Monday, August 22, 2016

Your Vehicle Is Now Worthless Part 1

America has a long love history with their vehicles.  From pickup trucks to pony cars they are the iconic image of Americana and it's freedom. They provide us the means for family road trips, commuting to work, and running errands around town.  But how can it be your shiny vehicle sitting in the driveway is worthless? It seems entirely impossible to pinpoint this exact moment, especially when Kelley Blue Book still says it's worth $5k.

Take note that very recently Ford Motor, the iconic manufacturer of America's most famous pickup truck and pony car, announced by 2021 the company will mass produce self-driving vehicles. Seems a long way off but it's just 4.30 years away. Some people earn a college degree and MBA in that time. While initially the self driving cars will be destined for fleet use and ride sharing, it should not be long after they'll be available to the general public. Oh also if you're an Uber, Lyft, or taxi driver you're likely to be out of a job by then.. Sorry.

Mass produced autonomous vehicles are much closer than we think.  Plenty of other manufacturers have researched this area, and it remains to be seen what future announcements are in store. This is an all out race to get new products to market.

I can see this developing into the future a few different ways.  The car you buy brand new today is already outdated, and should depreciate faster than normal.  The technology to operate vehicles without humans is already here, and you're being sold a new hunk of metal that is closer to it's final extinction date.  I say extinction because vehicles on the road today are likely to serve only a few purposes in the future.


The most likely route is they'll be considered antiques.  Keep in mind not this will not be true for every vehicle initially.  Certain vehicles are always more desirable than others. Just look at the current collectors markets.  However your everyday family sedan will have worse chances of faring well through this.

The first nail...

...in the coffin will come from the insurance industry.  They'll start charging higher insurance rates to people operating non-autonomous vehicles. Why? Because human error is a chief reason behind road accidents. Additionally 2.35 million people in the US are injured or disabled annually in vehicle collisions.  That's a ton less claims they'd have to sift through if there are fewer accidents.  It will reduce their hefty payouts to victims, and decrease litigation costs. It will also allow them to reduce their headcount related to this part of the business since there won't be as much work. On the flip side insuring an autonomous vehicle will cost less creating incentives to switch.

What it means for the insurance industry as a whole remains to be seen. Some might go out of business. Others will merge. A handful will diversify into different revenue streams to offset what's likely to be lower premiums for autonomous vehicles. Revenues and profits may dip, but I think that will be transient in nature. For the most part I don't see a ton of turmoil in the industry. They'll find a way to persevere.

The second nail

It's entirely plausible the government will eventually mandate all new vehicles have to be autonomous. Why?  As stated above human error is a big contributor to vehicle related fatalities. And with 1.3 million deaths a year I can hear the loud calls for ending these senseless tragedies growing louder. Want to drive your non-autonomous vehicle on the road?  Well you'll likely need an expensive special permit/license to do so.  Most normal people will scoff at the idea of having to pay more to exercise their right to drive - but will consider the fight futile, give in, and pay up.

Sound inconceivable? Tell that to the people who thought there would never be an income tax in this country.  Once government realizes it can charge for this, believe me they will.  Just like a company they need to constantly expand their revenue streams. But unlike a company they almost never initiate cost cutting like private corporations do to keep revenues and expenses in line. When revenues fall short they only imagine ways to bring in more money, not reduce costs.

So where does this leave us? 

Considering Americans as a whole have 1.20 vehicles for every person that can drive there is plenty of useless metal, wires, plastic, and glass globs laying around. Here I think it depends on your situation. If you've been buying used vehicles like I recommended here then you don't have as much to worry about. Reason being is you've sunk less of your hard earned money into a depreciating asset, and you more likely avoided paying high amounts of interest. Which is in essence doubling down on your bad decision when you finance. However with each year that passes, buying a car becomes an increasingly risky financial purchase. Especially if it's a new vehicle.

I'll go over in more depth why vehicle purchases are bad ideas, and I'll detail some strategies to help the average person avoid this pitfall in the 2nd part of this article out later this week.

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