Uber is one of the disrupters of the auto industry: When you hail an Uber, you are probably indifferent to the type of car. So why are auto makers so concerned with ride-sharing partnerships?AARON JOSEFCZYK/Reuters
For makers of cheap cars, last year might have been the peak. It won't be so good again for a long time to come.
Ford as good as said so this week when the motor company gave warning that profit would be down this year, in part because the U.S. car market is looking very soggy, but also because Ford is increasing spending on new technology: electric and driverless cars. However, the real reason to worry about Ford, General Motors and their four-wheeled cousins is that they have no strategy.
The entire auto industry is now convinced that the volume car market will soon be a utility business. Listen to Mark Fields, Ford's chief executive officer: "For years we have very much thought about the 'thing' and how much of the 'thing' we sold. Now we are thinking more about usage … and so miles travelled becomes an important metric."
In other words, we are approaching the event horizon leading into a new motoring universe in which you don't buy a car; instead, you buy so many thousand kilometres a year. It's just like your deal with the phone company – so many hours of talk, so many gigabytes of data and a handset is thrown in with the package.
This is terrifying stuff for a company that is used to spending hundreds of millions of dollars trying to convince us that driving a new Ford Fusion is a life-changing experience. We are now told the really sexy business is selling rides, in rather dull cars. This week, Uber was in Pittsburgh doing a trial run of its fleet of self-driving taxi cabs (admittedly with real drivers on hand to cope with potential mishaps). The robo-taxis were Ford Fusions equipped with cameras, GPS and laser detectors – but who's looking? It's the network operator and the app on your phone that gets the blood pumping.
General Motors is concerned that Silicon Valley is about to chew up and spit out Motown's business model – so worried that GM apparently offered to buy out the majority shareholding in Lyft, the ride-sharing company in which it already has invested $500-million, for $6-billion (U.S.).
Such concerns are causing sleepless nights at PSA Peugeot Citroën. Under new management, the French firm has clawed its way back from a near-death experience three years ago. PSA slashed costs and edged the company back into the black in 2015. PSA is probably still too small in vehicle sales to survive in a overcrowded volume car market; undeterred by the challenge, however, PSA CEO Carlos Tavares wants to go back into the United States, a market that Peugeot quit a quarter of a century ago.
But instead of a glitzy launch with a sleek new Citroën vehicle design, PSA's U.S. relaunch will be spearheaded by a service company. It won't be Peugeot or Citroën but a stand-alone service operator, selling road transport to Americans.
It's a colossal gamble, but according to PSA's logic, competing head-on with Uber and Lyft is a safer bet than trying to convince Americans that French cars are sexy. Mr. Tavares reckons that partnerships with Uber and Lyft – the strategy adopted by other big car markers – are potentially dangerous because the link is severed between the consumer and the brand. When you hail an Uber or book a vehicle from your car club, you are probably indifferent to the type of car, as long as it gets you there safely.
Mr. Tavares is absolutely right, but his solution (become a stand-alone service operator) is probably as risky as launching a shiny new car. It also has potentially the bizarre effect of further eroding the consumer brand recognition of the cars that will supply the new service business.
In mature markets, road use is peaking; even as the car population increases, road use per capita is flat or falling. People are driving less frequently and shorter distances. A more disturbing phenomenon that troubles car makers is the sharp decline in car use by younger male drivers over the past decade. The number of 17-to-20-year-olds taking driving tests has fallen by 25 per cent since 2007-08. Even if you can afford the lessons, the test and the car, the young person's logic is that the insurance will bankrupt you.
Meanwhile, a huge financial industry, almost on the scale of the mortgage market, provides credit for car buyers. Whether the auto loan providers need to consider whether the underlying manufacturing business model of the car industry is sustainable is a moot point. If it shifts significantly to service operators, car clubs and glorified taxis, what is the future of automotive credit?
You might think a better strategy for the automotive finance industry would be to put its money behind a low-cost motor insurance business targeting cover for the under-30s male. That might sound unworkable, or even absurd, but not as bizarre as some of the plans that are currently being tested.
Carl Mortished is a Canadian financial journalist based in London.