GRAPEVINE, Texas–Perhaps no area of lending is being watched more carefully than auto lending when it comes to potential disruptions to the entire business model, and credit unions here were offered a forecast for what might lie ahead–and when–by CU Direct.
During the company’s Drive 18 Conference, CEO Tony Boutelle updated credit unions on what it is forecasting and how credit unions should prepare to respond on some issues of strong interest to credit unions.
According to Boutelle, CU Direct sees the future of auto lending and the auto industry itself as “A.C.E.S.” for Autonomous, Connected, Electric and Shared.
Boutelle cited a quote from Dr. Dieter Zetsche, the former CEO of Daimler, who observed, “Connectivity, autonomous driving, vehicle sharing and electric drive systems—each of these four trends has the potential to turn our industry on its head. Yet the real revolution lies in intelligently linking these four.”
What’s clear, said Boutelle, is that every major car manufacturer in the world wants to be an early mover in changing how mobility works. Of the top 20 companies spending on R&D, the car manufacturers dominate the list.
According to Boutelle, who cited work being done by CU Direct’s Innovation Lab, there are five levels of evolution in autonomous vehicles:
- Basic automation (updates to legacy vehicles)
- Adaptive Safety and Connected Vehicles (lane departure warnings and heads-up displays)
- Limited Self Drive (such as Tesla and self-parking technology)
- Full Self-Serve
- Completely autonomous (no driver needed)
“We’re getting close to levels four and five,” said Boutelle.
When it comes to regulation, Boutelle acknowledged there are varying state and federal regulations but all currently require cars to have a steering well and brakes.
But Waymo, a subsidiary of Alphabet, now has 51 registered autonomous vehicles in California, and more than 500 autonomous minivans in Arizona, along with “thousands” more on order ahead of a ridesharing service it plans to launch.
“I think this is going to come a lot faster than a lot of us thought,” said Boutelle.
He noted Apple, which has partnered with Lexis, is now testing 55 cars on public roads, and that GM’s Cruise has more autonomous vehicles in California with 104.
Accessing Energy and Infrastructure
A key issue with electric vehicles isn’t just the vehicles themselves, but the infrastructure to recharge them. He cited one analysis that suggests electric vehicles will surpass internal combustion engines by 2038. “But the real key here is going to be how fast you can reduce the cost,” said Boutelle. “Greater efficiency means at $1,000 battery-per-kilowatt-hour in 2010 will cost $73 in 2030.”
He noted there are 150,000 gas stations in the U.S. right now as compared to 17,749 charging locations, and that it now takes from 30 minutes to four hours to charge a vehicle.
Auto Dealer Income
Boutelle said one fallout as electric cars become more commonplace will be on a primary profit center of auto dealers, the service department. “Electric cars last as long as 500,000 miles. There are going to be some interesting changes.”
New Mobility Concepts
“Transportation is shifting from owned good to a rented service,” said Boutelle, referring to people moving away from owning cars to using them on an as-needed basis, such as through a subscription.
Boutelle pointed to the numerous businesses that have launched that involve simply using a car when needed, an Airbnb for cars, as he described it. Two businesses in that space are Turo and Maven. There are also new managed fleets, such as Zipcar, Car2Go, Enterprise CarShare and Hertz Connect, that are also growing.
In the case of Turo, it says it has 170,000 cars in its system and four-million users. Its solution allows a person to put a car into Turo and rent it out to others when they need it.
Meanwhile, a lease-like approach is being offered by companies such as Fair and Ford Canvas, which have used cars. Well-established brands offering subscriptions to new cars include Care by Volvo, Porsche Passport, Book by Cadillac, and Access by BMW.
Overall, Boutelle offered these four predictions for the auto lending marketplace:
- Auto sales remain strong with more than 250 million cars on the road, plus eight to 10 million new vehicles added each year
- There will be a shift to partially autonomous over next 10-15 years
- The pace of change is dependent on battery improvements and access to energy
- Car ownership will decline from 2.06 cars per household to 1.1 by 2040
“Keep doing what you’re doing with traditional auto financing,” recommended Boutelle. “But in our Innovation Lab we are researching other things, such as commercial loans for fleet vehicles, pay-as-you-go financing, and multi-owner contracts.”