New mobility services such as ridesharing and carsharing have already impacted people’s transportation choices. In fact, on-demand mobility services are poised to be the fastest growing market segment in the transportation industry. With autonomous cars looming on the horizon, the era of autonomous transportation is just around the corner.
The California legislature this spring legalized the testing of fully autonomous vehicles, which means testing these cars won’t require having a driver present. Google’s Waymo is launching the biggest fleet of autonomous cars ever in Arizona. And, most recently, Intel announced that it is building a self-driving car system.
Most conversations about autonomous vehicles simply focus on how comfortable people are with the idea that cars will drive themselves. What also needs to be discussed is the larger implication of autonomy and how it will impact car ownership.
Consider this: traditional vehicle ownership is incredibly inefficient. Studies estimate that on average a privately-owned vehicle is parked 95% of the time. Add in the cost of maintenance, insurance and parking – both the actual cost as well as the time spent looking for a space in urban areas, and it turns out that owning a car is quite expensive for the small amount of time it’s being used.
Given how the costs of using your own vehicle can add up, it easy to see why the popularity of on-demand ridesharing services has exploded recently.
Getting a ride in an Uber or Lyft to dinner is a nice complement to personal car ownership, but remains too costly as an option for total vehicle replacement in most parts of the world. For the average person to commit to using ridesharing or carsharing exclusively, the cost of doing so will need to drop below the cost of vehicle ownership.
Autonomous vehicles will change the cost structure of ridesharing dramatically. With autonomous ridesharing, the cost of the driver is removed from the equation. When the cost of using ridesharing becomes significantly less expensive than owning a car, personal car ownership will begin to decrease with people choosing to pay for their transportation as they consume it.
As fewer people buy cars, we can expect businesses associated with vehicles to decline as well. In the same way that record stores and the local video rental shops have given way to on-demand music and video, automotive manufacturers and the dealerships that sell and service vehicles will face a similar transformation. They will have to adapt to the new world of vehicles-as-a-service or risk becoming obsolete.
Early adopters from automotive dealerships have already begun to embrace the opportunity to capitalize on a world of new mobility. Here’s why they are ideally poised to do so.
1. Auto dealerships know their local markets. Mobility is a local business. As global companies look to launch mobility services from remote locations, they need the local market knowledge. Carsharing leaders have had to pull back from markets because of challenges working with the local government or the poor adoption of their services due to a bad product market fit or an incorrect choice of car models. Local dealers know their customers and the cars that appeal to them. They can more accurately anticipate regional demand and stock their inventory with the vehicles that customers prefer.
2. Auto dealerships can manage fleets. Today, much of a dealership’s revenue derives from authorized repairs to customers’ vehicles. At first, it may seem that the need for repair services will decline as fewer people purchase personal cars. However, utilization on shared cars will be 3 to 10 fold that on a consumer vehicle (or more!). Without drivers to keep up their own ridesharing cars, carsharing service providers will need to manage and maintain their own fleet of vehicles. Dealership are very well positioned to pivot from maintaining privately-owned vehicles to the upkeep of autonomous fleets, preserving their service department and its revenue stream.
3. Auto dealerships have an inventory of vehicles waiting to be sold that can be rented. Dealerships have an inventory of vehicles that sit idle most of the time. Put into service, these cars can be added to the mobility fleet and make money for the dealership. This is not a foreign concept for dealerships, as authorized dealers have long embraced offering vehicles-as-a-service through leasing programs. There’s not much difference from committing to rent a vehicle for a few years through a lease rather than by the minute or mile through a carsharing or ridesharing program.
For a dealership to adopt this business model, wireless telematics hardware will be needed to allow customers to locate the vehicles and lock or unlock the cars via a smartphone. As these aftermarket boxes and the corresponding wireless connectivity come down in price, there is a low barrier to entry to prep vehicles for a carsharing fleet.
Each fleet vehicle has the potential to earn more than $100 each day, which offers more earning potential compared to rental cars or the few hundred dollars a month for leasing the car to one private individual.
4. Auto dealerships can partner with automotive original equipment makers.
Dealerships could partner with OEMs. Using a platform like Ridecell would allow the OEMs to provide business and manufacturing expertise and a national or international mobility brand. Dealerships would provide local expertise or operate the service for the OEMs like a franchise model where they share the risk and rewards.
5. The future is all about alliances.
When consumers travel, they seek continuity and seamlessness from their service providers. Alliance models, like the ones used by airlines, are key to offering this kind of easy experience.
With an alliance model built into their service, dealerships would be able to let their customers use mobility services from other dealerships in other cities, eliminating the need for the customer to discover and download each city’s dealer-operated mobility service.
Within the same city, dealerships can also partner with other mobility providers. When a customer requests a car but the nearest car is a long walk or wait for the customer, the service would search for nearby cars from an alliance partner and quickly accommodate the request.
We are continuously presented with new opportunities to reap the rewards of the latest and greatest technology. Do we even remember life before the internet or our smartphones? Soon enough, we will recall personal vehicle ownership in the same way, and it will be up to dealerships to decide if they’ll come along for the ride.
Author: Aarjav Trivedi, CEO and Founder, Ridecell