Bacon's Rebellion

Democracy Thrives in Sunlight

Car Sharing Cuts into Automobile Ownership

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by

James A. Bacon
in

BMW, Ford and other auto manufacturers are pushing shared-rider automobile services, especially in congested European cities. The practice is spreading to the U.S.
BMW, Ford and other auto manufacturers are pushing shared-rider automobile services, especially in congested European cities. The practice is spreading to the U.S.

by James A. Bacon

The spread of car sharing could erode automobile sales and automobile ownership in the years ahead, according to a new study by AlixPartners, a business advisory firm. The study, which surveyed 1,000 licensed drivers in 10 developed car-sharing markets and 1,000 drivers nationally as a control group, found that car sharing appears to be displacing vehicle purchases at a rate of 32 to 1 (one car-sharing vehicle displaces 32 vehicles purchases) — more than double the rate suggested by previous studies.

So far, car-sharing services such as ZipCar, FlexCar, RelayRides and Hubber have eroded automobile sales by approximately 500,000 vehicles. As the business model spreads to other markets, it could reduce automobile purchases by an additional 1.2 million cars through 2020, the study concludes. “While the approximately 500,000 vehicle purchases avoided to date is itself a large number,” said Mark Wakefield, leader of AlixPartners’ North American automotive practice, “this study suggests that car sharing nationally could scale up as these 10 markets have, and if that happens, the impact on the traditional automotive market could be explosive.”

The merger of Zipcar and Flexcar in 2007 is thought by many to have ratcheted up the commercialization of car sharing in North America. The recent advance by larger corporations — including Avis (which bought Zipcar), Daimler, BMW and Enterprise — into car sharing suggests that the industry is accelerating up an adoption S-curve, according to the study.

According to Wakefield, while smartphones and increasing urban density have driven adoption thus far, automated and driverless cars could be key enabling technologies for car sharing to grow well beyond the current early-adopters.

“Car sharing could really get traction as smartphone and automated-vehicle technologies pave the way for new mobility systems throughout America and much of the world,” said Wakefield. “In the future, automated and, especially, driverless cars could be the killer apps for car sharing.”

Bacon’s bottom line:

Insofar as Americans voluntarily embrace car sharing because they find it provides more affordable transportation value, it’s a good thing. Taking cars off the road ameliorates congestion and reduces the demand for parking spaces, which consume valuable urban space that could be dedicated to higher and better uses. Local governments can encourage the spread of car sharing by leasing on-street parking spaces to car-share companies like Zipcar at a reasonable price.

Realistically speaking, car sharing is unlikely to amount to anything more than a niche market for several years. If AlixPartners is right, car sharing will reduce car sales by 200,000 vehicles per year on average over the next six years — a rounding error in a U.S. auto market that generated 15.6 million in sales last year. But imagine the impact that driverless cars would have on the market. Instead of hoofing it to a location blocks away where the cars are parked, you could summon a car by smart phone and it would drive to you. That would make the value proposition significantly more attractive. Smart growthers are salivating at the prospect that the economics of urban transportation will be transformed, making urban lifestyles more attractive by comparison. They may be right.

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4 responses to “Car Sharing Cuts into Automobile Ownership”

  1. larryg Avatar
    larryg

    I’m a skeptic – not because I do not think the technology is capable but because we under-appreciate the role of risk, negligence, liability and risk.

    think of the significance of the term – owner-occupied … in terms of these issues.

    think in terms of what Hertz or Avis has to do to make sure that the “customer” is “fit” enough in the renters eyes to rent?

    zip cars and self-driving cars will not survive as “anonymous”, “rent-to-anyone” business models.

    just because you can “deliver” an “on-call” zip car to anyone anytime – does not mean you really want to rent to anyone …

    we have these same issues with Uber and with the concept of people renting their personal cars out at airports while they are away.

    we often say that government cannot cope with how fast technology changes and sometimes that is true but I would assert that business models can have the same issues.

    those companies will have to develop business models that will figure out how to ferret out those who should not be renting your cars to start with.

    Anyone who has traveled probably has experienced how Hertz or Avis not only verifies who you are, but your driving record, your insurance, your credit-score, etc… before they will rent you a car. there’s a reason why they do this.. and it’s called keeping your costs under control by limiting your risk and losses from known threats.

    don’t think that a credit-card is sufficient to determine identity for purposes of renting a zip car or calling up a self-driving car.

    this is not about technology or even government or crony capitalism cartel regulations; this is about something as old as ‘renting’ has been around… and that is – there is often a good reason why someone is renting instead of owning to start with – and your job as a business model is to separate out the ones who are to be trusted because they rent because of their legitimate need and those who rent – because they cannot own for good reason, like they .. cannot get insurance.. etc. or had their cars repossessed…etc…

    I’d predict that zip car type services will soon (if not already) require substantial verification of insurability….and how exactly will you do that if the renter doesn’t own a car and has almost no driving experience?

    how will insurance companies assemble driving reputations of would be renters who do not own cars?

    it’s not the technology that is the issue, IMHO of course.

    1. CarSharing Avatar
      CarSharing

      The technology does allow better risk management decisions. Imagine that drivers can produce a “trip log” for the previous year (or more) documenting number of trips, number of hours driven, time of day travelling, locations (urban, rural), acceleration and braking data. Today, carsharing companies are like traditional rental car companies that charge the same price to all clients. In the future, drivers will be able to present the data that will allow asset-renters and insurers to make better decisions about risk pricing.

  2. larryg Avatar
    larryg

    I think the key phrase here is “can produce”. It’s optional and it’s the would-be insured own words as opposed to a certified driving record.

    All of us take a lot of this for granted. we never even think about the interplay between the DMV – which authorizes your drivers license and compiles your driving history – and the insurance companies – who totally rely on that DMV function for their risk analysis and insurance decisions.

    We have libertarian-leaning folks who see and think generally that new technologies will lead to more/better free markets with consumers getting the upper hand on those nasty government regulations.

    so a little question. Who would do the DMV function and investigation and collection of traffic accident data in a more “proper” libertarian type world (according to the libertarian types)? Would it be some kind of a central registry operated by all the insurance companies and police would report tickets and accident data to them?

    these questions just scratch the surface of the interplay between private-sector insurance and government regulation of drivers – and insurance companies – who themselves without govt regulation could claim to be insurers but had no reserves or refused to pay claims, etc.

    Most folks, when confronted with the more detailed facts – back off the “we need a libertarian free-market idea and realize that it’s not unwarranted government regulations that the whole problem and further than new technologies are not going to circumvent the current govt/insurance framework.

    There might ultimately be changes – like we see with many industries – as a direct result of technologies that now make possible things that were not – before – but my bet is that the role of govt is not going to get turned over to the private sector and a truly libertarian envisoned “free market”.

    My impression of some Libertarian logic is that they either don’t know or refuse to acknowledge or just reject the fundamental concept of insurance – and governments role in it.

  3. larryg Avatar
    larryg

    I think the key phrase here is “can produce”. It’s optional and unsubstantiated unless there is some way to actually verify the history – as opposed to the current system where both the government and the insurance companies own and operate different parts of an integrated system for maintaining information about drivers (age, corrective-lenses, handicapped, etc), – operating behaviors and their accidents.

    with an owner-maintained log, it’s the would-be insured own words as opposed to a certified driving record/history.

    Most of us take a lot of this for granted. We sort of know the pieces and parts but we really don’t truly recognize the importance of the relationship between insurance companies and the government – especially the DMV role – but also the role of police in their collection of data from drivers behaviors and accident experiences. Right now, they report to the DMV who, in turn, reports to the insurance companies – and probably the Hertz-type companies via access to DMV databases.

    When you are at that Hertz or Avis counter – they are doing an exceptionally important but unnoticed function – when they ask you to present your drivers license – they are verifying that you are, in fact, the person on that drivers license.

    how do you do that in a “rent online” or “rent from your smartphone” world?

    We have libertarian-leaning folks who seem to see and think generally that new technologies will lead to more/better free markets with consumers getting the upper hand on those nasty government regulations and crony capitalism, rent-seeking and all those other nasty unholy alliances between government and favored companies or industries.

    I’m not saying it won’t work, it will – but it will work differently than it does now and I’m better that the role of government will not only not go away, but it will be as involved as it is now – with different, perhaps fewer or perhaps more, regulations – but we’re not going to see the government DMV role go away nor or we going to see the role of Government in certifying insurance companies themselves so that not every tom, dick and harry can set up some bogus company with “insurance” in it’s name.

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