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Ride-hailing replacing car ownership

People love their cars as status symbols and providers of the illusion of personal freedom. However, the entire concept of private car ownership is changing as the shared, automated, electric vehicles are coming. In this article, I focus on the sharing part of the change and specifically on why ride-hailing is winning over private car ownership.

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The end of car ownership?

The discussion on the end of car ownership and how owning a car will soon be a thing of the past has accelerated now that ride-hailing companies Uber, Didi Chuxing, and Lyft are all planning IPOs in 2019. In their market forecast, Arbib & Seba (2017) argue that private car ownership will drop 80% by 2030 in the US. In fact, the usage of ride-hailing services has already resulted in reduced car ownership according to research findings of the University of Michigan Transportation Research Institute, Texas A&M Transportation Institute and Columbia University in 2017. The ride-hailing service providers have gotten similar results in their own studies (e.g. Lyft in 2017). On the other hand, these findings have been criticized and, instead, the increase in ride-hailing has been said to result in a decrease in public transportation usage. In my opinion, the facts are supporting the “end of car ownership” scenario more so let’s take a closer look at those arguments next.

Why ride-hailing instead of car ownership?

Currently, private cars are used only about 5% of the time (Burns 2018). All the remaining time they are just waiting for the driver on the parking lot. This is especially amazing considering that in many households a car is the biggest investment after housing. Indeed, in an average American household a car takes $9.500 annually, equal to 17% of income.

Younger generations are used to subscription services and they don’t seem to need to own a car as a status symbol. As we all know, the same trend has already been going on with videos, music, apartments, etc. Indeed, according to Wired (2/2018), only 71% of Americans aged 16–24 had a driver’s license in 2013 (used to be 76% in 2000) and the downward trend is expected to continue.

Thanks to ride-hailing, you’re nowadays able to enjoy door-to-door freedom of mobility without a need to take a look at public transport timetables or search for parking. If the local availability is good enough, a ride-hail car comes to you in a few minutes, which in my opinion is at least as good as having your own car waiting on the parking lot. In fact, depending on the walking distance to the parking lot, the start of your ride-hailing trip might be even faster than walking to your own car. However, the positive effects on the end of the trip are even more dramatic. According to INRIX Research (2017), the drivers in the USA on average spend 17 hours (e.g. 107 h in NYC) per year searching for parking, resulting in wasted time, fuel, and emissions. There have, of course, been taxis with similar offering since 1897, but due to the better service and lower pricing the ride-hailing seems to win the competition.

The cities around the world are wasting incredible amounts of valuable land for car parking (RIHA 2018), even though it would be more useful in housing, recreation, or commerce. For example, according to a satellite data analysis, in Philadelphia there are 2 million parking spots equal to 3,7 per household. Many drivers have a false perception that there is not enough parking space, but it is mainly because people usually prefer street parking to garages. Therefore, by substantially raising the price of street parking (or removing it completely!) more drivers would most likely either park in garages or start preferring ride-hailing without the need to park yourself. For those interested in this thread, there’s a lively discussion going on regarding shared mobility and sustainable cities as well as the future of parking.

The cost of the ride-hailing is expected to dramatically decrease when autonomous electric vehicles become common (McGrath 2018 and The Earth Institute 2013). Currently the cost level is almost $1,00/mile and it could fall below $0,10/mile. There are a few key reasons behind this trend: 1) Currently, the driver is the most expensive element of a ride, 2) Autonomous car utilization could be as efficient as 50% (vs private cars 5%), 3) Nowadays private cars are in use for over 10 years and many parts break from old age (instead of wear) so with a better utilization rate a ride-hailing car could last more miles than a private one, 4) Autonomous cars are expected to be able to minimize the number of accidents, which would decrease repair & insurance costs, 5) In an electric car power train there’s only about 20 moving parts vs. 2.000 in a gasoline vehicle, which should also help in keeping the maintenance costs down, 6) If more people could afford mobility services it could improve their life quality benefiting especially many elders, poor, disabled, and parents of young children. On the other hand, the decrease in pricing could increase congestion, but the effects are not yet clear.

The success of ride-hailing is not only due to pricing — many customers probably prefer the convenience of driving themselves. In fact, it can be quite pleasant to just enjoy the ride when someone else is driving and maybe take care of calls or emails or to relax for a while. In addition, you don’t have to worry about cleaning, washing, tire change, repair, insurance, and all the other annoyances bundled with car ownership.

Ride-hailing should also enable car choice optimization based on the current need. Private car owners usually buy a too Big or Sporty car based on some occasional use or imagined needs, but end up mostly driving daily commutes with a too expensive, “wrong” kind of car. It would, of course, make more sense to hail just the right car for the ride ahead.

At this point I’m used to hearing skeptical cries: Never going to happen! I love driving! Well, there are lots of people who love horseback riding as well, but still today there are more cars than horses. In other words, I know that private cars are not going to disappear completely, but ride-haling will most likely continue rapid growth even though it would not reach the $1 trillion market forecast.

Terminology

Proudly stolen from Wikipedia: A transportation network company, also known as a mobility service provider or ride-hailing service, is an organization that pairs passengers via websites and mobile apps with drivers who provide such services. Transportation network companies are examples of the sharing economy and shared mobility.

References

The references are included as links in the text above. In addition, I’ve (among others) utilized these great articles and books:

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Leading the way in Automotive Digitalization. Siili Auto is a digital product development studio focused on the Human Machine Interface of next generation vehicles.

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Erkka Niemi, PhD

Erkka Niemi, PhD

Technology enthusiast CTO with a lifelong addiction to skateboarding in Helsinki & Palo Alto @Unikieinc @AaltoUniversity #SelfDrivingCars #DeepTech

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