Vehicle 2.0 Podcast with Scot Wingo: Future of Ownership Deep Dive (2024)

Sep 11, 2019

EP019 - Future of Ownership Deep Dive

Episode 19 is a deep dive intochanging ownership models, recorded on Wednesday, September 4th,2019. Scot breaks down the past, present, and future states of carownership, including:

  • Thethree phases of auto ownership; from birth, through the lease andfinancing adolescence, and into the digital present.
  • Whowill claim the largest share of the $1.2 trillion transportationindustry in the US?
  • Alook at where car ownership stands today and identifying thelargest shifts from traditional dealerships.
  • Breaking down the pros and cons of every risingtrend in ownership, such as ride-sharing, car-sharing, andsubscription models.
  • Conservative and radical projections for theimpending shift in vehicle sales, expected over the nextdecade.
  • Thehopeful future, where you can turn your car into an autonomoustaxi.

We recommend following alongwith Scot’s presentation from the Auto Intel Summit, which you candownload here. If youenjoyed this episode, please write us a review on iTunes!

The four pillars of Vehicle 2.0are electrification, connectivity, autonomy, and changing ownershipmodels. In the Vehicle 2.0 Podcast, we will look at the future ofthe auto industry through guest expert interviews, deep dives intospecific topics, news coverage, and hot takes with instant analysison what the latest breaking news means for today and in time tocome.

This episode was produced andsound engineered by Jackson Balling, and hosted by ScotWingo.


Scot: Welcome to the Vehicle 2.0 Podcast. I'myour host, Scot Wingo. This is episode 19, being recorded onSeptember 4th, 2019. We hope you've enjoyed the last six episodes,which we recorded live at the Auto Intel Summit. And today we aregoing to do our first in a series of deep dives. A deep diveepisode is where we spend the entire episode. It's going to be alittle bit longer, so that may take you a couple listens to getthrough, but we're going to do a deep dive into one of the vehicle2.0 concepts as a refresher. The Vehicle 2.0 framework has fourcomponents. We talk about the electrification of vehicles,autonomous vehicles, connected car, and then last but not least,ownership. And that's what we're going to spend today on. This isactually a version of a presentation I presented at the Auto IntelSummit. This is going to be a unique podcast because it actuallydoes have a pdf that goes along with it that will enhance thepodcast.

Scot: So if you're listening in your car orwhile you're exercising, the audio will be fine alone. But if youare at a computer, you may want to pull up the PDF. If you go toour show notes, you'll find the link to that pdf there. And I dorecommend you pull that up now. So we'll assume that you guys havefound that and jump right into this. So one of the, I come from theecommerce world and one of the things I found interesting about theauto world is in the ecommerce retail world, everyone is squarelyon board with the fact that the pace of change is logarithmic now.So for example, Sears was started like 150 years ago and then nowis almost bankrupt because that company did not keep up with thepace of change that's happening coming into the auto industry.You're looking at another industry that's kind of over right arounda hundred years old.

Scot: And it's really interesting. I don't think I'm,as I've talked to folks from the various constituents of dealersand OEMs and whatnot I don't think that the industry has reallycaught up to that pace. So one of the things that I like to show isa chart which is for those of you falling along is essentiallyslide two, page two. And this shows the rate of adoption ofdifferent technologies. So what's happening is we as humans, youknow, we wake up every day and we kind of work our work our eighthours and, and our awake for 12 to 16 hours and we go to sleep. Andevery day is very linear. A lot of the change we're dealing with islogarithmic. So logarithmic change happens in a, you know, powersof 10 effectively. So what used to take a hundred years can nowtake 10 years.

Scot: So I'll give you a real world example ofthat. So for example microwaves I remember I'm from a small town inSouth Carolina. I remember our first microwave was like $900 is ahuge investment. And we were one of the first people in, you know,not only my neighborhood, but probably our city to have amicrowave. Microwave's took a good 50 years to get to the adoptionrate where they're at over 90%. Now. You'd go to Walmart, you know,now they're essentially a, and everyone has one. If you look at theadoption rate of this kind of technologies, what's happened in thelast 10 years and this is because we've got all these platformsnow, like smartphones and digital payments and whatnot, it's takinga lot less time for things to get to 100%. So if you look at socialmedia, Facebook went from zero to over a billion users in aboutfive years.

Scot: Uber went from zero to, you know, near abillion users very, very rapidly. So, so what we're dealing with isa rate of change that we as humans, and especially if you're in anindustry that has been slower moving is frenetic. And I thinkthat's a good backdrop as we think about these different ownershipmodels. You know, will, how fast will these things happen and whatshould, should you do if you're in one of the, the industry andyou're going to be impacted by that. So let's dig into ownership.So what we're going to talk about today is a little history aboutcar ownership. I think it's always helpful to make sure we're allon the same page about where we're coming from. And then also inthat vein, what's at stake, why, why should we even think aboutthis, these new ownership models.

Scot: Where are we today with these models andthen what's the future hold? So I think of the US ownership andkind of a model of three phases. The first phase we'll call thatthe birth of car ownership. And that's from 1908 with introductionof the model t by Henry Ford to 1945. So kind of post World War II.Then we go from 1945 to 2006. That's the ownership adolescencephase. And then last, what we're in now is what I call the digitalphase, which is 2007 to 2019 let's dig into the birth phase. So inthe birth phase, we had kind of the first cars coming out in 1908,as I mentioned. And those were essentially, you had to buy themoutright. So there was no purchase plan or anything like that. Buta an interesting company started called the Ford Delivery Companyand they were the first rental car company and they did this permile, so you would pay, you know, something like 10 cents permile.

Scot: So cars were very novel. They wanted to getpeople in them. And they came up with this interesting kind ofrental car model. So real cars didn't really become super popularuntil later, but that was the first introduction of that model ofcar ownership essentially is a, almost like a, a, a test drive, anextended test drive. Then in 1919 GMHC came out and introducedfinancing. So you used to have to pay for cars upfront and thenthey actually introduced financing so you could pay for them over ayear. So that's kind of fun to think through, you know, all right.Now you know, let's say one of these cars was the equivalent of Idon't know, $30,000. Essentially the financing back in those dayswas essentially in a, it was almost more like a Stallman plan topay for it over a year.

Scot: Obviously a financing has changeddramatically over the years, but that was, those were kind of theownership models in the early phases. So buying outright afinancing was introduced. And then rental car, then we go into theadolescence. And so an after 1945 in the fifties, leasing wasintroduced, leasing was before then before the fifties, leasing waspopular for commercial vehicles, but it had not been applied to, tonon-commercial or individual ownership type models. A companycalled U s leasing came out and, and essentially brought that in.Did we had a really long period of time where there wasn't a lot ofinnovation and car ownership. So we go literally from 50 years,from 1950 to 1999. And the big innovation in 1999 is Zipcar. SoZipcar was founded by two folks that went on a European vacation.And they were really surprised and pleased that in, I believe theywere in Germany where they found this car sharing model.

Scot: We're in Germany. They could go and finda, a car in a dock area rent that car and drive it around for theday and then return it. They thought that model would do well inthe United States. So they founded the companies of car. So now wehave the introduction of car sharing here in the very early days in1999 now that brings us to where we're gonna spend the bulk of ourtime, which is the digital phase, which started 2007. I anchor thison 2007 because that's when the iPhone was introduced iPhone one.And if you remember, remember iPhone one, it was verycontroversial, a Nokia and Microsoft laughed at it and said youknow, not only is it a terrible phone for making calls, but it'spretty much useless. No one's going to own these things. Boy, werethey wrong? So the, the genius of the iPhone, and this didn't comealong until iPhone two was the app store. So that's, that's wherethe iPhone became this open platform that exposed you know, causedthe creation of a lot of these new models that we're going to diginto. So it's really important. And, and that's why I anchor thedigital phase on the birth of the iPhone.

Scot: So what, what the iPhone has allowed to becreated is a whole new model called ride sharing and ride sharing.Has an interesting history. In 2008 Uber Cab launched, which wasessentially going to put an app overlay on top of the existing taxiinfrastructure. That didn't work out very well. And then Uber movedto more of a model around black cars sort of limousine typevehicles. And then they had a competitor in San Francisco calledlift that launched in 2012. And Lyft was really person to personride sharing. So, so trying to figure out you have all these folksout there that are willing to drive other people around. They don'tknow each other. But could we use our phones as a way to not onlyconnect those people but get to a destination safely? In responseto lift, I'm kind of going to the person to person ride sharingmodel.

Scot: Uber launched, which was well into theride sharing world on the taxi side or the, the limo side Uber cameout with Uber X, which is the person to person writing platform. Sofrom there we were off to the races and here we are in 2019 andobviously both those companies are, are quite large and public. Nowthe other interesting model that has been introduced a couple ofyears ago is it kind of person to person car sharing. So, so youknow, when I think of Uber and Lyft, that's ride sharing. Sosomeone owns a vehicle and they're going to drive you. That's ridesharing. Car Sharing is where you're essentially you know getting avehicle in, from someone in, it's either a, B to c kind of modellike Zipcar. So that business is car sharing with you or a personis car sharing with you.

Scot: These, these businesses were kind of born outof the airbnb ethos of all right. People have a second home or avacation home or a room in their house or a guest house orsomething like that. And they want to rent it out to folks youknow, person to person. That's how airbnb was born. So a lot ofthese care show, car sharing, person to person, car sharing,companies use that. A lot of the same language and a lot of thesame thinking in their businesses. The, the two big guys here areToro and get around. So this is where you're seeing a lot ofinnovation right now. It's kind of the next wave behind the ridesharing companies. Uber and Lyft is in the person to person carsharing segment. So we have Toro Toro has raised 438 millionobviously a, I think that puts it into what they would call aunicorn status in silicon valley.

Scot: So over a billion dollar evaluation. Andtheir competitors get around who hasn't raised 443 million. So youknow five, 5 million more than Toro. So these companies are raisingsignificant capital, which indicates that they're kind of in theirhyper-growth phases and making a run at, at, you know, becominglarge companies, possibly ips. In the B to B side of car sharing,you have maven and cargo, which we'll talk about later. Anotherarea that's really popular from a press standpoint but less popularconsumers is vehicle subscriptions. So there's a soccer companycalled clutch, which is now owned by Cox Automotive and they theyessentially power a lot of the car sharing subscription programsout there. And then some of the companies have actually done theirown. So a lot of the OEMs are expanding, experimented with this. SoVolvo has care by Volvo.

Scot: Cadillac had, they actually closed usdown book by Cadillac. BMW has accessed by BMW, Mercedes bins hasthe Mercedes Benz collection and Porsche has Porsche passport.There's also some individual dealers that are experimenting withthis model. And a lot of other kind of startups in this area likedrive, black tie and prime flip. So in conclusion, if we kindathink about these three phases, what we end up with is sevendifferent ownership models for cars that are out there today. If wego back to the birth, we have number one, which is outrightownership, and then number two, finance in three rent. Then as wego into the adolescence phase, we have leasing. So that's ourfourth car sharing and I kinda count car sharing as one. Butthere's two flavors of car sharing. There's the B2B side and theperson to person side.

Scot: And then we have ride sharing andsubscriptions. So those are our seven ownership models that we'regoing to dig into. Before we do that, let's look at what's atstake. Why are people investing 500 million, you know, over $1billion just in one of these segments? Well, the u s consumersspend over $1 trillion a year on transportation and they drive overone and a half trillion miles just in the u s alone in passengervehicles. There's 280 million vehicles on the road today. So, youknow, this is a really big addressable market. If you could justget, you know, 10% of that, that's $120 billion market.Essentially. And if you can get 5% of that you know, just 5% of themarket, it's $60 billion. So while we see these companies all havevery, very small market shares, we have such a big number thatspent on transportation every year that you can build really bigcompanies here.

Scot: Even if they're going to be havinga one, 2% type impact. So that's very attractive to bothentrepreneurs and investors. Also, you know, I mentioned earlier,you have an industry that's been around for over a hundred yearsand the car ownership experience, you know, I remember going withmy dad when I was like 10 and buying a car and then now when I buya car, it's almost exactly the same experience. You know, you, yougo, you meet that sales guy, no one really loves that process. Thenyou have to negotiate with his manager. Then you sit down and yougo through a very long kind of you know, process to, to end upbuying the vehicle with all these financial options and thingsthrown at you. So, so you're looking at an industry that, that Ithink has, you know, hasn't really changed in a hundred years, haspretty low customer satisfaction.

Scot: You know, the, the whole car buyingand owning process is not amazing. Compared to kind of compare thatto like an Amazon prime type experience. There's a lot of room togo there. Another factor here is the cost to buy a new vehicle hasgone up substantially. So if you look back kind of 10 years, a newvehicle on average was $28,000. Well, with all the new you know,the, the user consumer preferences towards SUV type vehicles, allthe new electronics and all the new features and functionality, theaverage vehicle cost has gone up to 35,000. So that, that's prettymaterial, right? That's a 7,000 you know, almost like a 30%increase over 10 years and the price of a new vehicle and some ofthat is self inflicted by consumers by, by what they're choosing.But that, that's Kinda the, the essentially owning a car has gottenway more expensive in just 10 years.

Scot: The, the cost of owning and operating acar. So you would think a lot of this new technology, you wouldreduce that. Actually it's gone up pretty substantially. So thecost of owning and operating a car is about $9,000 a year rightnow. So, so that, that's pretty substantial. And that's those twothings create demand at the consumer level for new models. Okay. Solet's dig into each of these models. So we have outright ownership,financing, leasing, renting, ride share, car share with the twoflavors of B2B and p to p, a person to person. And thensubscriptions. So for those of you following along, I'm going on topage 21 in the, the presentation. So if we look at ownershipfinance, lease together as kind of a subsection of those ownershipmodels. Last year in the United States, 17.2 million cars weresold.

Scot: 11.8 million of those were truckSUV. So you can see that a, you know, substantially large percentof these are now are in that truck SUV category. Many, manymanufacturers have stopped making sedans. So, so the consumerdemand for sedans is way down. The, the average alone on thesevehicles. If we, if we look at how many people buy outright, only14% of consumers buy a vehicle outright, which makes sense. Thisis, this is a pretty expensive, you know, this is kind of prettymuch you know, a year's worth of income that you would have toaccumulate to buy a car outright. So because of that, 86% of peoplefinance their vehicles within that finance bucket, 30% are leasedand 70% are traditional car loans. That always surprises people. Ithink a lot of people I talked to lease vehicles and they aresurprised.

Scot: Other people aren't leasing, but again,70% are doing the finance kind of model where they're gonna own itout right after four or five years. And then more you know, I wouldsay a more fluent segment is leasing the vehicle at 30%. And thenthat leasing segment it's interesting as we think about ownership,a lot of people kind of think, all right, I'm going to pay, youknow, two, three, four or $500 a month for, for a car. And that'skind of going to be a steady state. And this is Kinda like agateway into the subscriptions that we'll talk about the averageloan for those folks that are financing the vehicle, the averageloan is over 30,000, $800. And today you're looking at a 68 monthterm. So what is that? Five and half years. So, so five to sixyears.

Scot: So, so folks are really you know,the financing vehicles have grown up to have a pretty low monthlypayment, but what they're doing is they're just pushing out theterms. Compared to that first kind of installment plan I talkedabout, which was paid a year, the rental car market is fascinating.And, and here at Spiffy, we, we work a lot with rental carcompanies. When you talk about this for folks outside the industry,you know, what your intuition would say is, wow, ride sharing. The,the rise of ride sharing miles from Uber and Lyft must really behammering these rental car companies. And what you actually findout is there's a little bit of truth in there, but then there'salso a side to that and unintended consequence you may not be awareof. So let's look at that. So there's over 2 million vehicles inthe United States active today.

Scot: It's a $28 billion a year industry. Andthat industry grows right in line with GDP. So it's growing threeto 5%. Just like GDP, the, the impact. What's interesting aboutrental cars is yes so they think about trip duration. So, you know,they have a segment of users that will do kind of day trips. Sothat same, same day rental, same day return. Then you have one,one, two, three, four, five day, and then greater than five dayincrements. What's interesting is, so some of the public companies,so, so hertz for example, listening to their conference calls, whatthey're seeing is ride sharing is hurting the super small trips. Soas most impacting day trips and then one day, but then two day plushave not been impacted by ride sharing. So, so they're seeing, Ithink they've taken about a, a 7% hit on these shorter trips due toride sharing.

Scot: So then you would think, you know, all right,maybe that's 10% of what they're doing. So, so you, you wouldexpect them to be shrinking, not growing three to 5%, but wherethey're making up for that actually is on the tail end. So prior toride sharing these companies would hold vehicles up until about50,000 miles, then they would wholesale them out at auction. Whatthey're doing now they have so much demand for longterm rentalsfrom Uber and Lyft drivers that they're now keeping the vehiclesfrom 50,000 miles to 80,000 miles. And in that, those 30,000 milesthey're renting them out on 30 day periods into the Uber and Lyftnetworks. And that's actually more profitable for them because theshort trips are very expensive and not super profitable for, forthe car rental companies because they, they, you know, if it costs$30 to turn around a car and it comes in and out every day, thenyou haven't made enough revenue to cover the turnaround.

Scot: So what's happening is they're actually,they've lost, let's call it 7% on the short trips, but they'remaking up that plus a lot because it's more profitable on the backend of the life of the vehicle by putting them into the carnetworks. So you may not realize it, but the, you know, especiallyin big Metros, the, the car, your Uber or Lyft driver is driving,could very well be a rental that they've done a 30 day rental fromHertz, Avis enterprise or of their imprints. So, so that's reallyinteresting and that's a, is fascinating to see the unintended youknow, the, the counterintuitive reaction that's happening in thesethings. It also shows, I like to talk about these ownerships modelsas if they're separate things, but they actually are reallystarting to overlap and interesting and fascinating ways that we'lllook at. Now let's look at ride sharing.

Scot: So that's the rental cars and now we're intoride sharing. So again, in my, my, my vocabulary ride sharing isyou know, you have a driver that comes and gets you. You're usuallyusing an app to hail that driver. And Uber and Lyft are the bigplayers in the United States. So there's a lot of buzz around thisobviously, and you've got two large public companies that have beencreated, multibillion dollar companies. But really when you, whenyou look at it if you look at 2018 and this is, this is governmentdata that essentially from the Department of Transportation and ifwe look at 2018 really one and a half a million miles have beenfrom ride share which is 0.9%. So we're not even like 1% of oftransportation miles yet from rideshare. So, so very, very smalloverall and it's forecasted to stay about the same.

Scot: But you know increased by 2028 be about3% of overall miles. So it'll be growing really rapidly, but stillit won't even be kind of 5% of miles for the next 20 or 10 yearsbased on the modeling that's out there. So it's still very earlydays for this and this because the transportation industry is solarge, you know, we're, we're, if we're traveling one and a halftrillion miles, it takes a lot of, of ride share miles to make itden on them. What I find fascinating is, you know, why are peopleusing ride sharing. You hear in the press beats the drum on thisthat, you know, people are giving up their cars for ride sharing,but when you actually look at the use cases, I think it'sfascinating and it's certainly that's going on in some of thelarger Metros like New York, Boston, Chicago, SanFrancisco.

Scot: But I think once you step outside of thoseareas, it's really interesting to see why are people using rideshares. So this is from a Wall Street firm called JMP securities.They did a pretty large survey of thousands of ride shares to kindof say, why are you using a ride share? The number one use case at46% is a trip to the airport. So, you know, this is fascinating.You know, I, I think, I think the, the people that are actually thecompanies that are impacted the most by ride sharing is airportparking. So folks are doing the math. You know, fortunately here inthe Raleigh Durham area parking is like maybe 20 or $30. But inlarge cities, you know, you can easily pay $100 a day to park yourcar. If you're at Boston. So you know, the math doesn't make, itdoesn't make sense to park your car there.

Scot: So everyone's taking a, a ride share tothe airport is the number one use case. The next couple of usecases are a, we're familiar with here at Spiffy because it createsa lot of problems for Uber and Lyft drivers and that is leaving aclar a club or a bar at night. So 33% of consumers that userideshare are using it when they're out drinking and partying. 16%is at a party. So you add those together and you get what? 49%. andthen there's going to a dinner, going to a concert and going to asporting event. When you roll all those up, it's like 70%. Soactually the biggest use case I think of ride sharing is I want togo out, have a good time, and not worry about having a designateddriver or getting a DUI when I come out.

Scot: I haven't seen any stats on this,but I, I think there's this probably this interesting freakonomicslike study we could look at where I think the rise of ride sharingis probably plummeted DUIs. So, so I think that's, that's great toobecause we have less people out on the road driving intoxicated.So, so there's this, you know, there's really interesting use case.I don't, when I talk to people in the industry, they don't thinkabout the reason we see this a lot is spiffy is unfortunately whenyou do transport, a lot of people that mount drinking accidentshappen and we call those biohazards. And we, we do a lot of helpwith those situations here at spiffy way down at 10%. Sub 10% isthe use case of my daily commute. So most people are not using Uberand Lyft for their, their daily commute.

Scot: So as we peel the onion on ride share andlook at Uber, Uber has all the stats we gave you or as of thereported first quarter of 2019. So these now these companies arepublic. We have a lot of really good data here. Uber has 6 millionactive drivers and a 62 million active riders. That's a globalnumber. They don't break that out by the u s but half theirbusinesses. U S so I would say probably 3 million active drivers inthe U S and about 30 million active riders in the United States.So, so a lot of, lot of people really using these services. If youthink about the u s we have 300 million folks with us. So anything,you know, 30 million active riders would be about 10%.

Scot: I'm looking at Lyft. Lyft has 2 millionactive drivers, so about the same size as Uber when you compareapples to apples for the u s market. But because Uber invested veryheavily in going international. They're about twice the size ofLyft or, or more. They also have Uber eats. Lyft doesn't have that.So Lyft, Lyft has 2 million active drivers, 20 million activeriders and delivered over 205 million rides in the first quarter of2019. When you look at these companies, if you're really interestedin this, I strongly recommended recommend when you go public yet tofile a document with sec called an s one. So if you googled, forexample, Uber s one or Lyft s one, you'll get a really nice youknow, this is going to be like a 300 page document that thesebusinesses put together detailing every aspect of their business. Irecommend pulling those down, looking through them.

Scot: And then I always the, the way the SEC requiresyou to draft this it's kind of like all the good stuff's in themiddle. So you have to kind of like talk as if your business isterrible. And then you'd talk about some of the good stuff and youhave to end with why it could be terrible. A lot of people misreadthat. And you know, as wow, y w this business is terrible. So thesection you want to go to is the management discussion. So the,it's called the management discussion and analysis or the MDAsection. It's usually literally about a third of the way throughthe document. That's, that's really where you get in the heads ofthe CEO and the team running the company and understand how theythink about the business. And that's where you can really get, getreally deep understanding of these businesses.

Scot: So, so if we look at in the U S if welook at if we compare where they are Uber versus Lyft effectivelyin 2016, Lyft had 22% share an Uber pretty dominant at 78%. ButLyft has made a really big push and is gaining share. So as we, as,as we left 2018, which was kinda the last time data was availableLyft had 40% market share, an Uber 60%. So, you know, what letsdoing is competing on price and really trying to differentiate. Andhave happier drivers. They share a little bit more revenue withdrivers. Lyft was the first out that let you tip the driver. Soreally kind of trying to have a different brand kind of model thanUber. Uber had some challenges with their previous CEO and some ofthe things he said did. And then now they're kind of on the mendwith a new CEO, a new, a new kind of trend in theindustry.

Scot: And I, I'll kind of put this kind of stillinside the ride sharing bucket is we have these new suppliers thatare being born that, that will try to supply into thetransportation network companies. So a lot of the industrypublications will call Uber and Lyft transportation networkcompanies. So there's all these new companies that are supplying inthere. Previously I mentioned the rental car companies. So therental car companies, I would hazard to guess, and there's not alot of data on this, but just because of their scale are probablythe largest suppliers into the TNCs. So what that means is again,Hertz, Hertz, Avis and enterprise essentially taking tail end cars,cars that have a fair amount of miles on them, usually 50,000 upand supplying them into Uber and Lyft drivers. There's also severalother companies doing this, such as Hyrecar. And for those fallingalong, I'm on slide 28.

Scot: You know, so higher car a is really a, asmaller company. I'm thinking about a hundred million in revenue,then went public and they really just provide short term 30 day ishrentals for Uber and Lyft drivers. Lyft is actually, Uber didn'texperiment where they would actually lease cars into their own.Drivers. They, they exited that business before they went publicand that merged into f a I r so fair is a very large supplier forthe TNCs. Lyft is doing it's own program called Lyft express drive.And then another company that's really interesting is in New Yorkcalled Buggy where, you know, they're, they're essentially doingthese short term rentals where you can go in and sign up online andwithin hours you can have a vehicle. And they've, they've done themath on, I think they have like two or three models that workreally well in New York City.

Scot: So I think one is like a Prius and one is anewer Toyota Corolla and they, they're so tied into the networks.They will say, all right, if you want, one of the ways paths youcan go through is they'll say, do you want an Uber select vehicle,an Uber XL vehicle or an Uber x vehicle or a vehicle that would beavailable for Uberpool. And they know those requirements and theyhave vehicles that meet those requirements. So as a driver you cansay, you know, wow, my, my daily driver, I can only do Uber X. AndI've heard Uber select is where all the money is in New York. Soyou can go rent a car that gets you into that Uber select tier fromone of these suppliers. So a lot of really interesting kind ofinnovation happening as a feeder into Uber and Lyft that, that youwouldn't know about, but it's right there under thesurface.

Scot: Now let's talk about car sharingnetworks. So I talked a little bit about Zipcar before. Let's do alittle bit of a deeper dive to kind of understand how this wasborn. So Zipcar, as I mentioned, was started in two, in 1999 andyou know, you can imagine before you had a smartphone, it wasn'tsuper useful. So you know what, these are gated. So what the userexperience was largely around college campuses and, and areas likethat. So you would know, hey, in my college, I'm a student in, atmy college campus, I've seen these d zip cars parked and two orthree locations, you sign up, you pay a monthly subscription, theycould use certain number of miles. If you go over those miles, youpay a per mile fee. But if your student, you know, you could go andsay, all right, I really need to run errands.

Scot: So you would go to the grocery store, go to themall, and then you use the car for four hours and put it back inone of the gated areas. And then you would go, you'd use yourdesktop essentially to log your, your miles in and out and whatnot.2009 once the app store is open this, this really took off a lotmore because the phone is a much better use case where you can say,now, all right, I am in location X. I press a button and I can, I'mpleased to see there's a zip car three blocks away from me that Ican go use. And I can see that there's one there. So you get, sothe phone added Geo location, kind of hyper geo knowledge of what'sgoing on. And then availability of inventory, which is reallycritical to this model because what really stink is if you're acollege kid, you walk all the way across campus and then the twozip cars are gone.

Scot: So really bad user case there not havingvisibility. So the phone has really solved that. So that reallytook off. They did have some controversy around the founders thatgot kicked out. New new team was bought in and the company wentpublic in 2011 after kind of two years of hypergrowth after theintroduction of the smartphone app they ended up getting acquiredby Avis in 2013 for about $500 million. So, so definitely a bigsuccess story in, in, in the transportation space. Unfortunately,once they're acquired, Avis hasn't really provided a lot ofinformation. What I can tell you is they're available in 500 citiesglobally, over 12,000 vehicles out there. The average trip is 47miles. And then within car sharing, one of the innovations isZipcar is kind of the earlier model where they're, what were calleddocked.

Scot: So again, there's these branded parking spacesyou have to go to this parking spaces. It can be relativelyinconvenient both on the pickup and the return part of thistransaction. Especially if, you know, let's say you did all yourgrocery shopping in the doc for the Zipcar is a fair distance awayfrom your dorm and you're a college student. Now you got to lug allthat stuff. You bought a across campus back to your dorm. So a lotof the you know, a lot of the innovation in car sharing has been inthe undocked category, but over in the docked category, we do haveMaven which I believe is supported by GM. And then that's, that'sout there as, as an option as well. The undocked companies. So youhave cargo share now reach now, drive now enterprise carshare.

Scot: And a lot of the OEMs are testing this. SoToyota has a test in Hawaii called Hui. I don't know how topronounce that. We'll, we'll call it hooey. So, so a lot of reallyinteresting things going on there that we'll explore. So one of thechallenges is the reach. So because there's a business that'sowning these, it's got to someone's to pay for the car. Right? soif you look at Maven for example, it's available in like seven uscities. And you know, so Ann Arbor, so a lot of these start inMichigan and, and the Detroit and our Arbor areas are alwayspossible. Chicago, a lot of them kind of start in the Midwest andthen go out to the edges. And then another challenge with these carsharing networks is security. There's a high profile Cartago Ibelieve, or may have was maven.

Scot: They had you, it was the Mercedes one,which is car to go. They had 75 vehicles stolen. So, so people youknow went to the dark web, they got some, you know, AmericanExpress credentials. So they stole credit cards, use those stolencredit cards to get access to the vehicles and then stole thevehicles. And well all of these vehicles have tracking whatnotbefore the local authorities could track them down. The vehicleswere stripped down to the skeleton and all the parts were gone. Soa lot of these companies have actually exited the Chicago marketbecause they, they there's a very efficient car theft capabilitythere that, that I don't think you can, you can get around. Wellthe big news and the car sharing networks is consolidation. So BMWand Daimler both had separate programs and they got into kind ofrealize, you know, hey let's go in this together.

Scot: If we each kind of, you know, are goingto spend tons of money looking at this type of a program that'sinefficient. We're all developing the same models. Let's, let'spool our interest. So they reached a joint venture recently here in2019 that brings Cartago and reach now under one roof. The brandshere are a little confusing. So I think they all have this nowthings, so they have share now, reach now and Parkville all withinthis, this whole conglomerate. And the share now is the car sharingprogram that we're talking about. Park now is their acquisition ofpark mobile. So you know, you, you have some, the jury I think isstill out on car sharing, both in the doctrine undocked if it'sgoing to take off, it's going to be the undock. It's also you know,what's interesting is in the ecommerce world, we see brands goingdirect very aggressively.

Scot: And I think we're gonna see that in the, in theauto world which will obviously disrupt the dealer networks. Somost of the experiments in car sharing or from the OEMs here, it's50, we're under NDA with many in it, you know, OEMs that are doingexperiments around car sharing largely in the San Francisco and Laareas. So there's a lot going on, even more than than I can reporthere. And it's mostly the OEMs kind of directly figuring out, youknow, is this going to be a whole new model that they should beinvolved in? And because they're making the cars it kind of isviewed as a verticalization of supply chain in an interesting way.So the jury is still out on that one, not really up to scale. And Iwould argue subscriptions are kind of in that program where we areseeing a lot of scaling up is the car sharing.

Scot: From a P2P perspective. So I mentioned earlierwe're got this kind of very similar Uber versus Lyft battle formingbetween Toro and getaround. So Toro decided to go wide veryquickly. In the, in the early days trows decision was to get an inmany cities as quickly as possible. Get around said no, the userexperience is more important. We want to have a limited rollout andwe're going to ask every one of our car owners, what they do isthey use this airbnb language. So a car owner as a host and then acar renter is a guest. They don't use rental language at allbecause they, they're trying to stay out of all the regulationsaround rental cars for the consumer. It feels like a short termrental. This a lot cheaper than, than a normal rule. But thecompanies themselves use airbnb type language.

Scot: So I will, I will adopt that as I talk aboutthem. So get around, requires their, their host, which areessentially the people that own cars. So we'll call this host tohave a device installed that gives the guests the iPhone, thesmartphone ability to lock in and lock the car and have access tothe car. That's really a nice user experience because now you don'thave to mess with getting the keys. So, so get around. That deviceis called Getaround connect. And for the longest, a very long time,it was a required part of it. They've since loosened that up. So ifyou look at them today, Toro has a 5,000 cities, over 5,000 cities,thousands of cars. They're running this really interesting Porschehost program where Porsche goes in and they say certain hosts thathave one or two Porsches available are almost like ambassadors forthe brand.

Scot: So you can get a, essentially anextended test drive. So you can go rent at nine 11 for a day from aPorsche host. And that host is going to be able to tell you allabout the features and functionality that car and really you know,highlight what's great about a Porsche. So that's an interestingkind of another intersection of the OEMs promoting this, this kindof short term rental model. I'm in the car sharing world. Toro cameout with its own device you can install called Toro go. And on theconsumer side you can say, all right, I want a Toro in SanFrancisco that I want a Tesla and I want it to have this deviceinstalled. Most recently Toro raised $250 million from interactivecourt. So you see a lot of the biggest investors in this space areInteractive Corp, Cox automotive car are automotive Kar.

Scot: And then you also have Softbank, Softbankin the world of startups. Softbank is the, the, you know the Macdaddy of the gangster, of investing in, in large companies scalingup and that's who's invested in getting room get arounds in 300cities. They just acquired a competitor called Drivvy; d, r. I, v,v. Y. Um, and over in Europe which gave them an internationalpresence. They say the average car on their network owns, earns$500 a month. And then they recently raised 300 million fromSoftbank and they have a partnership with Uber where, you know,again, all these companies are kind of becoming suppliers into thethe ride sharing companies, which I know it gets confusing. But youknow, you can say let's say you have a second car, you can rent iton, you know, for 30 days to an Uber, Lyft driver through getaround.

Scot: So, so a lot of really interestingthings going on there. Only compare these two guys according tosome of the folks that measure the data here. This is sourced tosecond measure on, on slide 34, if you're following around, Torohas about 80% market share in the u s and get around 20%. So itlooks like it looks like kind of Toro is going to be the Uber andget around. It's going to be the lift, but we'll still see us veryearly days. Again, these companies have all raised hundreds ofmillions dollars recently. So, you know, I am, I'm actuallystarting to see TV ads and things from all these different modelsout there. The thing that we see as 50 that's interesting is we seethis lifecycle with get around in Toro. So, so here's how it works.So let's say you, you you hear about one of these things and you'relike, wow, I would love to make some, you know, some extra moneyfrom my vehicle.

Scot: So you start, you startputting it on with these networks and you really, the extra capitalthat you're getting, let's say, you know, a week out of a month yourent a car and you get $150, you know, that's nice and helps youmaybe cover your car payment and pay for gas or anything. But thenwhat you start to realize is having someone in your daily driver isKinda Weird, right? Because it was just kind of strange sharingyour car with someone. But then what a lot of people do is they'llbuy a second car and that's Kinda like their investment car. Andthey'll say, or they'll buy a new car and they'll take theirprimary driver and turn it into their, their car sharing car. Sothey'll effectively have two cars, a daily one that they live in,and then a second one.

Scot: And they'll, they'll put that outthere and they'll reel, they'll start to make $500 a month, they'llpay off that car very quickly and they'll realize that, that that'sa really good way to earn, you know, effectively own a vehicle. PayIt off and then start generating cash. So once you pay off thatvehicle becomes a cash cow then they'll buy another one, anotherone, another one. So, so what we find is these power hosts havedeveloped where there's folks that own five to hundreds of vehiclesand they're, they're using this you know, they're using thesenetworks to build pretty interesting micro fleet businesses. So, sothen they start parking them around airport parking. So this isinteresting because now you know, now we're back to airportparking, which is suffering from ride sharing. But if you do wantto do a longer term lease from a truck, get around and you're goingto lax or SFO what you'll find is most of the parking now isoccupied by these types of vehicles.

Scot: So it's Kinda funny how these things allintersect. I do expect this model will have an impact on theirrental car company. I don't think the scale is there quite yet. ButI think in three or four years you're going to start to hear themhave to react to these things. And maybe they'll, they'll actuallyparticipate. Or you know, if I'm, if I'm hurt, I start to say,well, why is it fair? These guys can essentially run out cars andnot pay all the rental car fees I have to pay and all theregulatory things. And it's gonna be interesting to watch. Justlike the taxi industry fought up against Uber and Lyft. I thinkwe're going to see the real car industry start to really kind ofcome at these car sharing companies. Okay. The last model to lookat before we start looking at the future issubscriptions.

Scot: So, so these, these sound good, you know,you're kind of like, all right, I'm already leasing a car. And whatif I paid a little bit more and everything's included. So theinsurance is included. Everything I think you pay for the gas, butall the maintenance and everything is included in what they offer.That's pretty cool is they all have a different degree of beingable to switch cars. So some of the programs, usually you have adifferent kind of a good, better, best program in these things. So,for example like the let's say the BMW one, you have three tiersicon, the legend and BMW m. So that's where you're going in the mclass, which is their highest end. So the icon you have, you know,kind of the three and four series BMWs and the legend, you get thefive and six series and then the m you can get kind of like theconvertibles and the fancier cars.

Scot: As a consumer, it's aninteresting use case because you could say, you know, I have threekids, so during the week I want a, you know, an SUV type car. Buton the weekends my wife and I are going to the beach or we're goingup to the mountains, we'd like to have a convertible or a differenttype of vehicle or maybe you need a four wheel drive. So, so thereis an interesting use case there. The challenges, the costs. Sothat BMW when I was telling you about the lowest end is $1,000 amonth and then it gets up to about $3,000 a month for the high end.So you know, just feels like it's priced itself way outside of evenluxury consumers when you're competing with, you know, that wouldbe nice, but if, you know, I could have one of these BMWs for fiveor $600 a month, I'm not sure consumers willing to pay 10 xthen.

Scot: So, so I'm just not really sure where this is going to goand what we'll have kind of, you know, seems like there's somethingthere, but they've got to figure out how to get the cost way down.It needs to be, you know, the killer app is if we were designingthis is it would be lower than my lease payment or, or equivalentand I could do peak vehicle flips and you know and have access to,you know, some vehicles I probably wouldn't normally have accessto. So I think we're a long way from there. All right. So those arethe seven models and a deep dive into where we are on all of themand what's going on. Where is the future taking us? So we want toconclude here by, by kind of looking forward and I'm on slide 36for you home gamers.

Scot: So where are we today? Vehicles areonly used 5% of the time. So you have, you know, it's largelypeople's. If you rent as prior, your your biggest asset and if youown a house, it's your second biggest asset. So you're actuallyusing your, one of your biggest assets 5% of the time. And it justfeels wasteful. You know, think of all the cars just sitting thereparked right now while I'm talking to you. So think of all thatreal estate that you know, could be green space or bike lanes orparks or whatnot. 89% of trips are single writer. So again, as wethink about the environment that's really inefficient. And thenagain, the average cost of the vehicle is $33,000. So, so wherethe, the metric I have found that drives a lot of these modelsabout where the future's going is cost per mile.

Scot: Right now we're at a cost per mileand the term kind of ownership model of, you know, again, a financeown outright our lease and about $3 per mile. So, so that's thereal key driver. How do we drive that cost down? So electricvehicles are one of the ways, you know, so with electricalvehicles, you're obviously not consuming gas. You know, the costhas come down like on the model threes and some of the other modelscoming out where you're not having, it's not a luxury kind of a, avehicle anymore. It's in that you can get vehicles are gettingcloser to that $33,000 number. The, the key driver though isautonomy. So there's a couple of models here. I'm sorry. So I wentout and kind of looked at all the different models about when isCarner ship really gonna Change.

Scot: The first model is from BCGanalysis and it's onside 38 for those of you falling along. Andwhat it shows is kind of a, what I call a slow boil. So here we arein 2019 and they really don't show much of an impact until 2030.And a lot of that is from autonomous vehicles, so, so they're kindof saying by 20, 30, 70% of cars will still be you know, individualownership kind of conventional models. And then 30% will be these,you know, Robo taxis and car sharing is all the models I've talkedabout outside of individual ownership. So so that, that, that feelsright to me because I come from the ecommerce space and you know,we're only about 15% of of sales are e-commerce and we've been atthis 20 years and it's obviously a better model, but there's stilljust a bunch of people that don't trust the security.

Scot: They like going to the store,they love parking, and you know, waiting in line for hours to getstuff. I don't, I don't a hundred percent understand it, but youknow but you do see pockets where it's as high as 50, 60, 70%. So,you know, that's one model and I call that kind of the slow Boyle.Then there's the a model that shows crazy fast. And this is fromsome guys out of Stanford that, that have a model. And they have acompany called rethink x that published this and their model, we,the new, they kind of use a miles kind of a metaphor, but it'sabout the same. And this model, 80%, by 2030, 80% of the cars willnot be owned by individuals and 20% will be these new models. Andwhen you, when you dig into how is it possible that, that a smartpeople are forecasting such different things?

Scot: What you find is it's the autonomy piece.So to get that, to get down from $3 a mile to sub a dollar a mile,which is where as consumer, you will logically then according tothese economists, you'll logically choose to not own a car anymore.Because owning a car will be $3 a mile and using one of these otherthings that will be a dollar a mile, it takes autonomous vehiclesto be pretty prevalent in Robo taxis. So that's the real crux ofthis is when are we going to have, you know, large numbers of milesdriven being able to be done by autonomous vehicles.

Scot: A good example of that is onslide 41, where, you know, when we're at $3 a mile, then theaddressable market for these new modes of transportation is about$20 billion. So, so large. But once autonomous vehicles get you toa dollar, then it mushrooms up to 750 billion about 150 times themarket today. And then once you can get a below a dollar, then itwill be 300 times today. So that, that's the real dry or the model.Let's see if you're interested in this. On slide 43 Tesla did aeffectively a, a full day on autonomy. And then there you know,there's a lot of really interesting discussion around thetechnology behind autonomous vehicles, like lidar versus camerasand whatnot. But then at, towards the tail end when Ilan waswrapping up, he talked about Tesla's overall plan to have robotaxis out there.

Scot: So these vehicles will beunder $38,000. So call it a Tesla Robo Tock taxi, which iseffectively a model, a model three or a model y with kind of a baseconfiguration. And you know with full autonomy, he thinks they canget the cost down to 18 cents a mile. You could charge less than adollar a mile for a profit of 65 cents. And then this, this vehiclecould be out there generating 30 k a year for you in profit. So, soreally interesting. The application of electric and autonomy youknow, they, I think they can get the miles down to, you know, waybelow a dollar a mile. But again, you know and of course in typicalElon fashion, he said, we're going to have a million of these in ayear. So I, I think that's very aggressive. I think the regulatoryenvironment is not gonna allow that to happen.

Scot: But it is interesting to thinkthrough, here's a real car maker thinking through these economicsand you know, putting, putting off flagged down at six, 18 cents amile. The other big trend that's driving the future oftransportation is multimodality. So multi-modality is that the kindof the holy grail for transportation is imagine you have an app.This app says OK you tell the app, I want to go from point a topoint B, and that may be I'm in New York and I want to go from, youknow, Tribeca up to I don't know central park. And that app willtell you here's the optimal, do an optimize on time or, or moneyor, you know, maybe there's a slider in between there. Anddepending on what you do, that app is fully dialed into all modesof transportation.

Scot: So that app may say to you, allright, for time, you're gonna take a scooter to the subway stop.And here's, here's, here's 12 scooter companies and you're goingto, there's a lime that's close to you and we're going to go aheadand light that up. And you get to the line, you take it to thesubway stop, you park it, now you get on the subway and the app hastimed it to where you're there two minutes before the trainer eyes.Now that train takes you somewhere and then it puts you on a, youknow, now you take a ride, share to the next leg of your journey,et Cetera. So kind of intermingling all these transportation modesfrom micro mobility on bikes and scooters. Two medium distance fromride, ride sharing and maybe down the road, Robo taxis. And thenalso intermingle mingling, car sharing.

Scot: So another use case could be, alright,I'm in New York and I want to go to Maine on vacation. So this appsays, all right, here's how we're going to connect to this. Youknow, you're going to take a let's see a bird from here to thesubway, that subway is going to take you out to LGA. And you're nowgoing to go to this long distance LGA parking area where there's aToro waiting for you and we've rented it for the two days you need,and that you're going to take that Toro, do your trip and comeback, and now you're gonna have to, you know, the, you know, forwhatever reason Toro wants you to return that to a differentlocation. And here's how I'm going to get you home. So that's,that's, that's kind of the big driver of the future ofmultimodality.

Scot: So everyone's gunning for this. So it'sgonna be interesting to see who, who gets there first. You know,you, you obviously, so Uber and Lyft are trying to get there veryaggressively. So you have some multi-modality there between, youknow, the different ride sharing all the way from, you know, theXL, the black cars to select to scooters. Some of them are startingto pull in there. You had the map companies. So you know, I use,when I go to New York, I use Google maps for this. It does a reallygood job of telling me, you know, walk here, do this. It doesn'treally have the scooter thing in there. And the bike thing I'm notreally big on those models, so I'm fine walking to the subway stopsand it tells me where to go. The other thing I'll depart with isthere's always a lot of interesting unintendedconsequences.

Scot: So with availability of ridesharing, for example, this is slide 47 you know, what they'refinding is over half of the, the ride sharing trips are new miles.So a lot of lot of folks thought, okay, Uber and Lyft are going toreally increase utilization. But what's happening is becausethey've made it so easy for people to go to from point a to pointB, people are actually increasing the number of miles they travel.So, so a lot of these are new trips and so you know, one of thesurprises is ride sharing is actually increased congestion in bigcities like New York, Boston, Chicago, San Francisco. That's, youknow, what suffering from that a little bit is publictransportation. So if you're in New York, it's actually, you know,a much better user experience to ride a ride hailing vehicle thanget a taxi, which would be too expensive.

Scot: So cheaper than a taxi and it's moreexpensive than public transportation, but it's a better experience.So, so a lot of incremental new miles coming out of unintendedconsequences. So what's this mean for you? So you're obviouslylistening to this podcast because you're somehow connected to thetransportation industry. You may be an ecommerce person that thinksabout package delivery and you know, if we do have these robotaxisthat that's going to be a game changer. But, but essentially thinkwho's going to own the vehicles and when are we going to see this?This flip happen largely driven by autonomy. Who's going tomaintain all these vehicles once you have more, you know, if we're,if we're kind of currently at a 5% utilization and we take thesevehicles up to a hundred, that's a lot more miles per vehicle, alot more drivers, a lot more maintenance.

Scot: Who's going to do that? What happens tocar dealers and these new models where, where do they sit? Are theythe guys that are the parking lots and the maintenance for thesevehicles? What happens to the OEMs? Do they essentially go directand cut out dealers or do, does everyone still have a role ifyou're, if you're not autonomy does, does that mean, you know, thathas consumer, you don't really care. The difference between aVolkswagen and Mercedes is no longer a status symbol because you'rejust using this thing for five miles and you don't really care.What, what's that mean? You know, what happens to the ride shareand car share companies when autonomy comes along, they'reobviously investing heavily to make sure they, they kind of putthemselves out of business in that model. And then, you know,there, there's always a scary side to this kind ofstuff.

Scot: But what I found is these kind of reallybig changes create opportunities that are bigger than thedownsides. So, so what does it mean for your business and how canyou innovate and be a part of this and capture some of these, youknow, hundreds of billions of dollars that are going to spill outwhen, when this happens. And last, you know, we, we have kind ofseven, seven big groups that are really fighting over this. So wehave the car sharing networks both docked and undocked we've gotthe P to p companies, we've got the subscription companies, we'vegot the traditional rental rental car companies, the ride sharingcompanies, and then all these companies investing along with, soyou've got the OEMs and other companies you know, investing heavilyin autonomy. They're all in a collision course trying to fight forthis one and a half trillion dollar market.

Scot: And it's gonna be really interesting to watch that.And if you find this topic interesting, you're in the right place.Cause we are going to keep you up to date on everything going onwith these ownership models on the vehicle. Two Point Oh podcast.Thanks for joining us. We hope you've enjoyed this deep dive. Andif you have any questions. So first of all, we would love a fivestar rating over in your favorite podcast listener. And if you haveany questions you'd go to our Facebook page over at spiffy a or Ithink through our vehicle 2.0 page. You can ask some questions, behappy to answer those. Thanks. And happy driving.

Vehicle 2.0 Podcast with Scot Wingo: Future of Ownership Deep Dive (2024)
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