help you prepare.

Using easy narrative, humor, quotes, anecdotes, his business sense and Futurist’s vision, Higgins makes a compelling forecast that the age of driverless cars will be upon us and revolutionizing our world more rapidly and more drastically than most people realize. It’s not a future you should await passively! “Self-Driving Steamrollers” lays out the benefits people and companies stand to reap by planning for the sweeping changes to our environment these technologies will bring …and how much they could lose if they don’t.

“Self-Driving Steamrollers” is must read for teens, adults, and company executives, whether they’re small business owners or leading large corporations.

A Tough Week For Rough Men

“People Sleep Peacefully in Their Beds at Night Only Because Rough Men Stand Ready to Do Violence on Their Behalf.”

Whether you’re a member of the camp that holds that misquoted Orwellian sentiment as a simple reality, or more likely to group with the rest of Kipling’s  “Humanitarians,” most people could agree that this is a tense time to be a Ukrainian, and no doubt an even scarier time to be a soldier in the Zbroyni Syly Ukrayiny, (ZSU), (phonetic spelling) or Armed Forces of the Ukraine.

As an Infantryman who was once part of an Army that spent a decade facing the Russian (then, Soviet) Bear across the Fulda Gap, training for the dreaded day when some idiot let slip a luftballon, I feel and fear for our Ukrainian brothers in arms. With overwhelming force to their front, and a government behind them that neither invested heavily in military spending nor adopted any reality-based, asymmetric resistance doctrine, nor secured themselves with the NATO membership or other alliances that could have served to deter invaders, those Ukrainian soldiers are facing a grim future–especially if ordered to present some kind of fatally symbolic, conventional defense.

Eight years after Russia pulled brazen geo-political trickery to foment then support “separatist action” in Georgia and two years after they were given a by from the current administration’s Leader, who’s on record as proclaiming the Russians “no longer a geopolitical threat,” those dang Russkis are at it again…and using virtually the exact same playbook as in 2008, this time to grab the strategically important Crimea.

And they’ll probably get away with it. It will be immoral, and it will cause local chaos, and it could very well become much more expensive to the Russians than Putin is forecasting, especially if our State Department shows (and carries through with) uncharacteristic punitive resolve in support of our Ukrainian “friends.”

But a little bit of PR bolstered by the fourth and fifth estates’ highlighting the most sympathetic face of Ukrainian politics, Yulia Tymoshenko does not a strong deterrent make.

Ultimately, regardless of pre-election positioning, our current ruling administration is a pragmatic one. In Washington these days, pragmatism is a euphemism for “in the interests of the economy, Wall Street, and other influences Obama’s base doesn’t really follow very closely because they’re happier believing he doesn’t, either.” And when it comes to events in the Ukraine, a small horde of uppity Cossacks trampling an isolated peninsula is just not going to matter much to the Money Men.

On March 3rd, 2014, the sages at Credit Suisse issued this telling statement: “Russia is only 2.9% of global GDP, with the Ukrainian economy accounting for a further 0.4% of global GDP. Russian imports from the US and Euro area are $11bn and €87bn, respectively (or 0.7% and 4.6% of total exports, accounting for less than 0.1% and 0.9% of GDP). So in itself, it is hard to see the Ukrainian crisis having a significant impact on global growth.” The report added that in spite of those pesky Russians (okay, those are my words), “Our US earnings model points to 8.5% EPS growth for the S&P 500 this year (slightly below consensus at 9.1%), and we continue to believe that US margins will not peak until 2016.” (“Macro and market implications of the Ukrainian crisis,” Credit Suisse, 3 Mar 2014).

In other words, “Hey Western World Leaders, don’t sweat it, don’t fret it, we’re still tracking so don’t rock the boat!” There’s certainly calm, rational thought to support this.

But it doesn’t stop us from feeling sorry for Ukrainian Soldat Kovalenko, who may wake tomorrow or Wednesday morning looking down the imposing 125mm bore of a Russian T-90.

In the Infantry, we’d articulate our empathy for Soldat Kovalenko’s plight with the phrase, “Там, але для благодаті Божої, перейдіть І.” Sometimes it stinks to be a geoplitical pawn. All you can do is lean forward in your foxhole, pop some Ranger candy, keep your weapon clean and your bayonet sharp, and mutter “Hooah” with steely eyed determination. Boys, it’s gonna be The Suck this Spring and unless the markets really get concerned, you’re probably on your own.

Sorry.