Sara Routhier, Managing Editor of Features and Outreach, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming worl...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Aug 21, 2013

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Long distance ground mass transit systems have never been America’s forte. The age of the trains are long gone, along with the plumes of coal smoke.

It certainly isn’t America’s fault though. After all, the United States is relatively new compared to the older countries of Europe and Asia, who seem to love building ever faster and efficient modes of public transportation, like maglev trains.

One entrepreneur wants to do more than just bring high-speed transportation to America. He, and the state of California, want to bring something entirely new and innovative to market.

Railing Against Convention

South African billionaire Elon Musk unveiled his proposal for a “Hyperloop,” or a transportation system utilizing compressed air for locomotion. Known for his commercial space flight company SpaceX, electric car manufacturer Tesla Motors, and online payment service PayPal, Musk is no stranger to innovation. 

According to the specifications of the Hyperloop’s proposal, the project would be not only safer and faster than alternatives, such as high-speed trains, but it would also be more affordable and convenient.

The Hyperloop would even be immune to weather, power outages, and earthquake’s — that last point being a vital necessity if implemented in earthquake-prone California. Unlike trains, it would not disrupt local communities as it looped past them.

Musk was prompted to conceive of the Hyperloop after learning about California’s own high-speed rail project.

Back in 2008, California voters chose to back the construction of a high-speed rail that would likely cost $68 billion to connect San Francisco with Los Angeles, in effect providing for a completely ground-based transit system that would span the length of the state.

While both the Hyperloop and California’s high-speed rail have their share of supporters and detractors, there has yet to be discussion on how these long distance transportation systems would affect the air and auto industries.

Sky High Competition

As one can imagine, a hyperloop or high-speed rail would certainly cut into the profits of airline companies who would lose customers that favor potentially faster and cheaper ground-based alternatives.

While California may be a very affluent state and is certainly the country’s most populous state, air travel isn’t always needed when moving between the northern and southern parts of the state.

In fact, many Californians can and do comfortably drive the length of the state within eight to ten hours thanks to the California highway system. While this isn’t ideal, it allows for more flexibility compared to the hassle many flyers have experienced at the hands of the contentious TSA, not to mention airline companies.

Of course, high-speed rails and experimental ground transport systems have an even more direct competitor that would be affected by a lower cost and faster option: the automotive industry.

Niche Disruption

Chris Miller, Director of Interactive Marketing for Mobility Resource, told loans.org that even though he is very excited about high-speed transit projects, he thinks it will undoubtedly negatively affect the automotive industry.

“And not just the automotive industry as a whole,” he said. “Think about the small niche transportation companies that could be affected, kinda like ours.”

Mobility Resource provides custom accessible vehicles for disabled Americans. Even though it is a niche product, it is a highly specialized part of the automotive industry.

“A lot of aftermarket parts and labor go into our cars, resulting in an additional $15,000 to $20,000 on top of the base car price,” said Miller. “The outcome is a $50,000 car or wheelchair minivan that most people buy after making a lot of sacrifices. And since they’re disabled, chances are they don’t work or rely on limited income.”

Miller is confident that his company would face drastic cuts should the Hyperloop come to life since many disabled people would opt for such allegedly cheaper transportation.

Conventional car manufacturers and auto lenders would also be hurt by the Hyperloop and high-speed rail.

Less long distance driving means less wear and tear on cars. This means that cars can last longer and commuters wouldn’t need to borrow car loans as often or purchase new vehicles as often. In the end, the Hyperloop and high-speed rail cuts into the profits of car makers and car loan lenders alike.

Garrett W. Diegel, Financial Representative for Country Financial, thinks that along with manufacturers, dealers, and car loan lenders, the auto insurance industry would be impacted.

Naturally, he believes that auto insurance sales would decline or at least rake in fewer profits since people with more robust insurance plans would no longer need them if they opt to ride inside the Hyperloop or catch a high-speed rail ticket in lieu of commuting long distances.

Fortunately for Miller, Diegel, and the auto industry as a whole, the Hyperloop isn’t even in the early stages of construction. Musk vows to create a prototype, but beyond that hasn’t made firm commitments to its completion. As for the high-speed rail in California, it is facing a wide-range of opposition and has not yet broken ground.