Tim Higgins wrote an article for the Wall Street Journal (June 20, 2017) entitled, “The End of Car Ownership.” If you recall our article about the coming Apple Car then you’ll recall that we’ve mentioned the theory before. While it’s hard to imagine an end to the American love affair with owning a car, Higgins makes a compelling case.
Everyone, including Higgins, is crediting self-driving cars and ride-sharing companies like Uber and Lyft with the coming shift. It seems more likely that both of these are symptoms of a larger change in how we do things. But since we’ve already written extensively about both ride share and automated cars we’ll include them in our quick look at the end of car ownership. But first…
Before discussing a mega shift lets step back from the topic and give it a quick review. Culturally in America, owning a car was a rite of passage for young people. When you reached 15 you started learning how to drive and as soon as you could legally work you started saving for a car of your own. It was independence itself. A driver’s license is the way most Americans prove their identity and having a car meant your schedule didn’t depend on your parents anymore. Want to get a better job across town? Better have a car. Want to date your gal/guy? One of you needs a car. Want to hang with your friends? One of you better have a car. Having a car meant popularity, power, and freedom.
America has 46,876 miles of interstate, which doesn’t include State Routes and surface streets. The tenth amendment governs interstate commerce, which means essentially most of the power of the federal government is derived from the need to regulate what passes from one state to another.
Most of those people & items don’t go by rail like they do in Europe. Whether it’s Henry Ford’s Assembly Line innovation or the Detroit powerhouse of industry and economy cars are an American thing, synonymous with growth. Nascar is an American phenomenon founded by bootleggers trying to outrun prohibition revenuers. We are a younger nation and our cultural values involve the car. How does all that just go away in one generation?
It doesn’t. It’s actually been changing for a while now. As populations crowd into cities, property values explode and providing customer parking becomes a bigger expense for businesses. Mass transit costs can be shared across more wage-earners per mile. More residents live in high-rise apartments and condos without room for a garage. If you have to take a taxi to a separate place you rent so your car can live there, you tend to fall out of love. Or so I’m told.
The internet has also impacted things. Less business is conducted face to face through telecommuting and video conference but the mobility of internet access has had its biggest impact on young people who gain a sense of connection through social media instead of in person. People have been “cocooning” for over two decades. Pizza delivery nearly made pizza restaurants out of business entirely and now you don’t have to grab a VHS on the way home, the internet streams it to you. Amazon is seen as the great evil by private bookstores because they let you buy books online, but now everything is sold online and all brick-and-mortar stores are suffering. Malls are sitting empty because even when people go there to look at goods, they make their purchase online where it’s cheaper. Goods now move to the customer, not the other way around.
Society has become more litigious as well. Car insurance costs have risen, in part due to the rising cost of repair and in part the rising likelihood that you’ll be in an accident because roads are crowded and infrastructure is long neglected. The push to incorporate more safety features has created a base cost to manufacture of about $7,000. As the price climbs automakers throw in more features to increase the sense of value which makes cars more expensive, more likely to fail in non-catastrophic ways, and more difficult/expensive to fix.
While fuel costs are lower than they’ve traditionally been, our relationship with the Middle East is more tenuous than ever. Generation X was profoundly affected by the attack on 9/11. People are looking for less dependence and technology companies are seeing the writing on the wall.
While auto manufacturers are heavily invested in perfecting a product, tech companies understand the need to keep your finger on the pulse of trends. Cars are getting more technical and the need and desire to own a car is waning. That leads companies like Apple to invest heavily in the ability to expand into the car making business. That leads us full circle to rideshare and driving automation.
Traditionally, when you rent a car its because you’re traveling, or because your car is in the shop. Cars are the second most expensive thing a person typically buys. The first is a house and lots of people see renting a house or apartment as a long term option. They may harbor a quiet desire to own a residence, and only see renting as a matter of cost/benefit ratio, but few people thought that way about cars. But cars seldom sold for over $100,000 traditionally. Even in housing folks are turning to a more minimalist approach trying to avoid big debt during turbulent employment times. So finding ways to economize in automotive choices might get as creative as we’ve gotten with housing.
Why pay for a garage or parking space 24/7/365 when you only need the car a few hours a day? And much like someone might choose to rent an apartment when they aren’t sure how long they’ll be living in that location, or they might have to change houses as their family grows and shrinks, what we need a car for changes. A car share service could allow you to have a truck on the weekend to grab a load of bark dust for your yard, then get a mini-van for a trip to the beach, then a small sedan to commute to work. This concept is called a car subscription service and so far one start-up, called Faraday Future, is attempting to provide it.
This is why I held self-driving cars and rideshare until the end. There are several reasons often listed for their impact on car ownership but it’s more likely that car ownership is on it’s way out and these technologies are only hastening the inevitable. Availability of taxi and mass transit is an issue in cities below a certain size. Rideshare has made not owning a car a possibility in a lot smaller city because they’re cheaper than taxis their model works in places too small for mass transit. Self-driving cars drive the cost and complexity of owning a vehicle up. That’s really it.
When you combine self-driving cars with ride share you get even cheaper Uber for riders, but that’s really just more of the same impact. The rideshare model is only one type of car sharing anyway. There’s also literally renting your car to another driver.
So will cars become like boats, something most people own for recreation? Well, long before that happens, it’s likely to become like home ownership. More and more people will look at it as a source of expense, responsibility, and opt for the flexibility of a shared situation. But others will see it as an investment. For decades, single-family rental homes were owned by private individuals. Corporations stuck to multifamily type residences. In 2008, the crash created opportunities for banks to go into single family homes en masse. Likewise, while corporations like Tesla and Apple are hinting at fleet ownership with individual buying the product as a service, it’s likely that private investors will see their vehicles as an investment. Once they are able to make one car pay for itself they’ll buy another, and another.
Companies like RVShare have sprung up to combine the idea of Airbnb with the subscription based car sharing of privately owned vehicles. Car sharing service, Turo, is already working with cars and has had millions of people sign up for it already. They aren’t alone.
Lexus, by Toyota, has created Getaround in an attempt to convince young buyers to subsidize their payment by helping them find renters for their vehicle. BMW is experimenting in some markets with Reachnow, a subscriptions-based service where you get a BMW for a time and then drop it wherever when you’re done for a flat monthly fee.
The Economic Vacuum Drawing People toward Car Sharing:
We’ve discussed a number of forces that push Americans toward car sharing, but from a business standpoint, there’s a significant draw. The humble, in-car stereo, could soon step aside to other forms of entertainment, and I’m not talking about Satellite radio. In June, Intel released a study estimating that up to $800 billion could be made (by 2035) on what they call the “Passenger Economy.” When most commuters aren’t driving they’ll need to have something else to do and that could explain companies Apple trying to take the car plunge.
One industry sure to boost is alcohol. When driving isn’t a consideration anymore, drinking is likely to go up. So let’s toast to the coming robot taxi industry and all hope that they’re more accurate than the spell check on my cell phone.