Mary Sticha, Brendan Keegan, John Korte, Ahsan Rahim
By Mark Boada, Executive Editor
Editor’s note: Below is an edited and abridged transcript of a panel discussion at the 2019 AFLA conference, held in mid-September. The moderator was Mary Sticha, former AFLA president; the panelists were Brendan Keegan, CEO at Merchants Fleet Management; John Korte, Vice President of Mobility Business Development at Donlen, and Ahsan Rahim, COO at Wheels, Inc. The transcript has been edited for clarity.
Sticha: What are the driving forces behind the movement toward mobility?
Korte: The new mobility is about connectivity, autonomous vehicles, shared mobility and electric vehicles. The ultimate goals for the autonomous electric vehicle are to eliminate crashes, eliminate emissions from the environment and increase vehicle utilization. As we know, typical consumer vehicle utilization rate is in the low single digits and the goal of shared vehicles is to increase that rate.
Keegan: The mobility movement isn’t being created by any single industry by itself. It’s being created jointly by the fleet industry, the auto industry, and the technology industry; but really, in the end, it is being created by society as a whole. It’s the result of people saying, “I don’t want to go to the store, I want it to come to me. I want to consume in ways different from the ways we always have.” We saw that with Uber and Lyft and with AirBnB and the hotel industry.
As I see it, there are four driving forces behind this trend: digital connectivity, computers capable of increasingly intelligent use of vast amounts of data, the continuing drive to achieve greater transportation efficiency, and multimodal means of transportation.
Rahim: From my perspective, the underlying motivators for this movement have been around forever: improved vehicle safety, productivity, sustainability, cost, and convenience. What’s different from the past is that today we have more advanced tools to apply to these concerns, and we’ve been so successful that the trend feels less like mobility evolution and more like a mobility revolution.
The first catalyst is the rapid advancement in computing power. That is really what’s enabled the smart phone that all of us are carrying in our pockets Second, I’d say, is the advent of machine learning and artificial intelligence, with that potential to make autonomous vehicles able to learn and progress at a much faster pace than they would’ve been with traditional programming.
The other catalyst is government regulation, particularly in the EU and in China. It’s true that there’s a significant interest in sustainability, both at the corporate and retail level. But I think it’s also true that it’s generally not backed up by a significant willingness to pay significantly more for it. I think that if market forces were left to their own, we would not be seeing as much progress toward electric vehicles as we have. The EU and China have put in place pretty significant economic incentives and penalties and that’s why car makers are investing in electric vehicles at the pace that they are.
Sticha: What can fleet managers do today to prepare themselves for this transformation?
Korte: The fleet management job is not going to disappear over the next five years, but it is going to change. That means that as a fleet manager you’ve got to be armed with the tools to be able to be more effective, more efficient, nimbler than you have been in the past.
Instead of seeing the mobility revolution as a threat, I think it’s an opportunity for fleet managers to get better, to understand different aspects of fleet management, versus 10, 15, or 20 years ago, when it was about, “What car am I going to select and what’s the maintenance history?” There are so many things that advanced data analysis can help you, whether it’s vehicle selection and understanding the total cost of ownership, understanding the data that can be captured from a vehicle and how you can act on it.
So, fleet managers need to be embracing this revolution. View yourself almost as a mobility integrator. You know you’ve got employees that may be utilizing ride hailing or car sharing or public transportation or rental cars. There’s an opportunity to be able to use that data to create a holistic view of your company’s transportation spend. Doing so would elevate you to being a leader in that transformation and enable you to drive a lot of the change that’s happening around the corporate world today.
Rahim: There are three things that a fleet manager should do. First is to keep current with what’s going on at the forefront by attending information sessions, reading trade publications, and by talking with a fleet management company.
The second thing is to develop a point of view on each of the trends, based on the business that you’re in and based on your strategic motivations. What are you trying to do? And the reason I say that is because the optimal strategy for a given trend is not going to be the same across multiple organizations.
For example, depending on what business you’re in it may make sense to be leading as an innovator, but that’s taking a ton of risks and taking on a ton of costs. Or it might make sense to take on less risk and cost and be an early, mid- or late-stage adopter.
So, let’s say you’re looking at autonomous vehicles. If you’re in a ride dealing fleet, like an Uber or Lyft, there’s a really, really strong imperative for you to be a leading-edge entity. Because more than half of the trip cost is in the driver, Uber and Lyft are losing billions of dollars. They pretty much have to be as aggressive as they are.
But let’s say you’re serving a sales team and you’re looking at the productivity benefits that you could get from an autonomous vehicle. You’re going to want to be an early- to mid-stage adopter, simply because you don’t want to take on the risk of an immature technology. You probably want to adopt it when those risks have been worked out and you’re willing to pay a small cost premium to then get the ROI.
And then the third thing I’d say, is translate that point of view into an actual strategy. Incorporate it into a new strategy. Share it internally, pressure test it, socialize it. So, then you have a proactive strategy that you are then executing upon and not simply reacting to questions as they come up from within the organization about what we’re doing regarding mobility.
Keegan: If we look at the future, I think the fleet manager is going to become a fleet technician. Different skillsets are going to be required to implement and use things like predictive analytics, artificial intelligence, and machine learning. What’s wonderful is so many universities now offer these digital certificate programs in these subjects that you can go on campus and complete in two or three days, or longer if that’s what you need.
But don’t forget that you’ve got great fleet management companies at your disposal, and keeping you up on technology is what we do. It’s not incumbent upon you to become the lone expert. Lean on us, push us to move forward. Push us to do a better, stronger job for you. Whether it’s about predictive maintenance or the selection of vehicles with different fuel types, push us to be better partners for you.
Sticha: Are autonomous vehicles ever going to become a reality? If so when?
Rahim: Over the last couple of years, we’ve gone from what I view as excessive optimism to overblown pessimism today. The reality is that, even though we may be many years, perhaps more than a decade away from having a truly ”go anywhere,” Level Five autonomous vehicle, there has been and continues to be a ton of investment in innovation in this area, and we’re actually seeing steady progress. And I would argue that autonomous vehicles in specific contexts are a reality today. And the way that’s playing out is that you’re basically seeing applications that tackle a less complex problem than a fully autonomous vehicle becoming a reality for us.
I’ll throw out a couple of examples. If you look at either the farming or the mining industry, autonomous vehicles have been a reality for several years. And the reason is they tackle simpler driving, geo-fenced environments, like low-speed autonomous shuttles, where you don’t have to deal with traffic or pedestrians. So, you can actually ride in an autonomous shuttle today in a number of cities in the U.S. and Europe.
Another area where we’re seeing a ton of investment, and where we’ll probably see progress faster, is in autonomous vehicles that transport goods rather than people. My view is that autonomous vehicles are here today, and that as the technology matures and becomes more sophisticated, you’re going to see more applications become possible.
Korte: A while back, we were hearing that fully autonomous vehicles were going to be here in 2020, and now we’re hearing from different people that it’s going to be in by 2025 or 2030. I’m more on the pragmatic side, and at my company we like to talk about incremental autonomy, and that’s where I think we’re headed. If we really break incremental autonomous technology down, almost every manufacturer, every year, is coming up with another autonomous function.
So, it wasn’t that long ago when we had the little orange light in the side view mirror to assist the driver with lane departure. Well, now there are systems that switch lanes autonomously. And I could literally list 34 features in different cars that are coming out that assist the driver. So, it’s going to be an incremental roadmap.
I think the biggest challenge is regulatory because the regulatory hurdles ahead of full autonomy are pretty intense. Another is creating a new technology-infused infrastructure. We all know that our highways are challenged. Now we say we want to change that infrastructure, and where are all those dollars going to come from?
Keegan: Great points. The industry itself has taken steps towards full autonomy, even though only Level One may be in any of our vehicles today. Many advanced features in vehicles today have increased safety, from lane departure to speed control and automatic cruise control, and these are autonomous features. Full autonomy is the ultimate goal, but that may be anywhere from five to 15 to 50 years from now.
Interestingly, there’s widespread concern that the Levels 3 and 4 may be dangerous. So, you just need to be aware of some of the challenges to using these features that are being introduced – whether it’s lane departure warning or Tesla automatic driving – and to have associated education for your drivers to understand what those mean and how they impact them.
I’m excited about this. I think it’s where we are heading. We’re all on this journey together, but it is going to be an incremental journey. I don’t think any of us can sit up here and say it’s two or 25 years away, but I think we’re all on the journey together and I am really excited to be able to support it in the ways we do.
Sticha: Many carmakers have announced that they’re going to be introducing many more electric vehicles by 2025. When should fleet managers plan to adopt them?
Korte: Well, electric vehicles are clearly much closer than fully autonomous vehicles and depending on what your fleet is they are here and now. So, when we talk to a customer about electric vehicles, we first break down the vehicle type: what is its usage, is it a sedan, a crossover, a pick-up, at utility truck, or a cargo van? All the OEMs are in different stages based on what type of vehicle application you’re talking about.
So, when we first look at it, we look at how suitable are the available vehicles for your particular application, and that goes into the usage. We all know that energy efficiency is great, but if you’re driving 400 or 500 miles a day, an electric vehicle may not work.
Rahim: I think the answer on when a future adoption of electric vehicles occurs depends on what country and what business you’re in. If you’re a global fleet manager, you have to look at your vehicle selector depending on the environment within a given country. In Norway, for example, you’ve got an extensive EV charging infrastructure, a ton of financial incentives behind EVs and more than 50% of the vehicles are electric. And so, you’re more than likely going to go with electric vehicles in that market.
In the U.S., the math is pretty different. Even so, in the US I would still argue that it depends on what business you’re in and what your strategic motivations are. So, as an example, I talked with a client in the electric charging infrastructure business. And if you’re in that business, I would argue that makes a sense for you to have a large chunk, if not your entire fleet in EVs, because even though the total cost of ownership is higher, from a marketing perspective, you need to put your own people in EVs in order to sell other people.
If your core business is not electric but you have a corporate mandate or an objective around sustainability, then I think in the U.S. today mild hybrids are an increasingly good option. Even just two years ago, acquiring a mild hybrid would command a $3,500 to $4,000 premium up front, and relative to a diesel or gasoline engine you wouldn’t get that back when you remarketed it. Fast forward to today and that acquisition differential is going down with some OEMs to around a $1,000 or $1,500. Mild hybrids also get an improvement in fuel efficiency on average of 10 miles per gallon and even higher in urban environments, so you can switch to them today with a zero or minimal effect on TCO.
But when it comes to true BEVS — battery electric vehicles — it’s different. Availability today is pretty limited, the TCO is higher, range is a concern and limited charging infrastructure is a concern. But I’m an optimist in this space, because there’s a ton of investment going into the area, and all the OEMs have announced a total of about one hundred battery electric vehicles expected to be rolled out within the next five years.
And as these models come out at scale, I think they’re going to need to be competitive from a cost perspective. You’re going to see the range improved because you’re seeing a ton of investment going into that technology. So, I’d say that probably four or five years from now, you’re going to see battery group in its own investment going into that new technology. And I’d say that probably four to five years from now you’re going to start to see BEVs become more competitive from a TCO perspective.