Tag: mobility

Worry about Mobility, Continued

This week, we examine the fourth piece of McKinsey’s automotive revolution, shared mobility.  This is really a collection of trends including car sharing, ride hailing, and mass transit.  I will show how to gauge whether a new program has the potential to be disruptive.  But first, let’s dispense with mass transit.

From Munich, you can ride the U-Bahn to the Schnellbahn, and get anywhere in Europe by fast rail.  This is where McKinsey’s analysis shows its European bias.  Europe’s population density is three times that of the United States, and her various rail systems carry twenty times the passengers.

American cities are linked by air, of course, but relatively few have commuter rail systems.  When you deplane at Las Vegas, for example, or Orlando, you are headed for the car rental counter.

“What’s happening in general, millennials, younger people, car ownership in and of itself is not the most important thing.”

When I worked at BMW, twenty years ago, they were already styling themselves a “mobility” company, and not solely a car company.  At the time, that meant mass transit.  If you look at BMW today, their investments tell a different story.  I won’t try to categorize Fair, Shift, Skurt, Scoop, and ReachNow – not today, anyway. Today I want to talk about capacity utilization.

If you’re like most people, you drive your car to and from work, plus errands and recreation.  Let’s call it 20 hours of use for the 112 hours per week you’re awake, or 18%.  In theory, any mobility scheme that increases capacity utilization will cause a proportional decrease in car sales. There is a variety of schemes, known collectively as Mobility as a Service.

“The success of a MaaS provider will be determined by how much utilization they can gain from their accessible fleet.”

Uber is the obvious example.  It increases utilization for the drivers, and reduces the riders’ inclination to buy a car of their own.  I meet people every day who won’t buy a car, or won’t buy a second car, because Uber meets their occasional driving needs.  In major urban areas, people have long gotten by without cars.  The way I see it, Uber has widened this circle out into the suburbs.

Uber will also take a bite out of traditional car rental, as will hourly rental services like Maven. Maven is basically Uber without the driver, good for business travelers who just want to attend their meeting and go back to the hotel.  Business travelers I know will often choose Uber over Hertz, depending on the city.

“Millennials like having an easy process, but they hate commitment,” Bauer said. “I think the next step for leasing has to be no fixed term, or a different way of term.”

Here in Atlanta, we have two subscription car programs, Flexdrive and Clutch.  It is wonderful to live in the nexus of so much new-auto activity.  Flexdrive is a joint venture of Cox Automotive and Holman Auto Group.  You choose from a variety of vehicles, and your monthly subscription includes insurance, maintenance, and roadside assistance.

The average car payment in America is $500.  Depending on the figures you use for gas, insurance, and maintenance, your car costs at least $7 per hour of use.  This may sound fanciful, accounting for the car as a utility, but this is exactly the way a new generation of mobility providers look at it.  A monthly subscription of $500 is the price point advertised by Fair.  Zipcar and Maven hourly rates start at $8.

The chart above shows that car sales per capita have declined, in fits and starts, by about one in six over the last forty years.  This reflects trends like gradually increasing urbanization and longer-lived cars, which are minor worries for our industry.  Increasing utilization, through various forms of renting and sharing, has the potential to be a major worry.

How to Worry about Mobility

I was impressed by this article, How to Worry about Climate Change.  It was neither activist nor skeptical, but rather placed the threat in an appropriate policy context.  So, I was inspired to update my earlier post on the “mobility revolution.”

McKinsey has some new research out which, I feel, overstates the case.  The case, as you may recall, is that four trends will come together in some kind of perfect storm:

  • Electrification
  • Connectivity
  • Autonomous driving
  • Shared mobility

The best research on mobility is still this series of papers from the BCG.  Like me, BCG is reserved about the U.S. market.  I strawman McKinsey a little by focusing on U.S. car dealers.  Their focus is on manufacturers, with a European orientation.

The right way to worry about mobility is to ignore the interaction effects, and look at each trend individually.  This is where I differ from McKinsey.  They model three different outcomes – small, medium, and large – for each of the four trends.  This gives them eighty-one different scenarios to evaluate (consultants love this stuff).

Electric Cars

My local BMW dealer has a lot full of i3s and i8s.  Electric cars won’t change auto retail at all – service, obviously, but not sales.  This “revolution” only affects dealers if Tesla succeeds in doing it without a dealer network.  From my perspective, not having a dealer network is a weakness, and a sign that the company lacks confidence in its product.

Connectivity

It turns out Jacques Nasser was right.  Kids today will ride in a hamster box as long as it has satellite, wireless, navigation, and a sound system.  Gone is my generation’s enthusiasm for hemi heads and dual overhead cams.  No one drives a stick anymore, and the steering wheel will be next (see below).

Connectivity will change auto retail the same way electric cars will – new features to sell and service.  I have the BMW connectivity app on my iPhone.  Connectivity in terms of telematics will open up new opportunities for service retention, as I described here.  There are new opportunities in F&I, and even lot management, as people invent more things to plug into the OBD port.

Autonomous Cars

I am deeply skeptical about self-driving cars.  People who promote them tend to focus on SAE level four, and overlook the greater challenge of full autonomy.  I see self-driving in limited contexts, like self-parking and advanced cruise control.  Check out BMW’s lane-departure technology.  This is cool stuff, and what it means to car dealers is … more expensive cars!

Remember that the nightmare scenario for self-driving cars only occurs when the cars are smart enough to be widely shared, i.e., robot Uber drivers.  A car that can autonomously drive the kids to school is years and years away.

A close examination of the technologies required to achieve advanced levels of autonomous driving suggests a significantly longer timeline; such vehicles are perhaps five to ten years away.

Like “catastrophic anthropogenic global warming,” that date keeps moving out as we approach it.  In 2012, Sergey Brin said self-driving cars would be widely available by 2018.  In 2016, Mark Fields said no steering wheel by 2021.  McKinsey, in any year, always says, “five to ten years from now.”  For a clear-eyed look at the challenges, see here.  For more about luxury driver assistance see here.

That about does it for my deconstruction of three mobility trends that should not worry car dealers.  Next week, I’ll report on that fourth one.  Now that I am living in a big, modern metropolis, I can see shared mobility first hand.  I may not even need a second car.