Car Sharing, Ride Hailing on Collision Course

Do car makers know what they are getting themselves into with car sharing? Car companies are lacing up their skates and venturing out on the thin ice of car sharing. General Motors’ Maven, with fledgling efforts in New York City and Ann Arbor, Mich., is the latest incarnation of this movement. The movement is pervasive and growing as are the questions regarding the ultimate outcome.

Strategy Analytics: “Automakers Explore Car Sharing, Ride Hailing and Other Connected Mobility Programs” – tinyurl.com/jr52f5a

Morgan Stanley released a report last week estimating the global share of vehicle miles traveled for shared vehicles (including taxis and ride hailing services) to rise from an estimated 4% in 2015 to 26% in 2030. The report correctly identifies the current economics that favor a massive currently under-utilized privately-owned global fleet of internal-combustion-based cars blocking the adoption of more expensive electrified vehicles the cost of which could be rationalized by higher levels of usage enabled by sharing.

SOURCE: Morgan Stanley

Car sharing (think ZipCar, Car2Go) is not to be confused with ride hailing (think Uber, Lyft), both of which are transforming transportation. Both applications are targeted at converting private automotive transportation into networked public transportation.

Car companies are B2B businesses selling cars to and through dealers as well as to fleet operators. As such, rental car companies, car sharing and ride hailing companies are all fleets squarely in the car selling comfort zone of car makers – which explains multiple strategic relationships to provide vehicles to these service providers and their drivers.

But when car companies enter the car sharing business directly they are moving into the realm of B2C, setting the stage for a transformation with unpredictable outcomes. Professor Dr. Larry Burns, former corporate vice president of research and development at GM, speaking at the recent Mentor Graphics IESF event referenced University of Michigan research showing that 18,000 shared and networked vehicles “can provide the same mobility as 120,000 conventional vehicles.” In other words, local mobility needs can be solved with 15% of the current volume of vehicles on the road – not good news for auto makers.

Working against shared use is the enduring romantic attachment to the metal. Morgan Stanley tips its hat to the deep ties Americans and others have to their cars: “private car ownership is deeply woven into the American cultural fabric.” Morgan Stanley also notes the aspirational nature of car ownership for high-growth auto sales regions in Southeast Asia including India and China.

Burns counters that the bloom is off the rose of car ownership. In his IESF presentation he asked:
Do you enjoy…

• Shopping for a car?
• Financing a car?
• Insuring a car?
• Buying and pumping gasoline?
• Getting a car washed?
• Maintaining a car?
• Parking a car?
• Driving a car?
• Sitting in traffic?

Consumers are increasingly considering letting go of car ownership – but the industry and consumers are at a turning point. Recent focus groups conducted by Strategy Analytics found little consensus regarding the future of transportation – but car ownership was seen as remaining in the picture for the foreseeable future.

Strategy Analytics: “Millennials’ Choice of Car or Transit Mode is Driven by Cost and Usability” –TinyURL.com – shorten that long URL into a tiny URL http://tinyurl.com/h3ajvbo

Millennials’ Choice of Car or Transit Mode is Driven by Cost and Usability

The path to shared networked vehicles leads through car sharing and ride hailing services. Car sharing seems to only currently be suited to urban settings with purpose-built individually used vehicles increasingly available for one-way ad hoc trips. (Maven is currently using existing GM vehicles solely for roundtrips.)

Ride hailing services, meanwhile, are caught up in a maniacal race to the bottom, burning cash while recruiting drivers such that the more successful they are the more money they lose and the more difficult it is for drivers to make a living. Worse still, Uber and Lyft drivers – as well as drivers for similar services – are discovering the corollary proposition of contributing to shared vehicle miles driven. It is not unusual for ride hailing drivers to notch 4K-5K miles/month.

To counter these expensive business models, Uber, Lyft and their ilk are avidly pursuing autonomous driving technology to remove the key source of cost: the driver. This is obviously going to take years.
Oddly, GM has been at the forefront of vehicle networking (OnStar), electrification (EV-1), and car sharing (en-V), but has yet to successfully integrate each of these elements. It is still possible for GM to bring the vision together under the banner of Maven. So far, Maven has only seen fit to make existing, conventional GM vehicles available.

Like all car makers, GM is confronting the almost impossible turning radius required to shift from personal vehicle ownership (low utilization rate) to shared ownership (high utilization rate). The transition is already costing the Uber’s and Lyft’s of the world billions of dollars. (GM is now, of course, participating in Lyft’s financial burn with its recent $500M investment.)

Meanwhile, Local Motors has begun bringing its own self-driving Olli vehicles to the market – targeting confined urban settings such as the National Harbor outside Washington, DC, and the downtown area of Las Vegas (MOU signed). Local Motors hopes to have as many as 30 of its networked, shared, printed, self-driving Olli’s cruising National Harbor before the end of 2016 – as well as elsewhere in the U.S. and Europe. (Local Motors will be remotely monitoring these driverless vehicles.)

Local Motors fulfills the final element of Professor Burns’ future mobility catechism: tailored. As he intoned at the IESF event, future cars will be characterized as: “Efficient, Connected, Coordinated, Driverless, Tailored.” The lower operational cost promised by the transformation that is slowly unfolding will increasingly become clear to the driving public. Millions of consumers around the world are doing the math and that math increasingly (but at a slow pace) favors shared and/or ad hoc vehicle use over ownership.

In the meantime, most of us will keep buying increasingly expensive cars and pumping cheap gas. Professor Burns asked a key question of the IESF audience – “Will change come in the form of evolution or transformation?” It looks like evolution wins. Car makers have a lot to lose if we all start sharing instead of owning. We can thank Professor Burns for clarifying that.

Roger C. Lanctot is Associate Director in the Global Automotive Practice at Strategy Analytics. More details about Strategy Analytics can be found here: https://www.strategyanalytics.com/access-services/automotive#.VuGdXfkrKUk

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