The way people move from place to place keeps changing. In the 1800’s, the best way to travel long distances was in boats along natural waterways. Horses, wagons and carriages sufficed for smaller journeys. Next came trains, steamships, electric-trolleys, gasoline-powered automobiles and airplanes. Today, we are in the midst of another transportation evolution. Spurred by technology innovations and the Internet of Things, people are redefining the relationships they have with cars.
New attitudes, urbanization and economics are transforming the automotive industry in ways we are only beginning to understand. Will ride-sharing, autonomous cars and other new methods of transportation herald the end of car ownership? Maybe, maybe not. But automobile manufactures aren’t passively waiting to see what happens. Instead, many industry leaders are re-imagining and expanding their business models in an effort to meet the current and future needs of all consumers.
For people living in densely population areas, driving a car can be a hassle. Rush-hour congestion, limited parking, fluctuating gas prices and safety issues, to name a few, are causing drivers to look for new solutions. Riding sharing, for example, is now a billion dollar industry. According to one industry statistics, if you combined all the Uber rides from the past 5 years you could road trip to Saturn and back (Rideshareapps.com). Another new trend is the auto version of the gig economy: renting out personal cars in order to recoup the cost of ownership and generate additional income. Similar in concept to Airbnb, car owners can cover their payments by renting out their cars just nine days per month, according to car sharing company, Turo.
Then, of course, there’s the on-demand, driverless vehicle. Fully autonomous vehicles will dramatically improve rider safety, reduce traffic congestion and provide an unprecedented level of convenience. Much progress is being made on the technology behind driverless cars. In a recent interview, Tesla Motors CEO, Elon Musk, predicted that in 10 years most new cars will be fully autonomous. However, the next step to realizing the benefits of self-driving cars will be making all the pieces work together including vehicle systems and the infrastructure.
Bigger Business Models
Car manufacturers are following the changing car ownership dynamics closely and responding by launching their own innovative services. Consider these new services:
- Toyota has partnered with Getaround to help Lexus owners subsidize the cost of their car by renting them through Getaround’s car-sharing platform.
- BMW recently launched its ReachNow service that is a combination of ridesharing and car sharing.
- General Motors has partnered with Lyft to offer a rental program for drivers without cars. Workers that want to be Lyft drivers, but don’t have a car, can get a short-term rental to use for ride sharing purposes.
Some industry analysts see these new services as a shift in business strategy, pointing to the fact that car manufacturers are moving from selling products to delivering services in order to head off a possible drop in ownership. In reality, however, manufacturers are expanding their businesses to include both products and services. It is not about old business models or new business models, but about bigger business models. In a Business Insider interview, former CEO of Ford, Mark Fields explained how Ford’s business model used to be based solely on number of vehicles sold. Now, the company is looking at how it can also be around vehicle miles traveled. By adding services, manufacturers move from relatively high-cost, low-margin vehicle manufacturing to leveraging that vehicle to deliver mobility as a service as well.
When autonomous vehicles become a reality, even more opportunities likely will open up for manufacturers. Consider autonomous fleets of vehicles. Rather than creating an inventory of cars ready for sale, manufacturers would have an inventory of cars ready to provide services, similar to current rental car companies. These self-driving vehicles would see greater usage along with greater wear and tear. Therefore, vehicle turnover may be higher than today’s ownership model – perhaps requiring cars be replaced every 2-5 years versus the average 12 years of current cars. Autonomous fleets may also spawn entire new businesses such as vehicle recycling in which components are removed and reused.
A third category of possible new services enabled by self-driving cars are those used inside a vehicle. In a report by Intel, self-driving vehicles are expected to free up more than 250 million hours of consumers’ time each year. New consumer-oriented applications and services aimed at taking advantage of this free time are expected to generate $200 billion of revenue (Intel, Passenger Economy). Harman International Industries, for example, has proposed replacing a vehicle’s windows with wrap-around video screens to create a movie theater inside the cabin.
The size of this emerging market has attracted a wide variety of competitors. On one side are car manufacturers who already have access to the vehicle, are using digital data for car operations, and have the R&D budgets needed to support the development of breakthrough services. On the other side are technology companies such as Apple and Google. These technology giants are looking to replace in-vehicle technologies with applications from hand-held devices. This may be the prevailing strategy considering that consumers are already comfortable using applications on their phones. Also, smart phone manufacturers are years ahead of vehicle manufactures in terms of developing connectivity applications and digital IDs.
Across all industries, the digital economy is blurring the lines between product manufacturers and service providers. Industry leaders are harnessing new technologies and data to meet changing customer demands, and car manufacturers are no exception. Car manufactures are re-imaging what the future will look like and are taking steps to embrace a new business reality. Eventually, it may be impossible to distinguish between companies that manufacture products, deliver services or provide enabling technologies.