Auto Companies Prepare for Decline of Car Ownership

It's no longer just transit agencies that are trying to meet the first mile-last mile challenge—auto companies have also jumped in by offering "mobility services." And it's more profitable than selling cars!

5 minute read

December 27, 2016, 7:00 AM PST

By Irvin Dawid

Individual car ownership is not going away. "Peak car," the notion that vehicle-miles-traveled peaked in 2007, has been shattered: 2015 set a new record, which is on track to be replaced by 2016. As Washington Post urban columnist, Emily Badger, noted in an urban mobility discussion in August, "76 percent of people get to work every day in a car that they drive alone."

However, demographic changes (and not just those associated with urban millennials) and disruptive technologies are making a difference, particularly in cities. "So carmakers are looking ahead to a day when the automobile plays a smaller role, or even no role at all, in many people’s daily routines," writes Neal Boudette, automotive reporter for The New York Times, in a column for the Wheels feature.

One clear sign of the shift is the increasing energy that carmakers are devoting to a design category the auto industry refers to as the “the first mile/last mile” challenge. It refers to the short distances some people must travel from home or work to a local destination, often a mass transit station.

“People really didn’t think of the first mile/last mile issue because the car was the primary way to get around,’’ said Erica Klampfl, the global future mobility manager at Ford Motor Company. “You just drove your car to your destination.

Boudette's focus is Southern California, particularly the commute changes resulting from Los Angeles Metro's investment in fixed rail, especially among millennials, since the passage of the $40 billion transportation sales tax known as Measure R in 2008, which will continue thanks to voters who overwhelmingly approved the $120 billion transportation sales tax Measure M in November.

Boudette describes the commute patterns of two young women which illustrate the change in mobility needs prompted by the success of two new fixed-rail infrastructure investments.

  • Kelly Skow, a 28-year-old video producer, now transfers to the Expo Line from the Los Angeles subway (Red Line). Thanks to the new 6.6-mile, seven-station Expo Line extension from Culver City Station to Downtown Santa Monica Station that opened May 20, she is able to get to her job in Santa Monica. As of September, the extension was 70 percent toward meeting its 2030 ridership projection.

"She usually covers the first and last mile of the trip on foot," adds Boudette. 

“I had barely ridden the subway before the Expo Line [extension] opened, but now I’m using it a lot more and it’s great," said Skow. "Parking in L.A. is a nightmare and you don’t have to deal with that.”

Neither woman has given up her car, but they are driving less thanks to expanded public transit. However, the first mile-last mile access to and from light rail stations remains a challenge for those not lucky enough to walk.

Boudette describes the panoply of mobility services that are being offered to meet the need, from transportation network companies that hope to utilize self-driving cars, bike sharing sponsored by auto companies, to Ford's Segway-type device, the Carr-E. But in addition to meeting a need, is it profitable to provide mobility services?

According to the consulting firm PwC, the global automotive industry generates about $400 billion a year in profits; about 41 percent of that — or about $164 billion — comes from new vehicle sales.

By 2030, PwC forecasts that even as overall automotive profits grow to about $600 billion, only about 29 percent of that will come from new vehicle sales. By then, PwC predicts that “mobility services’’ — including ride-hailing and other types of last-mile transportation services — will represent 20 percent of the automotive industry’s profits.

New mobility services

Courtesy of McKinsey & Company: "Urban mobility at a tipping point," September 2015

As for profits, Ford Motor Company "sees mobility services as potentially more profitable than its traditional business of making and selling cars," adds Boudette. "Manufacturing vehicles requires billions of dollars in investments in plants and engineering — costs that are often difficult to recoup."

Mobility services would require less upfront investment, Robert Shanks, Ford’s chief financial officer, said in an interview. “Margins could be more like 20 percent instead of the 8 percent we are trying to get to today,” he said

But not all in the auto world are true believers in embracing mobility services.

The same day Neal Boudette's article was published in the The TimesNeil Winton, European columnist for Autos Insider, penned a column for The Detroit News embracing a more traditional view for the future of the industry.

“Mobility Solutions” is the fashionable drumbeat from the world’s leading automotive manufacturers, likely softened up by smooth-talking consultants spreading fear and confusion, and sensing paranoia.

In the face of this smooth persuasion, it is worth remembering that there are some underlying givens in the automotive world, which aren’t going to change anytime soon. People love cars and the individual freedom and mobility they provide.

And yet all the big car manufacturers have been rushing around bleating sociological “solutions” jargon and investing good money in firms reinventing the taxi, and setting up firms into car sharing and shared mobility.

He has a point. Boudette writes that the "less compact and walkable" city of Azusa in the San Gabriel Valley has opted for a "car-centric solution" to meet its first mile challenge: a 500-space parking garage. Apparently the "connected vehicle" solutions to the parking crunch noted by Planetizen correspondent Josh Williams in May did not mitigate the parking demand.


Related in media: 

Related coverage in Planetizen:

Hat tips to Kenyon Karl and Stuart M. Whitaker

Thursday, December 22, 2016 in The New York Times

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