Auto Ownership: New Options for Urban Dwellers
Owning a car, while still attractive for many reasons, may not be nearly as much fun as it once was — especially in densely populated urban corridors. “For most of the population in large cities, it doesn’t make sense to own a car,” said Sam Abuelsamid, a senior research analyst at Navigant Research. “In Manhattan, for instance, you have the option of the subway, taxis or rental cars, and now there’s even greater flexibility with ride-hailing, car-sharing, city bikes and more.”
Every year, Americans spend 14.5 million hours in bumper-to-bumper traffic and $23 billion ($126 per driver) on repairing and driving their cars on poorly maintained roads. Just hunting for a free parking spot on urban streets takes an average of 20 minutes, said Donald Shoup, a professor of urban planning at UCLA. According to one estimate, owning and maintaining a car (with parking, gas, tolls and servicing) in a crowded place like Manhattan can cost $8,400 annually. And, on average, that car is going to sit idle 90% to 95% of the time.
Some analysts counter that ownership is too deeply imbued in the American psyche to disappear easily. With almost 17,000 franchised car dealers employing more than a million people and selling 17.5 million vehicles a year, car ownership is also deeply entrenched in the country’s economy.
Still, there’s no denying the disruptive forces at work today. McKinsey identifies four: electrification (the shift to hybrid, battery electric and fuel-cell technology); autonomous driving (from driver assistance to full self-driving); diverse mobility (the influence of the “sharing economy”); and connectivity (new possibilities with traffic services and the vehicle-to-vehicle communication that enable autonomy).
Much has been written about how ride-hailing services, such as Uber and Lyft, have been capitalizing on these new realities. There are two billion mobile phone users, and eight million of them are now using Uber while more than 631,000 are using Lyft. An estimated 13 million to 15 million Americans are now using ride-hailing, and 20% to 25% of new smartphone users have downloaded the Uber app (with 3% using it every week for rides and the average distance traveled is less than 15 miles).
Car-sharing represents the technological evolution of local car rental in the neighborhood market and takes it to the next level.
In addition, car-sharing, from both peer-to-peer startups and new services offered by automakers and established rental companies, is having an impact on the urban market. According to the Boston Consulting Group, by 2021, “35 million users will book 1.5 billion minutes of driving time each month [through car sharing] and generate annual revenues of €4.7 billion [$5 billion]. … Car sharing will reduce worldwide vehicle sales by approximately 550,000 units by 2021, and cause a net revenue loss to OEMs [original equipment manufacturers or automakers] of €7.4 billion [$7.9 billion].” Europe will be the largest market in that time frame, followed by Asia-Pacific and North America.
The Environmental Footprint of “Sharing”
According to Auto Rental News, “The car-sharing market has grown from a largely subsidized, university research-driven experiment into a full-fledged for-profit enterprise, owned primarily by traditional car rental companies and auto manufacturers.”
The environmental impact of car-sharing depends on how car-sharing services are used. A 2016 analysis by the Stanford Social Innovation Review concluded “that the service of car-sharing cannot be deemed green or not green on its own.” While some users may give up cars, others were previously carless (58% of them, according to a University of California, Berkeley study cited by the Review). In fact, the customers surveyed “joined car sharing to gain access to personal automobiles.” They also increased their total travel after joining a service. As a result, said the Review, “The impact of transportation use is determined by the distance traveled and the efficiency of the transportation.”
In other words, when those who don’t own cars use car-sharing services, they gain access to jobs and services (benefiting the economy) but also increase the overall vehicle miles traveled, at some cost to the environment. When car owners jettison their vehicles after joining a service, it’s a clear win for the environment.
The good news is that the available evidence shows that car-sharing is having a positive environmental effect. By 2030, McKinsey reported, 10% of global car sales could be shared vehicles. Membership in car-sharing services has grown 30% annually between 2011 and 2016. Susan Shaheen, who directs Innovative Mobility Research at the University of California, Berkeley, said that a 2008 survey by her team found an overall decline in public transit use among car-sharing members, but it also found “substantial increases in non-motorized and sustainable travel — walking, bicycling and traditional carpooling.”
Car rental companies are also adopting new retail technology that appeals to tech-savvy customers.
For all the recent attention focused on new car-sharing and ride-hailing services, however, the fact is that vanpooling (one of the oldest shared mobility options) is probably the greenest choice of all. Enterprise’s recent purchase of vRide, a 40-year-old vanpooling company serving commuters, to complement its existing vanpooling business is an indication of ongoing growth in this market. Together, these two Enterprise services account for 12,100 vehicles and more than 100,000 riders, thereby eliminating more than 2.4 billion miles driven annually.
Car Rental Still Growing
In reality, there isn’t much difference between local car rental and local car sharing at all — in both cases, consumers are hiring the car they need, whether it’s for an hour, a day, a week or longer. Car sharing represents the technological evolution of local car rental in the neighborhood market and takes it to the next level.
During the 2015 “Differentiating Brands in a Sharing Economy” panel discussion at the Global Business Travel Association (GBTA) Convention in Orlando, Enterprise’s chief strategy officer Greg Stubblefield explained: “Consider that we essentially ‘share’ more than a million vehicles a week in the United States. So when you talk about scale and the ability to meet public transportation needs for the long term, fleet size obviously is a significant factor from an operational and financial perspective.”
Car rental revenue in the U.S. remains 12 times larger than ride-hailing revenue, reports travel research firm Phocuswright. Far from contracting, U.S. rental vehicle revenue has increased from $20.5 billion in 2010 to a record $28.4 billion in 2016, reported Auto Rental News. And Enterprise Holdings customers alone logged more than 25 billion miles globally last year.
The allure of local car rentals is being driven by a number of factors. One is convenience. The concept of bringing vehicles close to where people live and work — a core principle of car sharing — has been part of the DNA at Enterprise since 1957, when the company launched a new business model that located cars outside of airports. Its cars are strategically and conveniently situated at nearly 6,000 neighborhood locations throughout the U.S. In 1997, Enterprise trademarked the term Virtual Car®, after recognizing the strength and energy of local car rentals.
Another attraction is the chance a rental provides to try out cars equipped with new technology. One Enterprise survey revealed that young drivers use rental cars as “extended test drives” to prepare themselves for ownership. Some 68%, for example, said they first accessed the new technology very important to them in rental cars. More than half (53%) said they chose a rental based on a need to try something new.
“Uber has mastered the use of on-demand apps, but managing a fleet of vehicles and all that entails is institutional knowledge that rental car companies have.” –Jessica Caldwell, Edmunds.com
Car rental companies are also adopting new retail technology that appeals to tech-savvy customers. “Rental Car Companies Have Gotten So Good that Even Millennials Like Them,” the Los Angeles Times headlined in 2015. One way rental companies are changing with the times is with software. Instead of the traditional lines at the rental counter, customers are met by sales associates holding tablets. The app shows the availability and location of cars (even their condition) in real time and, with prefilled reservation forms in-hand, associates can take customers directly to their rentals.
New ride-hailing services are here to stay, but so is car rental. David Wyshner, president and chief financial officer of Avis Budget Group, noted in a fourth-quarter 2015 earnings call that his company sees “minimal overlap” between the use of car rentals and ride-hailing services. “One-day rentals represent only 3% of our rental day volume and under 50-mile transactions also represent only 3% of our rental days,” said Wyshner.
What’s more, the company’s one-day rentals actually went up in 2015 — including in cities where Uber and Lyft are well established. In analyzing 2015 trends, Avis also noted that 97% of its renters drive more than 50 miles, which would make ride-hailing an expensive alternative. “The net result,” Wyshner said, “is that the data simply don’t support the argument that the growth of ride-hailing is coming at the expense of car rental.”
Fleet Management Will Be Critical
Ride-hailing and peer-to-peer car sharing use technology to connect people to transportation. That’s a vastly different business model than traditional car sharing and rentals, which demand management and maintenance of large auto and truck fleets. “The ability to know when to sell, how to sell and have the distribution relationships, that has taken decades to build,” said Enterprise’s Stubblefield.
Jessica Caldwell, executive director of strategic analytics at Edmunds.com, said that experienced rental companies will be better positioned to run large sharing fleets. “Uber has mastered the use of on-demand apps, but managing a fleet of vehicles and all that entails is institutional knowledge that rental car companies have. There’s a lot of logistics.”
According to Paul Eisenstein, publisher of The Detroit Bureau and a contributor to CNBC, “It’s difficult right now to form clear conclusions [about] anything on car sharing and ride-hailing, because we’re still in the early-adopter stage. In the long term, we may indeed see certain demographic groups truly switch from private ownership to shared alternatives, but at the moment, the people who are doing so are highly motivated early adopters.” How those changes will ultimately play out is still a matter of conjecture, but automakers are already reacting to customers’ shifting tastes and eagerly exploring what lies ahead.