Uber and Lyft are masters at solving consumer problems. For the time-strapped Gen Xer who is juggling work, caring for aging parents and carting kids from soccer to gymnastics practice, Uber is a godsend. With a few taps on a smartphone, grandma is delivered safely to the doctor or dropped at the grocery store. And for the app-obsessed urban millennial, ridesharing avoids the expense of car ownership, parking or a possible DUI. And why search for car keys when a phone and an app are already firmly in hand?
But for car manufacturers, the shift in consumer attitudes and behavior has been less of a ripple effect and more of a flash flood. And declining car sales reflect a digital economy that will suck up, destroy and spit out everything in its path at tornado scale. A study by the University of Michigan Transportation Research Institute found that many millennials have no intention of getting a driver’s license, let alone a new car.
Paula Poveda, a 19-year-old student in Tallahassee, Florida, sees no need to own a car, and if she does, she intends to use her parents’ hand-me-down. “We’re more connected than my parents’ generation and technology allows us to be in contact with friends constantly. We don’t have to go out and see them all the time.”
In 1983, over 45 percent of U.S. teens became licensed drivers after turning 16. This dropped to half that by 2014, and the decline has continued. And although a report by Bloomberg disputes that millennials are not buying cars, it corroborates that all generations have less money to spend on cars.
“People across the age spectrum generally have less money to spend on cars, and there are few obvious arguments in favor of new ones. Sales are breaking records simply because the U.S. population increased 29 percent between 1989 and 2014.”
And if millennials have disposable income after paying their student loans, most is spent on eating out, phones and apps, not big-ticket items or car loans, according to CNBC. Today’s consumer feels greater street credibility jumping into an Uber rideshare with AirPods in ear and iPhone 7 in hand than behind the wheel of a souped-up Mustang — so cliché. So, where does that leave the car makers?
Toyota learned a lesson with its edgy Scion that targeted the 20-somethings 12 years ago. The brand was dead within 12 years largely because it failed to resonate with younger buyers who are more concerned with the technology inside the car than the design of the exterior.
For most manufacturers, practicality and a dab of desperation have led to an “if you can’t beat ‘em, join ‘em” strategy. Toyota is exploring its own ridesharing business model, designing smaller, easier to maneuver i-Road vehicles, which could be used specifically for urban-based carsharing services. General Motors is investing $500 million in Lyft and is planning a network of self-driving cars, according to Reuters.
But car sales to millennials and other consumers, of course, will not end completely, and manufacturers must continue to develop the kind of models that tomorrow’s connected consumer will want to buy. And what, exactly, is that? One Asian car manufacturer is predicting that the household of the future will be a one-car entity as people increase their use of ride-hailing and carsharing services, and that one car will be a pricey one.
According to an unnamed marketing chief: “Day to day, for short commuting and doing errands, they [consumers] can use Uber or similar services. Those households would more likely buy just one car and spend more money on that car … an upscale car. That’s where our growth is going to come from.”
Toyota and Ford have said they will adopt SmartDeviceLink (SDL) software to link smartphone apps to car dashboard screens. According to Forbes, car technology by 2020 could include car entry and ignition with a fingerprint or a retina scan. Head-Up Display (HUD) will display the route on the windshield, and smart cars will monitor a driver’s wellbeing, instruct the driver to pull over and call paramedics if all the latest technology becomes overwhelming.
But while driving-averse millennials are depriving the car manufacturers of a large slice of the revenue pie, there is another another slice yet to be devoured.
Until driverless cars are ubiquitous, ridesharing consumers need drivers, who, in turn, need cars, and many Uber and Lyft drivers, particularly in emerging countries, are unable to finance the purchase of a new car. Car manufacturers and rideshare companies are teaming up to solve this problem.
Ola, India’s largest cab-hailing service, announced a strategic partnership with Mahindra, one of India’s largest automakers. Ola’s drivers can buy Mahindra cars at discount prices and buy subsidized insurance. Mahindra and Ola expect revenues in the ballpark of $400 million over the next two years from car sales and financing.
Nissan Motor India also latched onto Ola last year to provide easier access to cars for drivers. Uber’s Xchange Leasing offers leases to its Indian drivers shut out of traditional financing by partnering with dealerships. Xchange Leasing plans to buy cars from Maruti Suzuki and Tata, two companies that Uber already has a relationship with, according to The Economic Times.
According to Mashable, an Uber spokesperson said: “As part of our recently launched pan-India initiative uberShaan, our leasing program will play a big role in mobilizing the skilled workforce to become micro-entrepreneurs. With our aim to empower a million [drivers] by 2018 under uberShaan, we expect that potentially one out of five new drivers would be on the platform through our leasing program.”
Nissan, too, aligned with Nissan Motor India last year to buy and lend cars to its drivers.
So, don’t worry about the car manufacturers; their revenues will reflect their agility in responding to digital lifestyles. And don’t worry about irresponsible millennial drivers using smartphones and speeding at the same time. They may be texting and emojiing, but they will not be driving.
No, far more concerning are the ripple effects of this new ridesharing economy that is giving so many consumers and drivers affordable, convenient independence. An independence that could have grandma, grandpa and Uncle Albert happily tapping their smartphones and Ubering over every Friday and Saturday night.