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Car Sharing Contradictions

Car Sharing Contradictions
by Roger C. Lanctot on 08-07-2016 at 8:00 pm

  • Automotive News tells us that GM’s Julia Steyn, head of Maven, is thrilled with the early performance of this captive car sharing initiative, in comments yesterday in Traverse City, Mich.
  • Tesla Motor’s Elon Musk anticipates limitless demand resulting from car sharing and automated driving, speaking on the company’s Q2 earnings call yesterday.
  • Morgan Stanley foresees car sharing heralding the arrival of peak auto sales, in a report released earlier this year.

The Center for Automotive Research released its own study estimating that the proliferation of car sharing services – expected to grow to 51,000 vehicles and 3.8M users by 2021 – will result in a reduction of 12,700 new and used vehicle sales a year in the U.S. through 2021. – Study Deems Ride Hailing a Non-threat to U.S. Auto Industry So what is really happening and what is going to happen?

Attendees at the Center for Automotive Research’s Management Briefing Seminar in Traverse City and certainly executives throughout the automotive industry breathed a collective sigh of relief when revised U.S. July sales numbers reported Wednesday hit 1.52M for a 0.5% year-over-year increase and a seasonally adjusted annualized sales rate of 17.86 in the U.S., the highest SAAR of 2016, according to Automotive News.

The news of this latest albeit marginal sales gain was reassuring to many but comes against a backdrop of rising average vehicle prices (up 2.5% this year to $34.264, according to Kelly Blue Book) and increasing vehicle loan and lease terms, though forecasted delinquencies (10%) are well below the peak (13%) during the downturn. Skepticism is growing that the auto industry, at least in the U.S., can extend its growth beyond current record levels and, more likely, is headed for one of its cyclical downturns.

Ford Motor Company CEO Mark Fields pointed to car sharing and ride hailing as contributing to future demand as vehicle utilization increases. AN quoted GM’s Steyn echoing Field’s optimism as she described the growth of Maven’s fleet to 3,500 cars in New York, Chicago, Boston, Ann Arbor, Mich., and Washington, DC. She noted that Maven customers have driven more than five million miles and that GM views the business as complementary. Why GM is Embracing Car Sharing

Car sharing fundamentally hinges on the creation of a network of vehicles. As such, it is best suited to urban settings for the purpose of convenient access to vehicles for vehicle-less urbanites and visitors.

Before launching Maven earlier this year, GM tested the peer-to-peer car sharing waters with its investment in RelayRides, quickly discovering that sharing your car with neighbors, while a potentially lucrative value proposition, did not scale. GM is continuing to explore the P2P approach in Europe, but P2P has clearly been relegated to niche status.

Multiple car companies along with GM including Ford, Daimler, PSA and BMW are now in the ad hoc car sharing business, some offering one-way rentals (BMW, Ford, Daimler), while others require a round trip (GM). The real challenge will come from managing the maintenance of these small fleets – something rental car companies are better equipped to oversee.

In the short-term, car sharing fleets may represent a way to attract new car buyers. While AvisBudget’s ZipCar and Daimler’s Car2Go started out with low-end vehicles, there are indications that these fleets are diversifying. BMW has begun using its i3 and GM has been making a range of larger utility-type vehicles available.

Car sharing fleets may ultimately serve as a means for introducing new cars to potential buyers. So far, though, the services have not been integrated into vehicle sales operations suggesting that this collateral outcome is not currently part of the plan. (A possible exception is advantageous lease terms offered by car makers to Lyft and Uber ride hailing drivers for new cars.)

Perhaps the biggest challenge for car companies entering the space is managing the process of interacting directly with consumers. Car companies have yet to integrate new car dealers into their car sharing programs – which means they are taking on the potentially expensive logistics of fleet management directly – a function which, long-term, has “outsource” written all over it.

In addition to creating ad hoc urban fleets of shared cars, auto makers are setting the stage for car sharing as a feature. Volvo is leading the way, testing a smartphone-based car sharing proposition capable of allowing any Volvo vehicle to be unlocked, started and shared via a smartphone-delivered code.

The final evolutionary stage of transportation-as-a-service arrives in the form of shared driverless cars. The first step on this path is driverless shuttles in defined environments already introduced or contemplated from Singapore and Copenhagen to the National Harbor in Washington, DC, and downtown Las Vegas.

The remaining question is whether a network of shared vehicles complements or supplements the existing non-networked/owned car park. When asked about the impact of the higher vehicle utilization rates associated with car sharing on vehicle production, Tesla Chairman and CEO Elon Musk said, on yesterday’s earnings call:

“Well, I think the demand for autonomous cars will vastly outweigh the production capability. So it’s more in our mind that the global fleet of vehicles is about 2.5 billion roughly and total new vehicle production per year is only about 100 million. So, the fleet is basically turning over every roughly 20, 25 years. So we would have to make some truly enormous number of autonomous vehicles for there to be any land saturation because it will basically be the only car anyone wants to buy.”

Unless of course, you don’t actually buy a shared autonomous vehicle – you only borrow it. Then, maybe, you don’t need quite so many. That is the question behind Morgan Stanley’s view of peak auto demand arriving in just a few short years.

The Morgan Stanley perspective is disturbing and it does seem to ignore rising demand in emerging markets generally and China in particular. So, the makers of cars will have us all believe that car sharing will stimulate demand. CAR will have us believe that car sharing won’t negatively impact demand very much. Morgan Stanley will have us believe that car sharing will cap demand.

These are radically different views that hinge on consumer behavior and the economics of car ownership. Factor in the even higher cost of cars capable of automated driving and a budding market built on borrowed vs. owned transportation begins to emerge.

All of which means the auto industry is in the midst of a high wire act between an evolutionary advance toward ever-safer and ever-more-fuel-efficient and ever-more-expensive cars and a leap to fully automated and shared operation. At its core, shared and automated vehicle access represents a solution to traffic congestion, vehicle emissions, and rising highway fatalities.

The greatest change of all will be behavioral – ie. convincing consumers to share rather than to own. According to Steyn at Maven, consumer reaction has so far been enthusiastic. If she’s right, we all need to take a closer look at those Morgan Stanley figures.

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