Question: You have said you’re going to lease rather than purchase your automobiles from now on, but there are some consequences of that that decision you haven’t addressed.
You are now committed to a never-ending car payment. You will go from lease to lease and never pay off a car. This will be expensive, as your car becomes a utility rather than a possession.
Maybe we should go to an on-demand model like Uber rather than actually have cars of our own. But that would have really bad implications for auto sellers. Another paradigm shift.
If people move to leasing or purchasing new cars every two or three years because technological innovations make newer vehicles more desirable, what will happen to the used car market? If cars only a few years old are obsolete, the demand for them will drop off. What happens to those cars? Also, if cars need to last only three or four years, why should they be built to be very reliable?
Ric: You’re right. We are about to experience a paradigm shift in automobiles. Last time we underwent one was in the 1920s — when cars replaced horse-drawn buggies. Over the past 100 years, auto ownership has skyrocketed.
This time, though, auto ownership will sharply decline. Already, cars are parked 95 percent of the time, making for a severely underused asset — and a depreciating one, at that. So instead of owning cars, you’ll call for them as needed. This “on demand” platform is in its infancy, with companies like Uber (offering a driver) and Zipcar (you do the driving). In both models, you pay by the minute or mile. No upfront costs, no maintenance or repair bills, and no insurance to buy. And you get the vehicle you need when you need it — a single-passenger car for your commute, or a big SUV when taking the family on a trip.
When people stop buying cars, prices of used vehicles will plummet. As I mentioned on my show, analysts predict a 50 percent decline in used car prices over the next few years. It will get worse than that — like trying to sell your Betamax at any price.
All this has huge implications — for auto manufacturers, car dealers, real estate agents, urban developers, insurance companies and the entire crash economy (auto repair shops, aftermarket parts manufacturers, claims adjusters, even chiropractors).
So, yes, cars will become utilities, and you’ll always pay for them — just as you continually pay for electricity and water.
What will happen to the old, unneeded cars? (There are 250 million of them in the United States, by the way.) They will be recycled, creating a massive new industry — one of many to enjoy huge economic benefits from the new paradigm.
Is all this exciting, or disruptive? The answer to both is yes.