Commentary: Rough road ahead as auto industry transitions to electric and self-driving cars

Mari Keels transfers a front end of a General Motors Chevrolet Cruze during assembly at Jamestown Industries, Wednesday, Nov. 28, 2018, in Youngstown, Ohio. Jamestown Industries supplies parts for the Chevy Cruze. GM said Monday that Lordstown will stop making the Chevy Cruze by March, at a cost of 1,400 union jobs on top of the 2,700 lost there since President Donald Trump took office. (AP Photo/Tony Dejak)

General Motors’ Nov. 26 announcement of more than 14,000 layoffs is only the first in what will be a continuing string of disruptions in the auto and related transportation industries. Self-driving cars have received most of the attention, with their likely elimination of transportation jobs, but large-scale restructuring is likely in the entire auto industry as consumers move to electric vehicles.

A large part of the auto industry’s recent restructuring has been due to the dramatic shift from cars to sport utility vehicles and pickup trucks, and this helps explain some of the plant closings outlined in the General Motors announcement. However, this is a much easier transition than the upcoming shifts to electric and self-driving vehicles. One reason is that with alternative transportation options, more consumers will choose not to purchase a vehicle, and other families may decide they don't need as many vehicles as in the past.

In addition to building fewer cars, it will be difficult for current manufacturers to remain the dominant suppliers of next-generation vehicles, particularly if consumers skip the hybrids and opt for full electric vehicles. High labor costs and a lack of expertise in new technologies may allow new entrants such as Tesla to become the major players in the industry. The major auto companies’ struggles with profitably selling hybrid and electric vehicles area are early indications of these challenges.

While Utah does not have a large presence in vehicle manufacturing like Michigan and Ohio, it does maintain a large secondary set of industries that will be affected. For example, it is unclear whether the current car dealers will remain dominant, especially if a high percentage of next-generation vehicles are sold into fleets for car-sharing or transportation services. Auto repair services are also likely to see significant disruptions, as the internal combustion engine is replaced by electric vehicles that have a small fraction of the moving parts and require much less maintenance.

Auto body shops are likely be affected as self-driving cars and safety features like automatic braking are likely to sharply reduce accidents, even as news stories highlight the few self-driving accidents that have occurred. The need for gas stations will also shrink, as electric vehicle charging stations are now showing up in various places like hotels, restaurants, and shopping centers where consumers can use the charging time for other activities.

Government revenues also will be affected, as gasoline taxes in Utah of about 50 cents a gallon contribute up a large share of financing for transportation improvements. For example, in 2019, motor vehicle taxes are projected to contribute nearly $100 million to state revenues, the fourth largest contributor after income taxes, state sales taxes, and local sales taxes, and electric vehicles avoid these taxes altogether.

The key question is how quickly this transition will occur, and some clues can be seen in corporate and investor decisions. Although GM emphasizes the shift from cars to other vehicles in their announcement in their decision to cut jobs, the statement also mentions the importance of investment in new technologies such as electric vehicles. Investors responded by bidding up GM's stock price by almost 5 percent. Investors’ decisions regarding Tesla also reflect their belief in the future of electric vehicles, as Tesla’s market value is roughly the same as GM’s while selling a small fraction of the vehicles.

The advancement of the key technologies provides other clues that the tipping point between internal combustion and electric vehicles is approaching more quickly that previously thought. One major constraint has been the range of electric vehicles, and here the trends suggest that improvements in battery technology mean that range comparable to gasoline vehicles is years rather than decades away. Others may have avoided electric vehicles due to the sluggish performance of hybrids, but Tesla models now outperform all but the fastest sports cars.

While economic changes of this magnitude always create disruptions, next generation vehicles will not appear overnight like the electric scooters in Salt Lake City. In addition, the flip side of this story is that the changes occur because new transportation and vehicle options are preferred by consumers. These new vehicles also have the potential to create new economic opportunities, improve the safety of the roads, and reduce the smog that affects the health and quality of life in the Salt Lake Valley.

Loren Yager

Loren Yager, Park City, formerly served as the chief economist of the Government Accountability Office, the investigative arm of Congress.