The driverless revolution rolls onNovember 12, 2012: 5:00 AM ET
Autonomous vehicles are coming -- and sooner than you think. How the commute, the shipping industry, and the car itself will never be the same.
By Brian Dumaine, senior editor-at-large
FORTUNE -- Google has now proved that a self-driving car can travel more than 300,000 miles without a mishap. Well, it did suffer a parking-lot fender-bender -- but a human was at the wheel. Its customized Toyota Priuses use an impressive combination of GPS, radar, and a 3-D mapping camera on the car's roof that "sees" traffic signals, road lanes, and pedestrians in real time. Google (GOOG) is not alone. In 2010, as part of the VisLab Intercontinental Autonomous Challenge, four driverless electric vans made the 8,077-mile drive from Parma, Italy, to the World Expo in Shanghai. Last month California became the third state, after Nevada and Florida, to make self-driving vehicles street legal. (The catch, for now, is that a human must sit in the driver's seat, ready to take over in an emergency.) In October, Nissan revealed a self-driving prototype of its Leaf that the car maker says could hit the market by 2015. GM (GM), Ford (F), Toyota (TM), and BMW are experimenting with similar models. Azim Eskandarian, the director of George Washington University's Transportation Safety and Security Program, says that "the technology is here, but the cost needs to come down. In 10 or 15 years you'll see a lot more of these cars."
There has, however, been little thought about how autonomous vehicles might impact business and alter industries ranging from car makers to auto insurers to transport companies to steel fabricators, and in the process leave a trail of winners and losers. These vehicles could also help boost fuel efficiency. For instance, GPS could identify empty parking spaces. A report published by the MIT Media Lab states, "In congested urban areas, about 40% of total gasoline use is in cars looking for parking."
Experts believe self-driving cars will increase productivity. According to a new report on self-driving cars by KPMG and the Center for Automotive Research, the average American commuter now spends 250 hours a year behind the wheel of a vehicle. What if those hours were spent answering e-mails or (legally) sending texts as the car drove itself? There are liability advantages too. Imagine tipsy employees driven home by their car from the office holiday party.
The technology could be a boon to the trucking industry. Picture long lines, or "platoons," of self-driving 18-wheelers, 12 inches apart, speeding down a special lane on the Interstate at 100 mph. Richard Wallace, of the Center for Automotive Research, estimates that self-driving trucks would boost fuel efficiency by 15% to 20%. "No drivers, no stops for fuel and food, and no one sleeping overnight in the cab with the air conditioning running," he says.
In remote areas, where labor is scarce, mining companies can use giant trucks carrying tons of ore without an operator at the seat. The mining giant Rio Tinto, in fact, has deployed exactly this kind of vehicle in Western Australia. Because it no longer needs drivers, it saves as much as $100,000 a year per truck.
Cars already contain roughly 100 million lines of computer code to run engines, electric braking and steering systems, and features that are precursors of self-driving cars, such as lane warning systems and traction control, in which cars take over braking and steering to avoid skids. As cars become more autonomous, software needs will increase -- which is good news for Google and Intel (INTC) (the chipmaker is investing $100 million in electronics for autonomous vehicles).
Self-driving cars rarely crash (in theory, at least), so vehicles can be made lighter, without heavy safety frames, which means less demand for steel. As concerns over safety diminish, car makers will have free rein to redesign the very notion of what a car is. "Why not design a car as an office on wheels?" asks Dan Sperling, the founding director of the Institute of Transportation Studies at the University of California at Davis.
Perhaps the biggest obstacle facing self-driving cars is, not surprisingly, lawyers. The good news is that this technology should dramatically reduce the 30,000-plus annual fatalities on the nation's highways. According to AAA, traffic crashes cost Americans $299 billion each year. But who will be responsible when accidents do happen? The deep-pocketed automakers and the software company that wrote the code are more likely targets for tort lawyers than the consumer sitting behind an (unused) wheel. Sperling says that "self-driving cars create the risk of catastrophic accident," which means the auto-insurance business will need to reboot. As accident rates fall and liability becomes shared with the manufacturer, drivers will see less need to carry so much insurance. To maintain their revenue stream, auto insurers will have to shift to providing coverage to the car makers or software firms that write the code -- depending on which tack the trial lawyers take.
The change to self-driving cars will be evolutionary, but the evolution is well under way. We're already seeing small changes in our vehicles, such as lane warning systems and adaptive cruise control. Maybe in the not-too-distant future, I'll be able to write stories like this while commuting in my car.
Four ways self-driving vehicles may change business
1. Trucks could travel 12 inches apart in "platoons" that reduce drag. Fuel savings could reach 15% to 20%.
2. Americans spend on average 250 hours a year commuting. If a car does the driving, that time could be spent working.
3. Because self-driving cars will be safer, they won't need heavy safety cages. Bad news for the steel industry.
4. Insurers will have to figure out who's liable in an accident: the car maker, the software designer, or the GPS provider.
This story is from the November 12, 2012 issue of Fortune.