Carmakers waking up to other ways of making cars pay – Part I

With the Millennial generation just now moving into their prime earning years, they are beginning to demonstrate how different they are from Generation X and the Baby Boomers.

Already it's becoming clear they are spurring a profound disruption that will, in the near-term, dramatically reshape key aspects of the American economy. And probably nowhere will the disruption be greater than with the automotive industry.

For more than a hundred years, owning and driving one's own car has been a cornerstone of the ‘American Dream’. But if recent studies are to be believed, more and more Millennials aren't buying into that part of the dream. They're holding off on buying cars and each year fewer and fewer bother getting driver's licenses. What doesn't diminish, however, is their need for mobility. To meet this and other changes taking place right now, the automotive industry is undergoing a fundamental redefinition from simply building cars to 'providing mobility.'

Unlike Baby Boomers and Gen-Xers, who grew up during times of relative prosperity, Millennials have come of age in an era of marked economic decline and limited opportunity. Many have known nothing but freelance contracting jobs and have little expectation of the situation ever changing. Under such circumstances, many consider home ownership an unrealistic goal. As for buying a new car? With an income flow tending toward the irregular, many probably view owning a car as both too expensive and too big a drain on their monthly earnings.

Although popular culture likes presenting American Millennials as narcissistic and seeking instant gratification, studies show them to be surprisingly pragmatic, financially responsible, highly flexible and often willing to make significant sacrifices in order to meet their long-term goals. According to a recent Goldman Sachs study, many Millennials in their twenties are still living with their parents and are putting off significant milestones such as love, marriage and having children.

But perhaps what really separates Millennials from their predecessors is their cognitive ability to keep separate the idea of owning something with that of having access to the capability which that thing represents. The most obvious example might be with music. For Baby Boomers and Gen-Xers, recorded music isn't really real unless it is in some tangible form, such as a CD, a cassette, or a vinyl LP. Likewise with books and films. Unless they can hold it in their hands and display it on a shelf, it's simply too ephemeral to be considered real. Millennials, on the other hand, don't require music or movies or books to possess physical forms. Music, movies and books are simply something to download from the web onto a computer or mobile device. Millennials don't care about the object, they just want the capability.

This preference of access over ownership is fostering the rapid growth of what is called the ‘sharing economy’. It exists in many forms and is defined as “a class of economic arrangements in which participants share access to products or services rather than having individual ownership”. Its big advantage is that it allows the optimum use of resources through the redistribution, sharing and reuse of excess capacity in goods and services. It exists in many forms and is often done on a peer-to-peer basis. Young people wishing to travel, while not having to shell out all their money on hotel rooms, have turned to 'couch surfing,' for a fraction of the cost of a hotel. This phenomenon has existed for years, of course, with connections made via bulletin boards and newspaper classified ads. Couch-surfing has given rise to Airbnb, and along with it, dozens of other companies all dedicated to facilitating peer-to-peer arrangements, for things ranging from dog vacations, bike rentals, food purchasing, to wi-fi sharing. These are proving so popular that the global sharing economy is currently put at $15Bn (£10.42Bn) and is expected to balloon to $335Bn over the next ten years.

Of course what's driving the value of the sharing economy upwards so dramatically isn’t companies providing dog vacations or wi-fi sharing but those offering mobility, specifically car- and ride-sharing.


Uber, whose general manager Christof Weigler will speak at Telematics Berlin 2016, and Lyft, both headquartered in San Francisco, provide ride-sharing. Though they are, by far, the best-known ride-share providers, there are easily dozens more like them. Uber was founded six years ago with a handful of cars it didn't own and drivers who weren't employees. At the time, its founder Travis Kalanick described Uber as “more a lifestyle than a company”. What it really was, was an app that could be downloaded onto a smartphone which would efficiently enable riders to find drivers and drivers to find riders. Today it operates in over 300 cities worldwide with over 200,000 drivers who have by now provided over a billion rides to millions of people who have downloaded the Uber app on their smartphones. Their last known private valuation put them at $62.5Bn. Nevertheless, Uber still possesses almost no hard assets, other than an algorithm that connects customers with drivers. Recent investment includes $1.2Bn from the Chinese web services company Baidu, which, among other things, plans to improve Uber's integration with their own mapping apps.

Lyft's business model is much the same as Uber's, although it is still a much smaller operation and has not yet spread globally. It has recently received $2Bn from investors, including $500M from General Motors. Lyft has also received sizeable investment from the Chinese ecommerce firm Alibaba.

While Uber and Lyft are clearly competing with each other, it is, however, a war fought mainly at the top. Lift's and Uber's driver are all independent operators and no small number drive for both companies. Their real competition are the taxicab companies, which, they'll tell you, have operated as near- monopolies for years, owing to favourable regulations and often very cosy, informal relations with members of the local governments and licensing authorities. As a result, Uber and Lyft have repeatedly had their legality challenged. In a number of markets, Uber and Lyft drivers were barred from getting multi-visit access permits that regular taxicabs were issued for bringing passengers to and from local airports. Courts, however, have repeatedly found in favour of the ride-share operations.

Yellow Cab, Uber's main opponent in San Francisco fought a hard battle against the ride-shares and has ultimately lost. Having been saddled with several multi-million dollar accident liability cases, they have recently filed for bankruptcy protection, although they claim their aim is solely to reorganise their debts. Yellow Cab has also adopted a number of strategies used by ride-shares such as smartphone hailing.

“Ride-sharing will work if you can come in with a lower price point and get the user to the front of the line,” says David Mahfouda, CEO of Bandwagon, which has developed an algorithm that provides shared-rides that are nearly as fast as ones for single passengers. “If you can save them $20, they'll take the chance.” Daniel Ramot agrees, He is the co-founder of VIA Transportation, which provides shared rides in luxury cars. “Would people prefer to have the vehicle to themselves? Sure,” he says. “But they're perfectly willing to share if they system is efficient and they know they won't be waiting for passengers. We make sure that they have a comfortable vehicle, one that's more comfortable and gives a better ride than your average Yellow Cab.” Ramot says VIA has provided over a million rides to customers in New York City over the last two years.

Continued in Part II

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