Ride-Sharing and the Decline of Car Ownership

If you take a trip down Pennsylvania Avenue in Washington, D.C., the cars you see are probably very similar to the ones you might have seen five or ten years
ago with some slight changes in style and design. Weaving in and out of traffic you will find the same red cabs that have been moving people around for years. Objectively, you might not be able to tell if it’s 2017 or 2010, but there is more to take in than what you may notice at first glance.

Nestled in the corner of the windows of the Toyota Camrys and the Chevy Malibus are stickers bearing the logos of popular local transportation apps, and once you spot them, you can’t help but notice that so many of the cars that drive down D.C. streets bear these same markings. They are the symbols of “ride-sharing”, the technological phenomenon that has swept through the country’s urban areas and promised to transform private transportation. The most popular apps, Uber and Lyft, allow you to hail nearby drivers who can whisk you away to your destination at a lower price than what you typically see from D.C. taxi cabs.

Ride-sharing is often easier, more convenient, and cheaper than driving your own car, which has the automobile industry on edge. Car manufacturers are dishing out billions of dollars to acquire startups at the forefront of this movement. Car ownership statistics indicate that young adults are buying fewer cars than they were in the past. Many people enjoy driving a newly-purchased car off the lot, but Millennials and younger Americans may not share those preferences. We may be moving toward a driving culture in which convenience and cost efficiency outweigh that new car smell.

Younger Americans are buying fewer cars than they have in the past, but uncovering the root causes of this trend requires a closer look. The Federal Reserve conducted a study of light vehicle sales over the past 20 years. Light vehicle sales include automobiles ranging in size from small cars to light trucks. These sales surpassed pre-recession levels in 2016 and are still trending upward. At the same time, younger age groups make up a decreased share of light vehicle buyers compared to pre-recession levels. (See Figure 1)

Based on this data, the Federal Reserve report notes, “While part of the rise in average age does reflect a decline since 2007 in the rate at which young buyers purchase new vehicles, the aging of the Baby Boomers, and a
drop in the purchasing rate among 35 to 50 year olds appear to be the most important factors.” The Federal Reserve places significant emphasis on the changes in older demographics, but trends among younger buyers will be an important factor in the future, as well. In 20 years, when many Baby Boomers are no longer driving or purchasing new cars frequently, Millennials will drive new car sales. Yet, Millennials use personal car alternatives at a higher rate than every other age group.

Consumer sentiment and preference is also a factor. A 2015 PwC report on the sharing economy notes, “One-third of consumers we surveyed indicated that the automotive industry yields too much waste. Chief among them are Millennials, who notably don’t drive as much as previous generations did at comparable ages. They are less likely to get drivers licenses, and their view of cars is more perfunctory than emotional—they largely see cars as transportation, not as status symbols.” Additionally, a 2016 University of Michigan Department of Transportation study found that, for the age range of 16 to 44-year-olds the percentage of licensed drivers has declined from 91.8% in 1983 to 76.7% in 2014, potentially owing to increased urban populations and advancements of communication technology. Consumers are rapidly adopting ride-sharing, and it is important to recognize the benefits these services can provide.

There may also be other factors influencing young Americans’ changing attitudes toward personal transportation. For example, Millennials are choosing to live in urban areas over suburban areas. According to a 2015 Urban Land Institute Study, 46 percent of Millennials live in a medium-sized or large city, 23 percent live in a suburb, 20 percent in a small town, and 10 percent reside in rural areas. These city-dwellers have less need to own a car and they rely on alternative means of transportation.

Younger people are marrying and having children later than their predecessors, which both delays their moving out of large cities and diminishes their need for a car. 2014 Gallup data found that 27 percent of Millennials were married. According to historical data cited by Gallup, 36 percent of Gen X, 48 percent of Baby Boomers and 65 percent of the Silent Generation were married when they were the same age as Millennials are now. In addition, recent college graduates are hampered by an unprecedented amount of student loan debt. According to Gallup in 2016, 35 percent of Millennials hold student loan debt (as opposed to 25 percent of Gen X, 6 percent of Baby Boomers, and 3 percent of the Silent Generation.

Millennials’ gravitation towards urban areas, postponement of having children, and substantial student debt are all factors that may prevent this generation from buying cars at rates as high as their predecessors.

As explained above, ride-sharing apps, including Uber, Lyft, and many smaller competitors, are online mobile platforms that connect nearby drivers with people looking for a ride. Powered by the GPS function of a smartphone, users request a ride and receive an immediate fare estimate. The app stores user payment information and users traveling in a group can choose to split the ride fare among themselves. Additionally, users can opt to share their ride with unknown passengers traveling along a similar route in order to cut costs.

Car rental platforms, including Zipcar, Maven, and car2go, allow subscribers to rent cars on-demand, typically on a short-term basis. The apps enable users to locate nearby rentable cars, at which point the user can reserve a time slot for that car. Hourly fares typically range from $8 to $18 depending on the car. These technologies are readily available to those who want to participate in the “sharing economy,” and car manufacturers are beginning to get more heavily involved in this space. For example, car2go is a subsidiary of Daimler (Mercedes-Benz’s parent company) and Maven is owned by General Motors.

Competition in the auto industry is heating up for a stake in the ride-sharing and self-driving car worlds. In 2016, General Motors invested $500 million in ride-sharing app Lyft and acquired the assets of former Lyft competitor Sidecar, and in 2017 the company announced a partnership with Lyft to deploy thousands of self-driving Chevy Volts used strictly for ride-sharing purposes. GM’s Maven program offers rental periods ranging from one hour to one month. Maven now competes with Zipcar and car2go for this short-term car rental market. Volkswagen, Europe’s largest carmaker, invested $300 million in ride-sharing firm Gett, which has a large European marketshare. Ford has also made a number of recent acquisitions including that of Argo AI, a self-driving technology firm that it purchased for $1 billion, and Chariot, a San Francisco based ride-sharing company. French carmakers Citroën and Peugeot, which have been absent from the U.S. market since 1974 and 1991 respectively, will return to the U.S. in a ride-sharing and car-sharing capacity before a planned eventual return to the mainstream market.

Large tech firms are also getting involved. Google’s “Waze” navigation app has conducted a limited release of its carpooling service that allows drivers to pick up people traveling in the same direction. What has prompted this recent flood of investment in the ride-sharing industry? One reason might be the rise of urban populations. Another might be the availability of highly advanced GPS technology that facilitates ride-sharing systems. Or simply, people may not be as interested in owning cars as they once were.

While the timeline is uncertain, it appears that we may be moving toward a culture that values convenience over car ownership. Ride-sharing is prolific in major cities and is gaining traction all over the nation. If you want to see what it’s all about, you can join the trend with the click of a button. For some, this might be a relief, but for others it may encroach on a desire for autonomy on the road. To be sure, these changes will be felt first and foremost in densely populated cities. Rural areas and the more far-flung suburbs will be unlikely to abandon their personal vehicles any time soon. However things play out, these technologies have ignited a spark in the tack of auto industry.

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