Fasten Your Seat Belts: Carmakers Prepare for the Biggest Change Since the Model T
Business + Economy

Fasten Your Seat Belts: Carmakers Prepare for the Biggest Change Since the Model T

© Mike Blake / Reuters

Ever since Henry Ford built the first mass produced car, the Model T, in 1908, the auto industry has followed one simple model: Design, build and sell. But the popularity of ride-sharing services like Uber and Lyft, combined with the emergence of self-driving cars and the reluctance of millennials to purchase vehicles, is causing a fundamental shift in that model.

Slowly but surely, car companies are evolving, no longer seeing themselves as just purveyors of vehicles for individuals to buy and drive, but as mobility companies. Sure, they’re still producing cars to sell you. But they’re also building up other lines of business to cater to customers who aren’t interested in driving or having their own car.

Until recently, it was rare for an auto manufacturer to launch a startup that targets non-buyers of vehicles, but that's changing rapidly. Several auto manufacturers, for example, have recently launched programs to join the sharing economy. These types of initiatives were highlighted at this month’s Consumer Electronics Show and made headlines during the press preview of the North American International Auto Show, which opened to the public yesterday. A separate exhibit there, called AutoMobili-D, is focused just on future innovations in mobility.

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"We expect to see changes in the way people use transportation. Auto manufacturers need to be able to address that change and see how it will impact their business model and not be left behind," said Stephanie Brinley, a senior analyst at IHS Automotive.

General Motors
GM launched a car-sharing serving service (which it calls a “personal mobility brand”), Maven, in January 2016; it's now in 15 major U.S. cities. Users merely download an app and register to become a member. Customers reserve a car through their smartphone, picking it up at a central location. The vehicles themselves are also locked and unlocked through a smartphone, while a push button starts the engine. So far, 20,000 rental customers have used the service.

"We're pivoting to and building on this 100-year history of design, build and sell to now distributing vehicles to access them on demand," said Peter Kosak, executive director of global urban mobility for General Motors. "If this will be an alternative to vehicle ownership or a supplement, we have to be able to [provide] it," Kosak said. Offering mobility as a service is "just good business for us," Kosak said. The market for those who need a car but can't own one is bigger than the owner pool, he added. 

Last year, GM also began deploying lightly used former rental vehicles and off lease vehicles to Lyft and Uber drivers who don't have or don't want to use a personal vehicle for driving passengers. The drivers can pay a weekly rental fee, or if they complete 65 or more rides a week, there's no charge to rent the vehicle.

Ford Motor Company
Ford last September acquired a ride-sharing startup in San Francisco called Chariot, which supplements or competes with public transportation options by offering commuters in cities on-demand Ford Transit shuttles. Ford CEO Mark Fields announced on Monday that the company, which currently operates in San Francisco, will expand to eight new cities this year.

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“Bill Ford was the first to say 'if we keep doing business as usual, we'll go out of business,'" said Alan Hall, a Ford spokesman. Designing and building cars and trucks will remain a strong market, he said, but "there are new opportunities for us to serve cities where people don't own cars." He said it's crucial to provide options for customers who aren't interested in buying a car but still need transportation. "It's a whole new business for us with new sources of revenue," he said. The involvement in ride-sharing also positions carmakers to take advantage of self-driving vehicles, which might ultimately be brought to market under a similar sharing model. Ford intends to produce a fully autonomous vehicle in 2021 that will provide ride-sharing and ride-hailing services in cities where residents are inclined to use those services.

Racing for Customers
At CES last week, Honda announced a concept ride-sharing vehicle, the Honda NeuV (New Electric Urban Vehicle). It’s intended to be privately owned but also function as an automated ride-sharing vehicle, picking up and dropping off customers at local destinations when the owner isn't using the car.

Similarly, ReachNow, a wholly owned subsidiary of BMW launched in April 2016, allows customers to use an app to locate a nearby BMW vehicle and keep it for an unlimited time, paying for the time used. When finished, customers drop it at any BMW "Home Area." The program is offered in Seattle, Portland and Brooklyn, New York. ReachNow also has a pilot program underway in which a customer can use an app to summon a BMW 3 Series with a driver to get them to their destination. The company is also partnering with a residential building in Manhattan to allow apartment dwellers access to BMW cars. A pilot program in Seattle called Share allows MINI owners to rent their vehicles when they don’t need them for at least two days to help offset the cost of car ownership.  Steve Banfield, ReachNow's CEO, said the company will be continuing to expand these programs "to provide a complete ecosystem" so a ReachNow member (there are 40,000 to date) has a choice in how to get around based on their needs. "It's important for BMW to be at the forefront of offering these services," he said.

Audi
Audi's on demand service, available in San Francisco, is intended to provide a luxury rental experience. After you reserve a car through an app, it's personally delivered to your door by an Audi "concierge." "We see the evolution of the sharing economy as a big opportunity now and in the future, and we're gaining valuable insight on consumer behavior with the introduction of the Audi on demand service," said Maria Bittner, Audi Mobility's business manager.

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Another upside of the sharing economy is that if consumers have a positive experience with a manufacturer's car, they may consider buying that brand if they eventually do decide to purchase their own vehicle. Banfield said though ReachNow's goal isn't to sell more cars, providing broader exposure to BMW's aspirational brand has its benefits. He points to some ReachNow customers who drove an i3, then headed to their local dealership to lease or purchase one.

In addition to young people, Baby Boomers — more than 75 million of them — are another big potential market that carmakers could tap through ride sharing. As older people find driving more challenging, they will welcome the chance for a safe, easily accessible mode of transportation, said GM’s Kosak. Plus, he said, unlike taxis, Uber is considered "cool."

But Ivan Drury, a senior analyst with Edmunds.com, points out that it's not yet clear whether this type of business will be successful for carmakers. "It may appeal to some, but we have yet to see a really good experiment or mass scale version of this," he said. The utilization rate is just a few hours a day and there aren't large numbers of owners willing to give up their car entirely, he said. Plus, wear and tear can become an issue when one vehicle is being driven so much, potentially resulting in more repair and maintenance expenses.

That doesn't seem to be dimming automaker enthusiasm. Now that more are entering the car-sharing space, "you have to go after it as fast as you can," Kosak said, since there are first-mover advantages. The goal for GM and other companies is to get consumers to download their app instead of a competitor’s. "It's a very high opportunity space," Kosak said, “and that's why we're moving so quickly right now.”

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