Ride Sharing, Autonomous Vehicles and the predictable crash of the Consumer Car industry

September 21, 2016 | Posted in: Business, Economics, Technology

Within the past year, mobile car services like Uber and Lyft have threatened to eclipse limousines and taxis as the transportation option of choice to and from DFW International Airport. Together Uber and Lyft tallied 107,437 rides to and from DFW airport this past January, compared to 68,871 taxicab rides and 47,188 limousine rides. Uber and Lyft show no signs of slowing down as, within the past six months, their collective share of the airport market increased from 1/6 to nearly 1/2 of all rides. Frustrated by their competitors’ meteoric rise to popularity, beleaguered Dallas taxi drivers are in the process of suing the airport for refusing to bar Uber and Lyft from the market.

The mobile car service contagion has precipitated similar upheaval worldwide. In London, an alliance of taxi drivers attempted to sue Uber in 2015. They later abandoned the suit after failing to raise adequate funds to initiate proceedings. Uber also has been legally banned in Hungary, Italy and Spain, and Uber offices have been raided in Hong Kong and Chongqing, China under dubious allegations. It is clear that global transportation systems are struggling to accommodate the rapid rise of mobile car services. Although Uber has cost many of the world’s taxi drivers their jobs, its consequences may extend far beyond taxis.

I believe that over the next twenty years, this technology will stimulate a paradigm shift in the global transportation network to create an economic reality whereby most consumers no longer purchase cars for personal use. According to urban economist Donald C. Shoup, the average car spends 95% of its time parked (see his book, The High Cost of Free Parking). Although the owner only uses his/her car 5% of the time, he/she is paying for 100% of its lease, insurance, and gas costs, and the city or local developer picks up 100% of the parking costs because of zoning requirements. Monthly car-related expenses for the average owner add up to approximately $760 per month, according to a 2013 AAA survey. Combined with Shoup’s conclusion that cars spend 95% of their time parked, the AAA’s finding indicates that the average car owner spends $722 a month on unused driving time. This is precisely the economic inefficiency that Uber and Lyft have exposed and exploited.

Traditional car ownership is not only needlessly expensive but also increasingly uncommon among younger generations. The Pew Research Center’s 2013 report on young adults noted that the rate of car-ownership among households headed by an adult 25-year-old or younger declined from 73% to 66% between 2007 and 2011.

A 2012 Frontier Group report also found that the average annual number of miles driven by American 16 to 34-year-olds dropped 23% between 2001 and 2009. During the same time frame, millennials took 24% more bike and public transit rides. This decline in car-use coincides with the shift to lower homeownership rates and lowered affinity for the suburbs among millennials. It also coincides with the ascent of the smartphone over the car as the liberating technology of the day. As Clive Thompson, longtime contributing writer for the New York Times Magazine and a columnist for Wired, put in his article, “No Parking Here,” “For today’s young people, the mobile phone is a much more potent technology of autonomy and social status [than the car].”

The efficiencies of Uber are not just being leveraged by Uber’s faithful. Tech companies are currently experimenting with widely different, ride-sharing business models through pilot programs. Uber’s carpooling offshoot, Uber Pool, matches passengers traveling in the same direction to a single car. Uber Pool fares are at least 25% lower than those of regular Uber, and the app has become so popular in San Francisco (where Uber is headquartered) that nearly 50% of all Uber rides in the city are “pooled.” Uber Pool, like the original app, charges its customers according to the ride length and distance. Google has adopted a different approach to mobile carpooling via its internally developed Waze Carpool. The carpooling function, an extension of the original Waze traffic navigation app, allocates one driver to one rider. Waze Carpool is currently exclusive to 25,000 employees of Bay Area companies, which include University of California San Francisco, Adobe, and Walmart, and is only used for rides to and from work. While Uber Pool calculates charges based on the time and distance of trips and, ultimately, generates profit for Uber, Waze Carpool charges its riders a flat rate of $0.54 per mile, which only covers the costs of the trip.

A third business model for ride sharing, fractional car ownership, is somewhat of a hybrid between Uber’s purely capitalist model and Waze’s more socialist model. Fractional car ownership represents a “timeshare” divided between multiple people. Ford and Audi have rolled out shared car-leasing programs, called Ford Credit and Audi Unite, respectively, that allow groups of three to six people to collectively own a car. An obvious advantage of this approach is that it puts luxury car ownership within grasp for many more people—imagine going out to dinner in an Uber and driving back in a Lamborghini. However, due to limited market exposure, fractional car ownership has yet to experience the success of traditional mobile car services.

Although we do not yet know which business model will prevail, the car in your driveway could soon be an anachronism. Mobile car services and their ride-sharing brethren are clearly the transportation mode of the future.

Scott N. Beck, a Dallas Texas Greenhill alumni, received a Masters of Accounting from the McCombs School of Business at the University of Texas at Austin where he completed his B.B.A. Mr. Beck is a member of the Board of Directors of United Texas Bank and is President of Beck Ventures.

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