As noted in previous posts by Quarles & Brady authors, this past October, the U.S. Department of Transportation released its "Automated Vehicles 3.0" guidance. As lawyers practicing in the vehicle distribution space, we noticed immediately that the guidance does not address any of the numerous issues that are brewing around the question of how autonomous vehicles will be distributed and sold. The only part of the entire 60+ page guide that even alludes to these issues is a suggestion, on page 29, that dealers or distributors may play a role in informing consumers how to safely operate Level 1, 2, and 3 autonomous technologies.
This lack of discussion highlights an important point: how autonomous vehicles will be distributed and sold is a very unclear matter at the present time. Although the outlook is not certain, it is an interesting question to begin discussing, especially as consumer behavior and evolving technology start to drive disruption within the current model of distribution and sales.
Vehicle Distribution Channels: The Current System
Today, new vehicles are sold through well-established channels of distribution:
- Sale or lease to retail customers through car dealers (around 80-85% of vehicle sales);
- Sales to fleet operators, such as rental car companies, for fleet use through car dealers (around 15-20% of vehicle sales); and
- Sales directly from manufacturers to retail customers (a very low percentage of sales)
These volume figures mean that, in the current system, the role of the motor vehicle dealer is paramount. This is in no small part due to the comprehensive protections dealers receive under state motor vehicle dealer protection laws that exist in all 50 U.S. states.
The current system, however, even prior to the advent of autonomous technology, already has started coming under significant stress due to changing consumer preferences and technology.
- From a consumer perspective, consumers increasingly want to buy vehicles the same way they buy other products (online, from their homes) through bargaining processes they can control (transparent prices) and on terms they want (non-traditional methods for owning and/or using products). Consumers also want the mobility that vehicles provide, but they do not necessarily want to own a vehicle. An array of new players have planted flags in the industry to capitalize on these trends, including ride sharing services (Uber, Lyft), car sharing companies (Zipcar, Turo), and subscription services (now offered by many automobile manufacturers).
- From a technology perspective, the current environment is providing new technologies that facilitate vehicle connectivity, vehicle electrification, and vehicle service being done through over-the-air updates.
As a result, when autonomous vehicles are introduced in the marketplace, they will arrive in an environment of other radical change. And they will offer something fundamentally different from a traditional vehicle: a mobility method rather than a transportation device--a service, rather than a thing.
Questions Brewing Around the Distribution and Sale of Autonomous Vehicles
All of this leads to several fundamental questions:
- Will consumers want or need to own autonomous vehicles? Why would a consumer want or need to own a vehicle when the consumer could use an app on the phone to locate a fully-charged autonomous vehicle already in the neighborhood, use the vehicle to "mobilize" to where the consumer wants to go, and not pay for any vehicle upkeep or downtime in the garage?
- If consumers do not want to own autonomous vehicles, what does this mean for how such vehicles will be distributed and sold? Vehicles will still need to be owned or leased, but will sales and leases will be made to fleet companies rather than to consumers?
- What would this then mean for the role of the traditional dealer?Will dealers adapt commercially to new business models to preserve their relevance and profitability? Or will they respond legally by seeking statutory protections to preserve their current role in the distribution chain?
- What will this ultimately mean for consumers? Will they be able to obtain mobility in ways they obtain other services and products? Or will they find themselves in a more restrictive system that limits how they obtain mobility or imposes costs on them to preserve the profitability of past distribution methods?
It is always unwise to offer predictions. But with that credo as a guideline, we offer the following thoughts about what we may see happen:
- Manufacturers, at least initially, will simultaneously pursue different approaches for selling autonomous vehicles. They will sell to autonomous vehicle technology providers themselves; to national and local fleet providers; and to consumers, both through new methods and "ownership" forms and through existing dealer networks.
- Many dealers will begin experimenting with new business models. They will form local partnerships with national fleet providers; change their business models to focus on vehicle service, rather than sales; and start to become holistic customer mobility centers.
- Other dealers, however, will fall behind due to a failure to adapt or innovate commercially. This will lead to legal battles, both in the courts, where dealers will bring lawsuits, and before state legislatures, where dealers will engage in legislative efforts to preserve the status quo in the distribution chain.
- This process will begin gradually, because millions of non-autonomous vehicles will remain in service for years to come. At some point, however, it will speed up unexpectedly and dramatically, as forces of disruption converge.
We look forward to seeing whether these predictions become true. It will be an exciting world to watch.