Auto Industry Archives - The National Law Forum

U.S. EV Sales Are Slowing: Implications for the Auto Industry

Throughout the past decade, analysts and policymakers have promoted electric vehicles (EVs) as the cars of the future, highlighting their potential to provide effective, environmentally friendly transportation for individual and business purposes alike. Pure EV sales in the United States rose from just over 10,000 in 2011 to nearly 500,000 in 2021, and the country is expected to add 1 million new EVs to its roads in 2023, aided by government subsidies. However, over the past year, the EV market has been struggling with price cuts and rising inventories; in August 2023, it took about twice as long to sell an EV in the U.S. as it did the previous January. Given the expectations for an EV takeover of the automotive industry, it is important to understand what is driving this slowdown, and how it may affect individuals and businesses in the years to come.

The Transportation of Tomorrow

Though fuel-powered motors were traditionally preferable due to their superior energy storage and range, concerns over their environmental impact in the late 20^th century propelled people to consider electricity-powered substitutes. Hybrid EVs, which use electric motors alongside internal combustion engines, became more widespread starting in the 1990s, while fully battery-powered electric cars, which only use energy stored in on-board batteries, have increasingly become practical options in the consumer market starting in the 2010s, though their recharging requirement remains a sore spot. Given the efficiency gap between fuel-powered motors and contemporary battery technologies, as well as typically higher costs for EV production, governments have often stepped in to offer economic incentives for EV purchasing and manufacturing, attempting to guide long-term automotive supply and demand toward sustainable transport options.

Government incentives for EV adoption have grown steadily over the past three decades, with large markets like the U.S. and EU commencing efforts in the 2000s, later followed by developing economies such as China and India. For years, the U.S. federal government and state governments have offered tax credits for producers and consumers adopting qualified electric drive motor vehicles, with states like California going even further by offering HOV lane access for EVs operated by a single occupant. President Biden designated increased EV adoption as a substantial element of his Investing in America agenda, setting a goal for 50% of all new vehicle sales in the U.S. to be electric by 2030. However, despite increasing environmental awareness and policy pressures, consumer demand has not always followed suit.

Wavering Consumer Demand

Currently, there is an oversupply of electric vehicles in the industry, reflecting continued automaker and government investment against slowing consumer demand. While most American consumers view adopting EVs as an inevitability, their anxieties relating to the range that the battery can produce and a lack of public charging infrastructure still induce uncertainties over dependability. During the COVID-19 pandemic, shelter-in-place orders reduced the need for frequent personal transportation, allowing consumers greater flexibility to adopt EVs. However, now that pandemic restrictions no longer present a substantial external variable and more workers are required to return to the office, vehicles powered by internal combustion engines remain preferable as the most reliable transport option. This is supported by the changing profile of the EV consumer – the percentage of EV shoppers trading in a vehicle they already own has doubled over the past decade, indicating that many EV consumers do not rely on them as their primary mode of transport. Amplifying the charging concern, a Pew Research Center survey from July found that Americans have low levels of confidence that the U.S. will build necessary EV infrastructure, including critical charging ports, dampening enthusiasm that the Biden administration’s EV goals will be met on time.

On the other hand, pricing continues to be another hurdle for greater EV adoption. According to Cox Automotive, the average transaction price for a vehicle in the U.S. was around $48,000 in September 2023; for EVs, the number was between $53,000 and $60,000. The higher price tag for EVs tends to be a result of manufacturing costs remaining more expensive than they would be for producing gasoline-powered vehicles, given the auto industry’s substantially longer experience making internal combustion engines compared to EV technologies and the still-inflexible EV supply chain. High interest rates render borrowing money for car payments more expensive, along with inflation reducing consumer purchasing power and global supply chain disruptions contributing to the issue as well. According to S&P Global Mobility, while 86% of U.S. car buyers were considering an EV in 2021, the number fell to 67% in 2023. Despite government tax credits, investing in a relatively more expensive EV purchase is a hefty request for many American consumers concerned about short-term costs in today’s economy.

Effects on the Auto Industry

The auto sector is facing the classic problem for a sector in transition, i.e., growing supply to pace with developing demand. The current market condition is not a problem of declining demand but supply outpacing demand and the auto industry is already making corrections. Ford, having opened reservations for its fully electric F-150 Lightning model in May 2021, closed them by the end of the year due to excess supply, and by September 2023, announced it was ramping up production of its hybrid F-150s in response to lowered than anticipated sales of the Lightning. Lucid, a high-profile luxury EV brand, has seen two consecutive quarters of weaker than expected demand, most recently delivering 600 fewer of its Air luxury sedans than Wall Street had expected in the second quarter of 2023. Tesla’s aggressive price cuts have hindered the growth of competition in the EV industry, with two-thirds of all EVs sold by the Elon Musk-owned automotive giant, as consumers find it difficult to afford suitable alternatives. At the end of the second quarter of 2023, several automakers announced their decision to move to the Tesla charging standard, stranding many vehicles on factory floors with an obsolete charging outlet, thus further exacerbating the dilemma.

Pushback against public sector efforts to mandate EV adoption may also reshape expectations for how the auto industry will move forward in the coming decade. On November 8, the U.S. Senate voted 50-48 to overturn Biden’s decision to waive some “Buy America” requirements for government-funded electric vehicle charging stations. Western lithium and graphite miners have started charging the EV supply chain higher prices to reduce dependence on Chinese supply of these materials. Owing to anxieties over cheap Chinese-manufactured EVs flooding the American market as has happened in Europe and a potential Chinese monopoly of rare earth minerals critical in EV production, these protectionist moves on an already inflexible EV supply chain are likely to further delay progress toward the administration’s vehicle electrification aims. EV adoption also remains inconsistent across U.S. regions, being significantly lesser in states like Texas where gas prices and home energy rates are lower, compared to others like California where the opposite is true. Nonetheless, there are reasons to remain optimistic about the long-term growth of EV sales in the auto industry – an S&P study in 2023 showed that people were willing to accept charging times of less than an hour and less range on an EV compared to a gasoline equivalent, and while the number of EV buyers fell from 2021 to 2023, it was still higher than in 2019. Understanding that a gradual shift towards electricity-powered vehicles is still probable, individuals and businesses alike should note that it will likely occur over a longer period than analysts and policymakers predict. Meanwhile, greater hybrid vehicle production and purchasing could generate a slew of new opportunities in the short to medium term.

This article was authored by William Samir Simpson.

How Technological Advances Possibly Affect Automobile Insurance Policy Holders in New Jersey

In the 1970’s, “no-fault” insurance laws were enacted in New Jersey and several other states in response to criticism regarding the time-consuming and costly process of determining who was at-fault when an accident occurred.

No fault insurance laws sought to streamline the claims process. One key feature allowed insurers to pay for medical treatment of their injured policyholders. This allowed for timely treatment and provider payment. NJ automobile insurance policies offered up to $250,000 in coverage for medical treatment. Recent changes in law now allow insureds to choose less coverage for medical treatment.

Further, recent technological advances change the way insurance customers choose coverage online. While customers are served by the ease, flexibility, and pricing of policies through internet platforms, some adverse consequences naturally flow. In this article, we discuss the changes, the consequences and subsequent response from participants and 3^rd parties to address these outcomes.

Background

In the 1960’s, many more vehicles were entering into American roadways than in previous decades. Baby boomers were coming of age and more cars were sold than ever before. A natural consequence was automobile accidents and as a result, the necessary adjudication of which party caused the collision.

Insured and insurers alike expressed criticism of the process which consisted of petitioning the civil court system to resolve disputes. In response, state legislatures adopted laws designed to streamline the process, and the 1970’s, many states adopted policies allowing injured accident victims to recover damages from their own auto insurance policies.

Almost half of the United States now have similar laws where policyholders are entitled to “benefits” from their own policies. This of course means insurers are on the hook for more compensation, a fact they obviously utilized to lobby legislatures to place certain restrictions on the right to sue for damages not only against the insurer but against the tortfeasor as well.

One of the “trade-offs” made by the legislation was injured parties giving up some of their rights to sue under certain circumstances.

New Jersey No-Fault Law and Application

New Jersey’s no-fault laws have been amended throughout the years. One of the most profound changes to the law occurred in 1998 with the passage of the Automobile Insurance Cost Reduction Act (“AICRA”). This change in law gave NJ residents the opportunity to purchase a standard or basic policy.

The standard policy is much like a typical no-fault policy containing Personal Injury Protection (PIP) which pays for medical treatment (more on this in a moment); liability coverage for injury or property damage to another; and uninsured/underinsured coverage which kicks in if the at-fault driver has no or insufficient coverage.

A basic policy provides minimum coverage in certain areas such as personal liability, property damages, and medical benefits. Because having automobile insurance is mandatory, the purpose of the basic policy was essentially to afford an option to those who simply wanted to follow State mandates.

With regard to the right to sue restrictions, a New Jersey insured was and still is offered a choice – give up the right to sue for “non-permanent” injuries (those with no objective medical evidence of permanency) and have the premium reflect a savings or retain the right to sue (zero threshold) and pay a much higher premium to offset the cost. Further, one of the things insurers had to trade was that victims would have $250,000 worth of PIP coverage to pay for medical expenses.

Changes to NJ No-Fault Insurance and Consequences

The AICRA changes have been in effect for years. Since that time, the internet altered the manner in which policyholders interact with insurers when choosing coverages.

The internet streamlines the sales process for many businesses. Insurance is no different. What is troubling about this streamlining is the lack of guidance users receive from insurance companies regarding their choice of coverage.

For example, one website asks you to choose between:

More Affordable
Popular Coverage
More Coverage

It is not so much that the choices are misleading – they aren’t. However, other than these descriptions, there is little explanation of their consequences. If you choose the “more affordable” option, you’re led to a screen that explains the coverages in more detail.

Do people read all the information?

Can they understand the language even if they do decide to read it?

Could it be that the ease of picking the cheapest option is too much to overcome?

Consider this description from a law firm in Maryland:

“PIP is easy to overlook, especially in this age of online insurance applications. It’s one box out of 200 that you can check. The application will say something like, “Waive PIP and save $57.” The applicant clicks and saves 57 bucks…when in reality, they’ve lost $2,500 if they get in an auto accident. Too many Maryland policyholders waive their PIP coverage. It’s really a good coverage not to waive. “

Likewise, in New Jersey’s Standard Coverage Selection Form, used by insurance companies as a questionnaire to draft a proposed policy, the PIP limits selection form actually lists the savings from choosing lower limit PIP coverage. Remarkably, no such comparison exists on the Form for reductions in Bodily Injury/Liability limits.

In the old days, an insurance agent was tasked to explain various coverages. A real human being who would answer questions depicting real word scenarios involving accidents. This obviously allowed for more informed choices.

Now, a great deal of selling is done online. Many cost-aware customers might respond only to a difference in price. Many can and do simply choose the cheaper alternative. This could cause problems later if an accident occurs and a claim is made.

A Potential Problem with Minimal Coverages

Consider a situation where the insured has the minimum coverages for PIP – $15,000. The insured sustains a back injury and begins treatment. The Emergency Room visit totals $6,000 complete with 3 level CT scans which reveal problems with the upper and lower back. The insured then follows up with an orthopedic who requests MRI scans on the back which equal another $2,500. Add in some physical therapy and the $15,000 PIP limits are exhausted in a couple of months.

None of this is a problem if the scans fail to reveal a major issue. A soft tissue injury is serviceable under this scenario in that the insured gets treatment and is on the way to recovery. If the scans reveal problems, such as multiple herniated discs and impingement on the spinal cord, treatment options become a tricky proposition.

The treatment is tricky because the benefits are gone. Now the injured party must seek other options – some of these can be costly.

Responding to the Need

In response to the above, providers, lawyers and other market participants stepped in to serve the need for accident victims to secure medical treatment. The following are some of those alternative payment methods.

Letters of Protection

Letters of protection (LOP’s) are agreements between the injured party’s attorney and a medical provider that the medical bills will be “protected” by the proceeds of any settlement received. In return for the attorney’s promise to honor the lien against file, medical providers will perform a variety of treatments to the plaintiff, including surgery. Surgery is often a deciding factor in the plaintiff’s ability to secure the treatment because normally, the case’s settlement value is increased after the procedure.

Use Existing Health Insurance to Pay Bills After PIP is Exhausted

In some instances, plaintiffs can use their own health insurance to pay for accident medical bills. In NJ, insureds can choose which coverage is primary. However, some health insurance policies exclude coverage for car accidents. The standard health insurance limitations apply as well. These include the need to pay deductibles, co-payments and sometimes co-insurance. Further, there may be limits on the choice of medical provider. Some policies require doctors to be “in network”.

Litigation Funding

In many cases, litigation funding is used to pay for much-needed medical treatment. Originally utilized to bridge the gap between accidents and settlement, litigation funding sought to alleviate the need for plaintiffs to accept low-ball settlement offers simply because they were struggling financially. Because lawsuit funding is the sale of a portion of the future proceeds of a personal injury case, they are sometimes used to pay for surgical or other procedures when there is no coverage available.

Technological Advances and Practical Trade-offs

Technology has certainly made life more convenient over the years. Conveniences exist today that weren’t in our collective consciousness 20 years ago. Consider being able to speak via video conference to someone on the other side of the world for FREE, when the toll charges for an overseas telephone call were many dollars only a short time ago.

But technology can cut both ways. The ease with which insurance consumers can pick coverages that may or may not be in their best interest may be one such trade-off. Thankfully, market participants (doctors, lawyers, litigation finance companies) step in and address the outcomes which naturally arise. Free markets usually perform this function admirably.

Article By Paul M. Coppola of Fair Rate Funding

For more insurance and reinsurance legal news, click here to visit the National Law Review.

Auto Industry Picks up Capitol Hill Advocacy on Reports of Resurgence of Biden’s Build Back Better (BBB) Proposal

Last week, General Motors Chair and CEO Marry Barra, Toyota Motor North America President and CEO Ted Ogawa, Ford Motor Company CEO James Farley, and Stellantis CEO Carlos Taveres sent a letter to Senate Democratic Leader Chuck Schumer, Senate Republican Leader Mitch McConnell, House Speaker Nancy Pelosi, and House Minority Leader Kevin McCarthy revamping the industry’s advocacy for the inclusion of certain production tax credits ahead of a possible budget reconciliation package.

This letter comes on the heels of recent reports on Capitol Hill that the lynchpin to the Senate passing a budget reconciliation package, Senator Joe Manchin (D-WV), has had multiple in person conversations with Senate Democrat Leader Chuck Schumer regarding a legislative path forward on the proposal.

The letter specifically advocated for the inclusion in any final BBB proposal of House-passed legislation, authored by Congressman Dan Kildee (D-MI-05) and Senator Debbie Stabenow (D-MI) which would extend and build on current tax credits for EVs. Specifically, the provision would make consumers eligible for a $7,500 credit for eligible EV purchases for the first five years and an additional $4,500 credit if the EV is manufactured by a unionized facility, and an additional $500 credit if the EV uses an American made battery. In addition, the proposal would amend the current credit authority to make the credits refundable and transferrable at the time of purchase rather than consumers having to claim the credit on their tax return. Finally, the proposal would bar consumers making over $400,000 from eligibility and creates EV price limits to preclude luxury EVs from eligibility.

While this provision enjoys broad Democrat support in the Senate, Senator Manchin, foreign automakers and Tesla have publicly criticized the $4,500 bonus for union made vehicles.

Additional Electric Vehicle Infrastructure funding that could be included in the bill include:

Electric Vehicle Supply Equipment Rebate Program –$2 billion for eligible entities for covered expenses associated with EV supplies including grounding conductors, attachment plugs and other fittings, electrical equipment, batteries, among other things;
Electric Vehicle Charging Equity Program – $1 billion to provide technical assistance, education and outreach, or grants for projects that increase deployment and accessibility of EV supply equipment in underserved or disadvantaged communities;
General Services Administration Clean Vehicle Fleet program – $5 billion for GSA for the procurement of EVs and related infrastructure for the Federal Fleet (excluding USPS and DOD vehicles);
United States Postal Service Clean Vehicle Fleet and Facility Maintenance – $3 billion for the USPS to purchase electric delivery vehicles and $4 billion for the purchase of related infrastructure; and
District of Columbia Clean Vehicle Fleet – $10 million for the District of Columbia for the procurement of EVs and related infrastructure.

While it is unclear what would be in a final BBB deal or if it would have the votes to pass the House and the Senate, industry representatives are descending on Capitol Hill to push for critical funding and tax provisions that could have significant benefits to their respective industries, especially those provisions that could lower costs for producers and consumers in the current economic climate.

Article By William Ball of Foley & Lardner LLP

For more utilities and transportation legal news, click here to visit the National Law Review.

The Promise and Peril of Autonomous Vehicles

The possibility of self-driving cars on our roads is prompting both excitement and anxiety. Advocates point to the possibility of increased safety, lower pollution, even less congestion. Critics aren’t sold on many of the supposed advantages.

So, what happens when driverless vehicles start hitting our roads? As with so many innovations, there are likely to be pluses and minuses.

Let’s consider safety. The United States Department of Transportation estimates that roughly 95% of road accidents are caused by human mistakes; driving too fast for conditions, not paying attention to the road, or illegal maneuvers such as driving through red lights. Given human tendencies to get distracted, one would expect that autonomous vehicles will be safer.

Autonomous vehicles are outfitted with sensors and cameras, which enable them to “see” their surroundings and react to traffic and pedestrians. Companies working on these vehicles have been testing these vehicles in simulated settings as well as on real roads. There is much to tout about their safety aspects: they’re not distracted like humans, they obey speed limits and traffic signs, they don’t drive fatigued.

But driving in traffic has turned out to be more challenging than expected, and a few well-publicized accidents – one involving a Tesla and one an Uber vehicle that killed a pedestrian – have prompted concerns the self-driving technology is not ready for prime time. In particular, that sensors and cameras may not be able to react in real-time to cope with humans who behave like, well, humans.

More choices or less?

“We’re moving to a future where people don’t own cars,” says Dr. Daniel Sperling, director of the Institute of Transportation Studies at the University of California, Davis. “You’ll have a subscription service, maybe, that emphasizes smaller vehicles, or you might want a cheaper service where it’s a van,” he adds.

Dr. Alain Kornhauser, director of the program in transportation at Princeton University, agrees to a point, saying privately owned cars are not likely to vanish completely — especially in rural areas, where getting a driverless taxi may be more challenging. Still, he says, the number of people who own cars — and the number of cars owned per family — will drop sharply.

In many cities with ridesharing services like Lyft or Uber, owning a vehicle has become less urgent. Autonomous vehicles could multiply ridesharing options.

But what if you’re in a rural area without these services? Should rural communities consider investing in self-driving vehicles as a form of public transport? What if you’re in a major city but can’t afford to either own an autonomous vehicle or even subscribe to the service?

There’s also the question of what happens to public transport as self-driving vehicles increase. Will we continue to support and improve the infrastructure for public transportation?

Public transport systems in the U.S. are not as robust as in some European nations. One of the main concerns for Seleta Reynolds, General Manager of Department of Transportation for Los Angeles, is managing access for people in different parts of Los Angeles because she understands how much that can impact one’s financial well-being.

“You can get to about 12 times as many jobs in an hour in a car as you can by transit in L.A.,” she said.

If autonomous vehicles end up reducing access, the financial and social impact could ripple across communities.

Then there is the question of what autonomous vehicles will do to people who drive for a living. According to the U.S. Bureau of Labor Statistics, more than 2.5 million people earn their living from driving – employed as tractor-trailer truck drivers, taxi and delivery drivers, and as bus drivers. If those jobs disappear, that could represent a potential loss of employment equal to what we saw during the Great Recession of 2008.

Many of the people driving vehicles for a living are classified as low-skilled workers. It will be difficult for such unemployed workers to quickly find new work, and the cost of re-training them could be high.

Autonomous vehicles have the potential to spur a massive and exciting paradigm shift. But there are darker clouds on the horizon too. The question is: will we be able to manage the changes wrought by self-driving vehicles in a positive way?

ARTICLE BY Arthur J. Harrington of Godfrey & Kahn S.C.

For more on autonomous vehicle developments, see the National Law Review Utilities & Transport Law section.

Heavy Metal Murder Machines and the People Who Love Them

What is the heaviest computer you own? Chances are, you are driving it.

And with all of the hacking news flying past us day after day, our imaginations have not even begun to grasp what could happen if a hostile person decided to hack our automotive computers – individually or en masse. What better way to attack the American way of life but disable and crash armies of cars, stranding them on the road, killing tens of thousands, shutting down functionality of every city? Set every Ford F-150 to accelerated to 80 miles an hour at the same time on the same day and don’t stick around to clean up the mess.

We learned the cyberwarfare could turn corporal with the US/Israeli STUXNET bug forcing Iran’s nuclear centrifuges to overwork and physically break themselves (along with a few stray Indian centrifuges caught in the crossfire). This seems like a classic solution for terror attacks – slip malicious code into machines that will actually kill people. Imagine if the World Trade Center attack was carried out from a distance by simply taking over the airplanes’ computer operations and programing them to fly into public buildings. Spectacular mission achieved and no terrorist would be at risk.

This would be easy to do with automobiles. For example, buy a recent year used car on credit at most U.S. lots and the car comes with a remote operation tool that allows the lender to shut off the car, to keep it from starting up, and to home in on its location so the car can either be “bricked” or grabbed by agents of the lender due to non-payment. We know that a luxury car includes more than 100 million lines of code, where a Boeing 787 Dreamliner contains merely 6.5 million lines of code and a U.S. Airforce F-22 Raptor Jet holds only 1.7 million lines of code. Such complexity leads to further vulnerability.

The diaphanous separation between the real and electronic worlds is thinning every day, and not enough people are concentrating on the problem of keeping enormous, powerful machines from being hijacked from afar. We are a society that loves its freedom machines, but that love may lead to our downfall.

An organization called Consumer Watchdog has issued a report subtly titled KILL SWITCH: WHY CONNECTED CARS CAN BE KILLING MACHINES AND HOW TO TURN THEM OFF, which urges auto manufacturers to install physical kill switches in cars and trucks that would allow the vehicles to be disconnected from the internet. The switch would cost about fifty cents and could prevent an apocalyptic loss of control for nearly every vehicle on the road at the same time. (The IoT definition of a bad day)

“Experts agree that connecting safety-critical components to the internet through a complex information and entertainment device is a security flaw. This design allows hackers to control a vehicle’s operations and take it over from across the internet. . . . By 2022, no less than two-thirds of new cars on American roads will have online connections to the cars’ safety-critical system, putting them at risk of deadly hacks.”

And if that isn’t frightening enough, the report continued,

“Millions of cars on the internet running the same software means a single exploit can affect millions of vehicles simultaneously. A hacker with only modest resources could launch a massive attack against our automotive infrastructure, potentially causing thousands of fatalities and disrupting our most critical form of transportation,”

If the government dictates seat belts and auto emissions standards, why on earth wouldn’t the Transportation Department require a certain level of security of connectivity and software invulnerability from the auto industry. We send millions of multi-ton killing machines capable of blinding speeds out on our roads every day, and there seems to be no standard for securing the hackability of these machines. Why not?

And why not require the 50 cent kill switch that can isolate each vehicle from the internet?

50 years ago, when Ralph Nader’s Unsafe at Any Speed demonstrated the need for government regulation of the auto industry so that car companies’ raw greed would not override customer safety concerns. Soon after, Lee Iacocca led a Ford design team that calculated it was worth the horrific flaming deaths of 180 Ford customers each year in 2,100 vehicle explosions due to flawed gas tank design that was eventually fixed with a tool costing less than one dollar per car.

Granted that safety is a much more important issue for auto manufacturers now than in the 1970s, but if so, why have we not seen industry teams meeting to devise safety standards in auto electronics the same way standards have been accepted in auto mechanics? If the industry won’t take this standard-setting task seriously, then the government should force them to do so.

And the government should be providing help in this space anyway. Vehicle manufacturers have only a commercially reasonable amount of money to spend addressing this electronic safety problem. The Russian and Iranian governments have a commercially unreasonable amount of money to spend attacking us. Who makes up the difference in this crital infrastructure space? Recognizing our current state of cyber warfare – hostile government sponsored hackers are already attacking our banking and power systems on a regular basis, not to mention attempting to manipulate our electorate – our government should be rushing in to bolster electronic and software security for the automotive and trucking sectors. Why doesn’t the TSB regulate the area and provide professional assistance to build better protections based on military grade standards?

Nothing in our daily lives is more dangerous than our vehicles out of control. Nearly 1.25 million people die in road crashes each year, on average 3,287 deaths a day. An additional 20-50 million per year are injured or disabled. A terrorist or hostile government attack on the electronic infrastructure controlling our cars would easily multiply this number as well as shutting down the US roads, economy and health care system for all practical purposes.

We are not addressing the issue now with nearly the seriousness that it demands.

How many true car–mageddons will need to occur before we all take electric security seriously?

This article was written by Theodore F. Claypoole of Womble Bond Dickinson (US) LLP.

For more on vehicle security, please see the National Law Review Consumer Protection law page.

Steering Wheels Become Increasingly Optional

Florida is the latest state to allow vehicles to operate on the road without a steering wheel. In doing so, Florida became the third state after Michigan and Texas to allow vehicles on its roads without a human even having the ability to drive them. The legislation signed into law includes:

The bill authorizes operation of a fully autonomous vehicle on Florida roads regardless of whether a human operator is physically present in the vehicle. Under the bill, a licensed human operator is not required to operate a fully autonomous vehicle. The bill authorizes an autonomous vehicle or a fully autonomous vehicle equipped with a teleoperation system to operate without a human operator physically present in the vehicle when the teleoperation system is engaged. A remote human operator must be physically present in the United States and be licensed to operate a motor vehicle by a United States jurisdiction.

Florida is sure to become a hotbed of autonomous vehicle testing with this new law. Starsky Robotics is one of the companies expected to take advantage by putting driverless vehicles on the road in 2020. These would not be just any vehicles, but big rig trucks. These trucks have already hit 55 mph, without a driver or crew. Most predict that this is just the beginning with as many as eight million autonomous vehicles expected on the road by 2025 and 30 million by 2030. Of course, the devil is in some of the details. There are six levels of autonomous vehicles, with level 5, Full Automation, being the highest.

Not everyone agrees that this is all happening so quickly. As the New York Times noted, “A growing consensus holds that driver-free transport will begin with a trickle, not a flood.” Of course, this makes sense. Outside of people with a vested interest (we are looking at you Mr. Musk), few seem to truly believe that millions of level 5, completely driverless vehicles will be on the road.

But this does not mean that they will not make an impact. While vehicles may not be navigating complex systems in dense areas next year, they are likely to find plenty of uses. Gated communities with known road structures and limited traffic might be a good location for the first generation of fully autonomous vehicles. And think of the myriad of shuttles at various locations that run the same route, over and over, day after day. That seems like a good use of a fully autonomous vehicle run by something other than gasoline. How about college campuses, with autonomous vehicles running all day and all night providing safe routes and passage for vulnerable students at all hours. Suffice to say, the day when people can wake up, get into a fully autonomous vehicle, and go to sleep while it takes them to work is perhaps not something the current work force will enjoy (except apparently for the occasional Tesla rider taped sleeping behind the wheel).

But whatever generation comes after Generation Z is unlikely to know a driving experience like what exists today, if there is any driving at all. Will they even drive at all, or will they fly in their autonomous flying cars? Project Vahana aims to offer just that. In their own words: “Project Vahana intends to open up urban airways by developing the first certified electric, self-piloted vertical take-off and landing (VTOL) passenger aircraft.” Getting to work will never be easier. Unless of course, all this transportation runs into the fact that everyone works remotely.

Article by Jeffrey A. Soble from Foley & Lardner LLP.

For more on Vehicle Legislation see the National Law Review page on Utilities & Transport.

Cybersecurity: Yes, They Will Hack Your Car

Auto manufacturers are increasingly equipping vehicles with rapidly advancing technologies, raising concerns regarding how the public will be affected by these changes. Manufacturers are beginning to implement automated driving and vehicle-to-vehicle (V2V) communication capabilities into their cars, extending potential cybersecurity threats and associated safety issues to road users.

As consumers, we already see cybersecurity threats and breaches in many areas of our day-to-day lives. With the spike of auto-driven and connected cars across the auto industry, these same threats and breaches have a strong potential to sprout in our lives on the road as well.

NHTSA has outlined the factors it will consider in evaluating cybersecurity threats as potential safety-related defects. They are as follows:

The amount of time elapsed since the vulnerability was discovered (e.g., less than one day, three months, or more than six months)
The level of expertise needed to exploit the vulnerability (e.g., whether a layman can exploit the vulnerability or whether it takes an expert to do so)
The accessibility of knowledge of the underlying system (e.g., whether how the system works is public knowledge or whether it is sensitive and restricted)
The necessary window of opportunity to exploit the vulnerability (e.g., an unlimited window or a very narrow window)
The level of equipment needed to exploit the vulnerability (e.g., standard or highly specialized)

Additionally, NHTSA’s guidance suggests policies that manufacturers :

Participating in the Automotive Information Sharing and Analysis Center (Auto-ISAC), which became fully operational in January 2016
Developing policies around reporting and disclosure of vulnerabilities to external cybersecurity researchers
Instituting a documented process for responding to incidents, vulnerabilities, and exploits and running exercises to test the effectiveness of these processes
Developing a documentation process that will allow self-auditing, which may include risk assessments, penetration test results, and organizational decisions
For original equipment, developing processes to ensure vulnerabilities and incidents are shared with appropriate entities throughout the supply chain
As vehicle technologies continue to progress, we expect that NHTSA’s guidance will evolve to address future concerns

To continue reading through NHTSA’s enforcement plans on motor vehicle safety as it pertains to recent technological advances, be sure to check out Thursday’s post on automated vehicle regulations.

ARTICLE BY Christopher H. Grigorian & R. Nicholas Englund of Foley & Lardner LLP

Navigating Connected Cars in 2017: Data Protection

It’s a fact: today’s marketplace has given connected cars the green light. As an OEM or supplier accelerating to create products to meet industry demand, what challenges can you anticipate in 2017? Here we describe where we believe your attention should be focused during the upcoming year…

Data Protection

The manufacturing industry is now one of the most hacked industries. It has been said that the modern day car is a computer on wheels. That is not quite right. The modern-day car is a network of several computers on wheels. Cars today can have 50 or more electrical control units (ECUs) – each of which is analogous to a separate computer – networked together. There will be an estimated 250 million connected cars on roads around the world by 2020. These cars will have 200 or more sensors collecting information about us, our cars and our driving habits.

With significant advances in smart phone car-connectivity and onboard infotainment systems, our cars are collecting more and more information about our daily lives and personal interactions. As a result, privacy and security of connected cars has evolved and quickly risen over the last year to a top priority of carmakers and suppliers. Here are our top 4 tips for addressing these privacy and security issues and concerns in 2017:

Practice “security by design.” This is a concept recently espoused by federal regulators, namely, the National Highway Traffic Safety Administration and the Federal Trade Commission, as well as industry self-regulatory organizations. With security by design, a company addresses data security controls “day 1” while products, components and devices are still on the drawing board. Data security practices evolve over time, and the days of building it first and then layering security on top are now over. Risk assessments addressing potential threats and attack targets should be dealt with during the design process. Security design reviews and product testing should be conducted throughout the development process. Secure computing, software development and networking practices should address the security of connections into, from and inside the vehicle.
Practice “privacy by design.” While security deals with the safeguards and measures implemented to protect the data from unauthorized access or use, privacy focuses on the right and desire of individuals to keep information about themselves confidential. During the design process, companies should understand and identify what personal information will be collected by a component or device, what notice should be provided to or consent obtained from consumers before collecting that personal information, how should the personal information be used, are those intended uses legal, with whom will the personal information be shared, and is that sharing appropriate and legal. With this information identified, the company can reconcile privacy requirements with security safeguards during the design and development process.
Establish an appropriate data security governance model. Executives and senior management can no longer blindly delegate data security to the security engineering team. Regulators, courts and juries are demanding that senior management become involved in and accountable for data security. While the precise governance model will depend on the nature and size of the organization, the company should actively consider what level of executive oversight is appropriate, and then document those conclusions in a data security governance policy. This will serve the dual purposes of enhancing data security of vehicles and component parts, while also bolstering the company’s defenses in the event of a security incident or investigation.
Address the entire supply chain. Whether it is the finished vehicle or a component part, most companies relevant to the data security ecosystem will rely on suppliers that play a role in data security. Hardware, software, development tools, assembly, integration and testing may all be provided by one or more suppliers. Companies impacted by this scenario should conduct appropriate due diligence and risk assessments with respect to its suppliers, both at the commencement, as well as periodically throughout, the relationship. Contractual provisions should also be utilized to address data security requirements for the relevant suppliers.

ARTICLE BY Chanley T. Howell & Pavan K. Agarwal of Foley & Lardner LLP

Lemon Laws: Potentially a Sour Future for Manufacturers of Autonomous Vehicles

Lemon laws have existed for several decades to protect consumers from permanently defected vehicles. Though they may vary state to state, lemon laws generally require manufacturers to replace or reimburse consumers for vehicles that have either undergone three to four unsuccessful repairs within two to four years or were out of use due to repairs for more than 30 days within the shorter of one year or warranty. Additionally, courts have generally required that the defect under repair is the same defect each time. In other words, repairs for a transmission, power steering, brakes, and suspension cannot be grouped together to satisfy the limit.

New technology often brings new challenges to the legal arena, and autonomous vehicles are taking center stage. Autonomous vehicles present a unique scenario regarding the applicability of lemon laws. Unlike hardware, software updates are frequent, and even major software updates can occur several times a year. Current semi-autonomous vehicles, like Tesla’s, have received updates that have significantly affected vehicle functionality. When first released, Tesla vehicles were traditional, albeit all-electric, cars, but after an over-the-air update (OTA), Tesla has given certain vehicle models the ability to utilize an “autopilot” feature. The autopilot feature allows the driver to release control of the vehicle in certain conditions, and the vehicle can, among other things, switch lanes, brake, and change speeds. Consumer demand and a shifting automotive landscape indicate that autonomous vehicle technology will continue to gain traction.

It would not be surprising if the lemon laws of the future hold manufacturers of semi-autonomous and autonomous vehicles to more stringent standards.

Automotive repair has traditionally involved taking a vehicle to a mechanic for issues with “hardware.” Yet, unsurprisingly, the laws have not anticipated the impact software has upon the functionality of such vehicles. Say, for example, a Tesla or other similarly-equipped vehicle with similar semi-autonomous or autonomous features, has a consistent and specific software bug that requires more than four updates to fix in over a two-year period. There is a line-drawing problem, which forces the industry and legislators to grapple with several questions. What constitutes a repair? Is the vehicle subject to replacement or reimbursement from the manufacturer? If the software bugs exist on the entire platform of vehicles, are all of the vehicles subject to recall, or is the public expected to wait for a software fix to come in an OTA update?

Recently, in late June, Tesla seemed to answer such a question. The company settled a claim with an individual over issues he had with his newly purchased Model X SUV. At the beginning of the Model X’s rollout, it was plagued with several issues involving its falcon-winged doors and auto-parking software features. Given his frustration, the individual filed a lemon law claim against Tesla, after which Tesla agreed to repurchase his $160,000 vehicle. Yet, around the same time the company settled the lemon law claims, it rolled out an OTA software update that fixed the issues. So, it might be the case that companies are not expecting consumers to wait for an OTA software update if they are willing to repurchase vehicles, even with a remedy via update in the works.

While the recently-settled Tesla claim involved luxury features, the company has been subject to investigations involving at least two fatalities in connection with its autopilot feature. These circumstances are clearly far more troubling, and they help illustrate the importance of ensuring that autonomous vehicles are performing safely.

Autonomous and semi-autonomous vehicle manufactures are taking control away from drivers, and it is currently unclear what role lemon laws should play in the presence of such circumstances. It may be necessary for legislatures to revisit existing lemon laws to include non-traditional repairs such as OTA software updates to incentivize better care on the part of manufacturers. Ultimately, it would not be surprising if the lemon laws of the future hold manufacturers of semi-autonomous and autonomous vehicles to more stringent standards.

ARTICLE BY Fermin M. Mendez of Varnum LLP
This article was co-written by Paul Albarran, a summer associate at Varnum in 2016. Paul is currently a student at University of Notre Dame Law School.

Electric-Vehicle Infrastructure: Fertile Ground for P3’s

In 2006, the documentary “Who Killed the Electric Car?” hit the theaters. Ten years later, there remains substantial disagreement on the answer to that question, but one truth has emerged: the electric car lives again. As Electric-Vehicles (EV) range steadily increases while both charging times and prices continue to fall, it appears inevitable that an EV will someday be in every driveway. Yet one critical obstacle to widespread EV adoption remains. All of those EVs will need to be charged–not only at home, but at work, and on the go. And that requires brand-new infrastructure on a massive scale.

Public-private partnerships are proven model for delivering new infrastructure in a reduced timeframe and, in many cases, at a reduced cost. Because the public sector will inevitably play a significant role in EV use and EV infrastructure, there are many opportunities–now and on the horizon–for P3s. State and local governments will no doubt be procuring fleets of EV vehicles in the near future, and concessions for rapid charging stations (along with restaurants and other services to keep drivers occupied while their vehicles charge) will be needed along highways throughout the country. Although governments are beginning to plan for these procurements and facilities, Florida’s P3 statute permits interested private-sector partners to jump start the process by submitting an unsolicited P3 proposal.

At the federal level, the Obama Administration has just released a framework for fostering the adoption of electric vehicles, called “Guiding Principles to Promote Electric Vehicles and Charging Infrastructure.” Although the details have yet to be worked out, the framework contemplates P3s and innovative methods of procurement for federal, state, and local governments. Although federal funding and federal assistance will be a valuable asset (the results achieved through the Canadian federal government’s aid to provincial and local P3 procurements provide a vivid example of what can be accomplished), in many cases, the right P3 structure and procurement approach, along with the right private partner, will permit state and local governments to move forward with EV adoption and infrastructure right now.

Tag: Auto Industry

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