How the sharing economy is changing the face of the automotive industry

Much of the attention that Google’s plan for a self-driving car has attracted has been focused on how the artificial intelligence will work. But, the proposed business model for the autonomous vehicles is almost as revolutionary as the cars themselves. Google’s project is based on the assumption that the cars will be shared, not individually owned, with utilization increased from the current level of 5-10% up to 75%. That makes for fewer cars on the roads, and ultimately fewer cars made and sold.
Just as the germ of the self-driving car’s technology already exists in the form of automated parking, automatic braking, lane departure warning systems and collision avoidance technology, so the business model for shared ownership of cars is already here. In some cases the car sharing business is not unlike a conventional car rental company. Indeed one of the early entrants, ZipCar, is owned by Avis. Here the cars are owned by a company and rented out on a time basis. Car sharing is just a bit more flexible, and a bit less labour intensive than a conventional renting business.

Some car sharing businesses have taken a more radical approach by embracing the Peer to Peer (P2P) sharing model. Here the sharing company doesn’t own the cars, but makes it possible for individual car owners to rent their cars out to potential borrowers by creating an online marketplace and transaction system – as Ebay has done for goods and Airbnb has done for spare rooms. The best known example of P2P car sharing might be VC-funded start-up RelayRides; France has BuzzCar, OuiCar and drivy which work in much the same way. Several mainstream automotive manufacturers are already dipping a toe into car sharing. BMW provides DriveNow in partnership with German rental company Sixt, Ford operates Ford2Go, Daimler has Car2Go, and VW has Quicar. GM has partnered with RelayRides, and uses its OnStar platform and embedded technology for connectivity.

Technology and connectivity are not absolute pre-requisites for alternative models of access to cars. Sharing can be managed with a notebook and an agreement about access rights, booking times and payment obligations. But technology makes it much easier to share, and possible to share much more widely. A standard car rental business needs a pound to keep the cars in, and staff to manage the collection and return of the vehicles. A car sharing business like Zipcar lets users collect vehicles from public places, with vehicle access controlled by a smart card. Location tracking protects the car from being stolen, and lets the sharing company’s system know which cars are available for hiring and where they are. A smartphone application provides the same information to potential users and lets them book cars directly. Embedded systems record the user’s times of usage, and send it to the sharing company’s back end so that it can bill.

Technology is even more essential for the P2P forms of car sharing, where individual car owners share their vehicles with strangers. Technology not only makes it possible for borrowers and lenders to find each other, but is absolutely essential for the building and maintenance of trust, on which most P2P systems depend. The ability to create and share reviews of sellers, borrowers, lenders, hosts and guests – and to have reasonable confidence that they are genuine reviews based on actual transactions – is what has made Ebay, and Airbnb, possible.

Where does the rise of car sharing take the automotive industry? There is evidence that it’s depressing sales of cars. A recent study estimated half a million lost sales in the US between 2006 and 2013, and suggested that 48% of those who regularly used car sharing schemes ended up not buying a car. So car makers launching their own schemes might look a little like turkeys voting for an early Christmas in Britain.

It all depends on your view of the future of the sharing economy. It’s possible that, as some commentators have said, it will prove to be a flash in the pan driven by a peculiar conjunction of technology-savvy but temporarily cash-poor and time-rich educated consumers. On the other hand, it might be that this is a permanent change, and we’ll be sharing a lot more going forward, prioritising access, and experiences, over ownership. If that’s so, then the car makers will have to learn to live with the new, sharing-based future, and that those who do it best will have more chance of thriving, or at least surviving, in a smaller market for actual sales. In this context, experimenting now with sharing schemes, to learn about what works and what doesn’t, seems like a prudent move.