Autonomous vehicles fulfill the human need for transportation without human input by sensing the environment, interpreting using algorithms and navigating. Autonomous vehicles (self-driving cars) will occupy a majority of the roads by 2030 (Alexiou, 2017) and will amount to $5.6 trillion in savings globally (RobotEnomics, 2017). Since this idea of driverless cars has become a reality in the 21st century, it is imperative to analyze their impact on the economy. As this technology becomes more feasible and achievable, they will command the automobile market by gaining substantial market penetration. This will impact other industries as these cars become increasingly dependable and affordable as the car makers and communication & software industries integrate. This paper analyzes the impact of driverless cars on international trade patterns, the consumers, and on various sectors of the economy and how it interrelates with the finance sector.
There will be a significant amount of job losses to those with lesser education, translated to fewer opportunities, as the automatic cars gain popularity and market share. However, this disruption will be slow hereby allowing individuals like cab & truck drivers, local delivery servers, traditional mechanics and mailmen to gradually retrain and transition to other jobs. This shock can be minimized through significant government assistance in job retraining.
According to a study by Morgan Stanley, American drivers spend nearly 18.8 billion hours driving per year, causing a loss of $422 billion at a $25.03 minimum wage (RobotEnomics, 2017). Individuals can be more productive by utilizing driving time to work.
Driverless vehicles will significantly impact real estate sectors in terms of development, urban planning and valuation. This will lead to both opportunities and losses to the industry. Parking takes 144 billion square feet of spade in the United States. With autonomous cars, owners have the option of sending their car back home or to specialized parking hereby reducing the requirement for parking space to 61 billion square feet (Barbier, 2017). This reduction leads to development opportunities. Quick and convenient commutes will decrease the demand for housing at urban city centers and this space can be used more productively for office spaces, etc.
Traditional delivery systems will be drastically changed by driverless vehicles by eliminating the drivers and their wages. This will lead to a $100-500 billion per year increase by 2025 in revenue for the companies and lower the cost of some goods (eg: flowers, food, etc) that require significant transportation as input costs are lower (lower wages) (Barbier, 2017).
As driverless cars regulate traffic flow, this reduces the number of traffic tickets and accidents (Human error causes 90% of car accidents)(Barbier, 2017). The National Highway Traffic Safety Administration (NHTSA) approximates that the economic cost of each car crash in 2016 was $242 while the comprehensive cost (economic+societal) was $836 (NHTSA, 2017). The reduced accident probability will reduce the demand for insurance, leading to a severe alteration in car insurance policies. Some changes could be: Insuring the manufacturer instead of the consumer to protect them from accidents caused by machine flaws, Usage-Based Insurance policies, etc. The demand for auto repair services for traditional collision repair will decline as the autonomous vehicle has 35% lower wear and tear costs (ATKearney, n.d.). However, consumers will need repair services for wear and tear, for the exterior and for the software. Hence, workers will have to retrain to provide these services as by 2030, the electronic and software component will account for 50% of manufacturing to form a core of autonomous vehicles (Barbier, 2017).
The lowered accident rate will severely affect the medical industry as nearly 2 million hospital visits stem from car accidents as autonomous vehicles will be successful in reducing accidents by 70% (ATKearney, n.d.). A study by NHTSA estimates that car crash medical expenses amounted to $23 billion in 2015. Since hospital care generates $1 trillion per year, this loss is not as substantial. In fact, this allows for hospitals to allocate their resources to serve the public better. According to a study by McKinsey & Co. in 2013, the public gains nearly $180 billion from reduced auto repair and healthcare expenditure associated to car accidents (Clements, 2017).
Since car crashes formed 35% of all civil trials in 2005, the elimination of manual cars will reduce the demand for lawyers which is significant as there are nearly 76,000 lawyers who specialize in personal injury law. This technology will also reduce the amount of municipal revenue from ticket fines and DUI’s. The average liability claim for an injury is $15,443 with a 33-40% contingency fee. There were approximately 5.5 million car crashes in 2012. Therefore, the revenue loss to lawyers from such lawsuits is nearly $3.2 billion (Barbier, 2017).
Autonomous vehicles will cause a huge effect on the energy industry. It is expected that all autonomous vehicles of the future will be electrical. According to a study by Morgan Stanley in 2013, an autonomous car is at least 30% more efficient that manual ones, hence a 30% decrease in fuel consumption will amount to $158 billion in savings (RobotEnomics, 2017). This 30% reduction is not only due to energy-efficient fuel usage but also because these vehicles will utilize “swarm technology†to communicate among cars in order to navigate efficiently to maintain traffic flow. This number is higher now. Not only will this fall in oil demand cause global oil prices to fall tremendously (as USA is a major consumer in the global oil market) but will also have international relations’ retaliations (fall in demand of US goods, taxes, tariffs, etc).
The advent of these vehicles will deeply affect existing trade patterns. Key players in the vehicle market are China, USA, Japan, Germany, South Korea and India at present. However, a study by KPMG measured each country’s readiness for electric vehicle adoption based on policy & legislation, technology & innovation, infrastructure, and consumer acceptance. On adding up the scores, top six countries were the Netherlands, Singapore, United States, Sweden, United Kingdom and Germany (KPMG, 2018). Countries like China, Japan, South Korea and India lie between 10-20 in the top 20 list. Reasons for this fall are primarily the unsatisfactory government policies that lead to a lack in investment in infrastructure, spatial planning, and private-sector investment & innovation to support this futuristic technology. This change in the top players will prompt a significant shift in global trade patterns too. A smooth transition into the autonomous vehicle future is only possible through the assistance of large-scale testing by strong & large automotive sector in the country and a proactive government that lures manufacturers and partnerships. Policy development is the start to succeed in the race between countries to be at the forefront to take advantage of this technology. All the key players- USA, the European Union and China, are competing by developing autonomous vehicle supporting policies.
At Capitol Hill, in the USA, both the Senate and the House have passed a bill that will “allow innovators to seek exemptions from state and federal regulations that might ordinarily hamper the acceleration of new car design and technology deployments.†The Federal Highway Administration and the Federal Transit Administration are researching the impacts of integrating autonomous vehicle technology into their realms of influence. In addition to this, NHTSA is looking into removing regulative limits to driverless vehicles (Levine, 2018).
Member states of the EU as well as the governing European Commission have been proactive in developing various strategies to maintain competitiveness. To ensure Europe remains competitive in this area the European Commission has been active with the development of various funding initiatives and working groups. The European Commission released a strategy examining future legislative developments in the area of these vehicles called Cooperative Intelligent Transport Systems (C-ITS), with specifications pending. In 2017, Sweden permitted companies to test these vehicles on the roads. Both the Neatherlands and the UK have planned legislations to allow driverless vehicles testing and usage (Levine, 2018).
China is developing local rules to prevent falling behind in this rat race. Local rules authorize companies for road testing on meeting all the standards. National level regulations attempt to “regulate road test applications, verification management, [and] accident liability allocation.†These rules provide a stepping stone to fulfill earlier commitments of furnishing more than half of all new vehicles with “driver assistance systems, partial automation systems, or conditional automation†by 2020 according to the Medium- to Long-Term Development Plan for the Automobile Industry. As the landscape for autonomous vehicles is built, cooperation between the governments, private companies and the automotive industry is imperative. China’s relatively closed trade policies might hinder the development and success of autonomous vehicles in China. The UK, however, sets an example of how government partnerships with foreign firms can assist in increasing the speed of technological adoption- Highways England has partnered up with Nissan, Hitachi and Renault to create a driverless car that will complete a 200-mile drive in 2019 (Levine, 2018).
Apart from policies and legislations that make the advent of autonomous vehicles easy and successful, there are other issues that policymakers will have to address: data processing responsibility, cybersecurity rules, law enforcement and decisions around who out of the supply chain will benefit most. Although the arrival of the driverless technology will create significant changes, there are questions around ethics and morals of a car controlled by artificial intelligence.
Autonomous Vehicles will revolutionize the global economy and affect nearly each industry, some more significantly than others. As the impact on each industry combine, the overall effect will intensify across the global economy. Since the development of this technology is still underway, the key factor determining the effect on the economy are: the amount of market penetration achieved by driverless vehicles, government policies and private partnerships within the automotive industry. If this technology is successful in the market, it holds the potential to have an economic impact of $5.6 billion (increase) worldwide. In order to create an infrastructure that possesses the ability to harness this technology, it is imperative to research all possible impacts of these vehicles on the economy and society. With proper preparedness and adaptive skills, the global economy will thrive with the advent of autonomous vehicles.