Changing attitude to car ownership

Changing attitude to car ownership

Customer behavior is at the heart of automotive sales, and how consumers view cars and mobility more generally will shape the future of automotive demand. But, whether or not will they abandon individual ownership in favour of call mobility on demand, remains to be seen.

For baby boomers in mature markets, owning a car was an important milestone in reaching adulthood. Cars have also been seen as a important status symbol. But for the generation born after 1980, sometimes called as ‘millennials’ or ‘digital natives’ that’s changing. The average age acquiring a driver’s license has gone up in the US, while in Germany the percentage of 18-35 years old with a license has gone down. Instead of cruising main street in cars, today teens are texting each other or interacting on social media. Older consumers are using digital extensively too. While owning a car is less likely to be seen as a functional necessity, the emotional appeals become more important. 

Many consumers are accustomed to using phone and tablets to meet their needs — so calling up a ride or looking for available vehicles on an app may feel like the logical next step. That’s especially true in urban environments where the next shared car or ride on demand may be only steps.

Ride-hailing / taxi apps

Though the terms ride-hailing / taxi apps and car sharing is used interchangeably, there are differences between these two models. Ride-hailing / taxi apps include traditional taxi and car services and the idea of ride-hailing is that customers hire the driver and vehicle to take them to a place where they need to go and this done through apps developed by cab aggregators, who charge commission for this service is more of an individual customer service i.e, mobility on demand. Car sharing on the other hand, carpooling is literally sharing ride with another passenger. Under this, essentially the service providers connects regular drivers and passenger who would like to share long trips.

The impact is already starting to be felt. There were nearly six to seven million people using car sharing models by end of 2015. There is no credible data available on ride-hailing and mobility on demand at this point in time, but looking at the number of players in this segment and their valuation as well their spread across the number of cities in the world, the number is quite significant and all numbers, such as number of users, number of trips in a month, average daily trips runs into millions.

Demand killers?

If car sharing, taxi apps / ride-hailing expand significantly, a possible future one can explore in two scenarios. Most conventional discussion of these trends suggest that growth in car sharing, ride-hailing / taxi apps will have significantly negative impact on new car sales. But what if rather than blunting primary demand, car sharing, taxi apps / ride=hailing might actually increase the demand for new cars. Forecasting the possible impact on primary demand of increased use of personal mobility platforms is complicated.
However, in the developed economies where the population is ageing quite fast and also where there is high vehicle penetration, the online cab hailing and shared mobility may impact the new car demands for personal use quite faster as compared with developing economies. Any way the growth in new car sales in these markets is expected to be low compared to emerging economies.

This trend might be very different for the developing economies, where there is young population with increasing disposable income, aspiration to own a car and with low penetration the demand for personal use will only increase in short to medium term and in fact ride=hailing / taxi apps services will further increase the demand for new cars.

Other factor to consider in new car demand generation is that in taxi apps / ride-hailing, the average number of miles cars actually gets driven could go up to a lot if they were driven 200 miles in the first five to seven years instead of over 14 or 15 years, and obviously, this in turn, is expected to increase replacement demand with faster wear out. One thing is very clear, that this new mode of transport is going to have significant impact on the traditional taxi industry.

Regulatory impacts

The rapid rise in ride-hailing / taxi app mode of transport is challenging the well-established rule for taxi cab industry. The regulations around the globe are evolving and India is not an exception in this area. Traditional taxi industry players are getting impacted and will get impacted through app based / ride-hailing services. Considering the benefits this new form of mobility on demand bring in developing the overall sustainable transportation (i.e, provide easy consistent universally  available services, more transparency, certainty and accountability compared with traditional taxi services, improved allocation of available capacity, and flexible work opportunities etc.),  it is unlikely that regulator will have stringent regulations which might hamper the development of mobility on demand. In fact, they will promote this industry to solve issues like emission and congestion as well as consumers overall  welfare.

It is equally important that customer should feel the price paid for ride is competitive and reasonable and at the same time the player in this industry should make reasonable profit to sustain their business model, deep discounts and losses in this industry will not be sustainable for a long. Customer’s safety, environment friendly vehicles are other two aspect which requires lot more attention from these mobility on demand players. We are already seeing efforts to make this industry more sustainable by all the stakeholders.

In 2016, many global (mainly the American, European and Japanese) automotive original equipment manufacturers (OEM) have taken equity position in these companies and some people think that these companies will put OEMs out of business. This looks like more of exaggeration because taxi apps and ride-sharing companies also need quality cars to serve their customers, and they will not manufacture these vehicles and therefore these companies will be major customers for OEMs going forward.

Most of the taxi apps companies have clever idea — drivers will have to bring their own cars. In India also this trend is catching up very fast where local OEMs are taking stake and forming alliance with domestic taxi apps companies to push their market share both in new car sales as well as aftermarket sales service. In addition to increased business opportunities, OEMs will get greater insight into consumers changing preferences towards mobility and these insights will definitely help them to put in place better strategy to win in the market place in future. Overall taking equity position and having alliance with mobility on demand players make significant business sense for OEMs.

(The author is partner of automobiles at PwC India)

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