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We started this series on automotive innovation with “The More Things Change…” and provided an overview on four major innovations coming in automotive – both in how they work and how they are used. In the last article we discussed vehicle connectivity, and later we’ll discuss fleet electrification and autonomous vehicles, but today the focus is on mobility solutions, also sometimes referred to as car sharing.
What Are Mobility Solutions?
There are a number of start-ups (or new organizations/divisions within very large existing companies) that are focused on the providing “mobility” – meaning solving the specific need of getting people around instead of the existing solution of selling someone a car (and then having them pay for it through a loan, lease, or cash they saved up). Soon we’ll have a feature article on some of the new mobility solutions, since many have features of a lease and overall should be something someone in the market for a car considers.
Most of the available options now still focus on the idea of a single driver (or at least single household of 1-4 related drivers) being the only users with access to a specific vehicle at a given time. The difference is that the user can swap out their vehicle more frequently than every 24-36 months, instead being on a quarterly, or even monthly, basis for a given vehicle. This flexibility often comes with a premium because of both the administrative impact, and also for convenience. People always pay for convenience, but fortunately the increased costs associated with administration will fall over time as automation makes the process of transferring custody of the vehicle (and all its inherent benefits and liabilities) easier.
The next step will be combining the automation improvements of managing a set of vehicles (or even a single vehicle) with the rest of the features of the connected car to allow multiple unrelated people to share a car, or share interest in a small fleet of cars of different types that can meet their varying needs (i.e. a fleet of a few sedans and SUV’s, a convertible, a pickup truck, and a minivan). This will be as much technology improvements as legal and business model improvements that will make this work well for people.
Obstacles to Car Sharing
Even when the costs associated with changing vehicles are brought towards a minimum and the process is optimized for customer convenience, this addressable market will still likely be limited by geography and demography. The recent trends around both of these factors support car sharing growing as a viable option for more people over time, but that can obviously change over time.
First, mobility solutions will be easier to provide in urban environments, with more trade-offs required of the customer in a suburban environment, and it likely won’t be truly feasible for those living in a rural environment. This is because the process of changing vehicles will require one of two things: either picking up and dropping off the vehicle at a single location (i.e. the rental car model), or being provided the exact location of a vehicle and the capacity to access it remotely (likely with an app on your smartphone). The latter can be particularly convenient for the customer if the car they want happens to be parked on their block or close to it, but getting a suitable car to a convenient location for the customer will only occur by chance in dense urban areas or because the mobility management firm has an employee move the cars to convenient locations, which will cost money. Thus, in the suburban environment putting the cars in a central location becomes more viable economically, but is a trade-off to the consumer who may have to find alternate transportation to pick-up a vehicle or after dropping off a vehicle (if they aren’t simply swapping out vehicles there). It’s easy to extend this to a more rural environment and see that the model would breakdown further with even more distance to cover.
Besides the geographic advantage of densely populated areas, the other key factor will be the consumer’s family situation. Customers with kids are less likely to want to be swapping out vehicles regularly – especially if it means constantly installing a car seat and then having to take it out again shortly thereafter to do it all again. Besides the car seats people that constantly travel with their kids often have toys or other things related to the children that remain in the car, and having to constantly move this from car to car can be quite inconvenient. So mobility solutions will make more sense for people without young kids. There will also be a personality element to this: if the driver likes being able to keep their stuff in the car, have the radio presets where they want, and not have to worry about setting the seat position and mirrors frequently, the advantages of swapping out vehicles may be less than the inconvenience of regularly making these changes.
What It Means For Leasing
Any of the mobility solutions described to date very much resemble a lease: you pay a fee for use of the vehicle, and when the term of the agreement is up you don’t have to deal with any hassles of trying to off-load the vehicle or other liabilities that come with owning a depreciating asset. There are details around these arrangements that can vary, and these factors may be part of determining whether a mobility arrangement or more traditional lease are better for your situation. If you already have great credit you will qualify for a traditional lease without an issue, and not having your lessor report your payment performance isn’t a big deal because presumably you have other open accounts that show potential creditors that you are a good credit risk. However, if subscribing to a car access arrangement is like subscribing for a mobile phone, then it won’t work great for building a stronger credit profile (at least not how most credit models work today). On the flip side, if you don’t have a strong credit profile, many mobility solutions are developing new models based on income and capacity to pay, as opposed to credit history, so it may be a better fit for you.
In a traditional lease the vehicle is registered to the lessee(s) and the title shows the lessor as the owner. Whatever solution will enable consumers to swap vehicles quickly will likely need to solve for how the vehicle is registered and how that person or entity permits other drivers to use the car. This has been solved for: the procedures and agreements in place allow rental car companies to operate today. However, this may still need to be an area that gets optimized so that certain excise taxes and government fees that are applied to rental cars are not charged like they are today, or this may keep mobility solutions too pricey to achieve necessary adoption.
Next Article: “Vehicle Electrification“
Previous Article: “Vehicle Connectivity”