Lately, I’ve been hearing about how the ride-sharing economy and self-driving cars are going to eliminate the need for privately owned cars or significantly reduce the number of cars sold per year. It’s nonsense. Sure, it looks good on paper, but it only takes into account what’s true today. Plus, reality doesn’t support it — kind of like the 1970 prediction that the world would run out of oil by the year 2000. I don’t know, seems a tiny bit far-fetched to me. Well, unless you thought Waterworld was a documentary. FYI: It’s not.
The whole notion of ride sharing taking the place of car ownership simply won’t work because it’s precisely the abundance of new cars sold every year that’s allowing ride-sharing services like Lyft and Uber to work so well.
Economy of Scale
The only reason we can get an inexpensive car service at our door and on demand 24/7 is because there’s an abundance of privately owned cars.
For example, the Toyota Camry alone sells at a rate of roughly 400,000 per year, and Nissan sells about 34,000 Rogues per month! And that’s just two vehicles from two brands. The sheer number of new cars sold (across all brands) is what makes them affordable — the more cars they sell, the greater the value to the consumer.
The main reason it costs just $7 to get a ride to my favorite sushi place in downtown San Francisco is that that fee makes sense given the current price of the car, gas (including taxes) and insurance, plus the number of rides that driver expects to give per week. That formula makes sense when a small SUV like the Nissan Rogue Sport costs $21,000. It doesn’t make sense if a Nissan Rogue, Toyota Prius or Honda Civic cost $30,000 for the most basic model. Ditto for used cars. This is why many Uber drivers have a Prius or a less-than-loaded version of any given car — they’re trying to get the most money out of each ride.
In fact, the proof is already built into the Uber app. Nicer (more expensive) cars mean a higher fare. It only makes sense that the driver/owner of a more expensive car would make more money to pay for the additional cost versus an economy car; otherwise, drivers have no incentive to participate. As it is, Uber drivers already feel like they’re not pocketing enough cash.
Now imagine what happens to the ride-sharing economy if the price of all cars goes up because fewer are being sold.
Also, each new car sold racks up registration fees, and the owners pay tax each time they buy gas. These taxes multiplied by the number of American motorists add up to big money. Eliminate tens of thousands of DMV and vehicle license fees, and a small portion of gasoline tax money, from state coffers and you have a huge tax problem. Roads still need to be repaired and infrastructure maintained. Either those ride-sharing services and their drivers will have to just suffer the loss of higher vehicle costs and gas taxes or the per-trip price is going to go up.
As it is, states like California take in more than $120 billion in tax revenue each year, yet misspend the money such that they don’t have enough money to fix the roads — so another tax is coming for those lucky people. Given that, one has to assume that even a 5 percent drop in tax revenue would have staggering consequences.
More or Less?
The truth is, we’re going to need more cars in the future. If ride sharing and self-driving cars can combine in a logical way, won’t that result in more cars on the road?
Cox Automotive analyst Michelle Krebs put it this way:
“The population of people using transportation will expand with autonomous vehicles, from teenagers lacking a driver’s license to the elderly who have given up their driving privileges. So it’s hard to imagine with more population requiring transportation, the need for cars will drop substantially.”
Every automaker sets sales goals, bases the price of a given car on those goals, and plans updates and options accordingly. In other words, Ford, Nissan and others know how many cars they need to sell in order to give each car an attractive price. It’s sort of the economy of scale directly at work.
The Renault-Nissan Alliance is responsible for roughly one in every 9 new cars sold globally, and it uses size and volume to its advantage.
Carlos Ghosn, CEO, Renault-Nissan Alliance, said “The growing cooperation across the Alliance is delivering strong benefits for the members of the Alliance, reflected by the economies of scale … Our growing synergies are helping Renault, Nissan and now Mitsubishi Motors meet their financial objectives and deliver higher-value vehicles to customers in the new era of mobility.”
It sure doesn’t sound like one of the largest automotive groups in the world is planning on selling fewer cars; rather, they’re maximizing the natural efficiencies that can be gained when you sell 10 million cars per year and take the cost savings as both profits to keep The Alliance healthy and to give consumers a better value.
Self-driving cars and increased ride sharing are certainly good things — these will make comfortable, personal transportation available to more people, but it’s not a one-size-fits-all solution. The bottom line is that all these changes will likely result in more cars and safer cars existing in a combination of private ownership and shared resources. It’s hardly the end of the privately owned automobile, as many have suggested.