Carmakers now caring about sharing

With the rise of the ‘sharing economy’, the automotive industry has begun transforming themselves from carmakers into mobility providers. Naturally, their main industrial activity will still be building cars but, instead of selling them to consumers, they will be increasingly selling them to subsidiary service providers who will then make them available for use by consumers. While it seems like an unnecessarily complex arrangement, it may well be the only way to do business with the Millennials.

About 92M strong in the US, the Millennial generation is far larger than its predecessors, Generation X or the Baby Boomers, and recent studies into their beliefs and behaviour indicate they are less interested in buying cars than in having access to the capabilities cars provide. The carmakers, seeing the writing on the wall, know if they don’t adjust to meet the Millennials’ needs, they’ll be out of business.

Growing up, as they have, during the ‘Great Recession’, Millennials know all about diminished expectations. Instead of having actual jobs with benefits and a set career path, many have survived by on a succession of ‘gigs’ and part-time jobs, which may or may not last very long. This has led them to be responsible with their finances and leery of credit cards and debt burdens. They see buying cars as a very poor capital allocation. At the same time, Millennials seek experiences and instant gratification. They may not have any intention of buying cars but they still appreciate them and, unlike their predecessors, connected cars and telematics units are something they know how to use and are completely comfortable with.  

For the automotive industry, the first manifestations of the sharing economy are ridesharing and car-sharing. Ridesharing is designed to replace taxicabs using peer-to-peer transactions brokered via smartphone. Car-sharing provides users access to cars they can book and drive for short periods of time, most often, a short, one-way trip of only a few minutes’ duration.

The best-known car-sharing outfits are Lyft and Uber, and as far as the service and experience they provide, they are very nearly indistinguishable. Many Uber drivers have previously driven for Lyft and vice-versa. More than a few drive for both at the same time. In a sense, it’s neither company’s problem since their drivers aren’t employees but contractors and the vehicles they use are their own. Where they differ is mostly a question of who’s investing in them.  Lyft is being heavily invested in by GM, while Uber’s number one angel is the Chinese internet giant Baidu, which recently put more than a $1Bn (£746M) into it. Uber has been privately valued at $62Bn, an astronomical sum, particularly since, as pundits observe, their hard assets don’t seem to go much beyond one, single, very good algorithm.

With car-sharing, the situation is different. Rideshares can be viable anywhere but car-sharing requires a confluence of favourable conditions in place, otherwise it generally won’t work. According to Josh Moskowitz, regional director at car2go, an Austin, Texas, car-share subsidiary of Daimler AG, it needs to be an urban area of a certain density with a lot of young professionals living and working there who are already used to using mass transit. There also needs to be a high level of support from the city itself in terms of favourable regulatory atmosphere, and particularly, access to parking spots. “We opened up in Austin, because we had full support from the city at the very beginning,” said Moskowitz.

DriveNow is a BMW-led joint venture with Sixt AG that makes premium vehicles available to drivers for one-way drives and other short term uses.  With a fleet of 3,000 vehicles worldwide, they can exert a visible presence in a number of major European cities. In the last four years, they have added nearly 500,000 customers worldwide. DriveNow has plans to expand into 10 North American cities, beginning with San Francisco. However, once they’d set up in San Francisco, they found the city fathers would not grant them any special access to parking spots.

Without ready access to parking, their effort was a bust and they were forced to suspend, not just their expansion into San Francisco, but North America as well. “We fully expect to return once the city reforms its parking policies to allow for one-way car sharing,” said DriveNow CEO Richard Steinberg. “In the meanwhile, we are focusing our efforts on new cities where our transportation solution can flourish.”

The problem is that in nearly all American cities, taxicab companies inevitably enjoy longstanding, very cosy relationships with the local government, reinforced by decades of political contributions and the occasional backhander. As a result, the city governments and transportation authorities, will often obstruct efforts by car- and ride-share groups. Rideshares have taken their case to the courts and repeatedly won. While car-sharing hasn’t been successful in San Francisco, rideshares have been so successful the local Yellow Cab has had to declare bankruptcy.

Different challenges

With car-sharing, the situation is different. A number of distinct patterns are beginning to emerge. The different carmakers are all exploring different approaches. Several are offering friendly deal packages to selected drivers in certain locations to buy their cars, which will then be made available for prospective car-share customers.

It is somehow doubtful that automakers sponsored peer-to-peer car-share schemes will go very far. There is simply too much working against it. The peer with a car to share is simply at the mercy of the peer who may be a bad driver and other adverse circumstances. They’ll find that the cost of insuring such a car to be high, possibly prohibitively so. Ultimately the carmaker will use it mainly as a means of testing the local waters and once they’ve established sufficient presence in a particular market, they’ll ditch the schemes and replace them with their fleets.

It will probably be the same with the ride-shares. Despite their initial victories against taxi companies, their victory will prove short-lived. Taxi companies will simply bounce back using their own versions of the smartphone apps that brought them down. Fleet operations have numerous advantages over individuals. Fleet operators know how to best wrest every single penny of profit from a vehicle. They know where all the economies lie, how to get the best deals on vehicles, insurance, maintenance. They know exactly how long to keep a vehicle, before replacing it with a newer one. 

For a car-share to enter any particular urban market, they have to come in with hundreds of vehicles, just to establish a presence. For this, it helps to already have a tight relationship with a carmaker. This is why nearly all car-shares are almost a subsidiary of a manufacturer. The one big exception is ZipCar, which is a subsidiary of the car rental giant Avis.

GM has a similar pilot programme called Maven in Ann Arbor, Michigan, into which has been folded similar car-share operations programmes in New York City and Chicago. Unlike ZipCar and car2go, which both operate on a membership basis, Maven operates on a flat rate of $6 an hour with no membership fee.

Ford is trying out a hybrid concept in the Bay Area, and several other major cities, that involves providing pre-screened drivers with specially financed vehicles. They in turn make the vehicles available for short-term rentals using Getaround, Ford’s own smartphone-based app for locating, booking and unlocking vehicles. 

Audi is adopting a two-pronged approach for car-sharing. In the US, Audi is operating a joint venture called Silvercar, based in Austin and operating out of a growing number of airports. Silvercar operates a fleet of Audi A4, one of Audi’s premium models, all of them silver. Customers download the Silvercar app then when they want a car, they simply reserve it via their smartphone. Then, when they’ve arrived at the airport, rather than go to a checkout counter, they go to where the Silvercars are parked, use the app to unlock one and off they go.  While driving, they will get to enjoy a premium car experience, with wi-fi, GPS, satellite radio and other top amenities and the car will automatically take care of any tolls they may encounter and they’ll only pay for the gas they use, plus a small fill-up fee.      

Meanwhile, on the other side of the Atlantic, Audi has another, very different car-share operation being tested out called Audi Shared Fleet, which is being offered to corporations for use by its executives. Under the scheme, a client will contract for a certain number of premium Audi vehicles, which will be parked on its premises. Employees who need to meet clients off-site, can check one out and use it. If they wish to use the vehicle after hours can do so.

According to Audi company spokeswoman Christine Maukel, the vehicles are being offered under two options. “In the ‘lease car’ option, the offer is based on a leasing contract. Here liability insurance and comprehensive insurance are defined by the company itself,” said Maukel. “In the pay-per-use option, we provide the cars, including the insurance. This also cover private usage.”

Maukel said that at present Audi Shared Fleet is operating only in Germany but that they are closely looking at expanding their operations to other countries.