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Why Automakers Are Anxious To Get Onboard With Ride Sharing

This article is more than 7 years old.

Automakers, looking to capture the growing market for ride sharing and ride hailing, continue to invest directly in the start-ups that are quickly taking business from conventional taxis and changing the way many people think of mobility.

Toyota announced Tuesday that is collaborating with ride-sharing king Uber, which has been inking deals with multiple automakers. Meantime, Volkswagen announced a $300 million investment in ride-hailing service Gett, which operates in 60 cities, including New York City. General Motors has invested in Lyft, and Ford is pursuing its own ride-sharing/hailing pilot in London, but the odds are good that it will eventually invest in an upstart service or multiple services. BMW's iVentures venture capital arm just invested in California-based Scoop Technologies, which offers a smartphone-powered carpooling service.

BMW's move is the latest in a flurry of investments by automakers in technology industry startups that appear to be aimed at convincing consumers to do without owning their own cars, or driving vehicles as often.

Ride sharing and hailing services have exploded onto the marketplace, not unlike the rapid growth of social media channels like Facebook and Twitter . This year, 15.0 million US adults will use a ride-sharing service or other sharing economy transportation service, a 20.5% increase over last year, according to emarketer.com. That’s just the U.S. While the segment will continue to grow through 2020, next year will be the last year of double-digit growth, as the segment matures, says Emarketer.com. These services have utterly disrupted the taxi and livery industry, and they did it almost overnight.

What is driving the growth? In the U.S., App-based ride services represent a far better mousetrap than yellow cabs. Consider the pre-Uber life of a business traveler, or Manhattanite or San Franciscan who, upon leaving a meeting at 4PM, could be left on a street corner with their arm up for a half hour, ignored while Medallion taxis changed shifts and drove by to their dispatch centers. Then, there is the game that taxi hailers play, often exchanging expletives on the street, or worse. It goes like this: A person is on a one-way avenue hailing a cab uptown, and then someone fifty or sixty yards down the street emerges suddenly and snags the cab driving uptown that they have been praying for. Many a single-digit salute has been thrown the way of the cab stealer and the driver who let them do it.

Furthermore, Yellow taxi fleets are not known for their customer service or the aesthetics of the cars. For years, taxi fleets took fairly grubby expired Ford Crown Victoria police cars, painted them yellow and would drive them hundreds of thousands of more miles.

“I haven't used a cab since the day I installed the Uber app on my phone,” says Chris Eschenburg, a Detroit-based marketing executive who travels frequently. “From choosing the size and style of a car to providing an exact pick up time and location and most importantly, no exchange or need for cash, I can't imagine jumping into a cab and sitting with a piece of plexiglass in my face again.”

Ride sharing services controlled by a smartphone app are here to stay. There are now more than 14,000 Uber cars alone in New York City, for example, more than the number of yellow cabs. The biggest gripe about Uber is its surge pricing, which can double and triple the rate based on demand–like dinner-hour and pre-theatre times, and when it’s raining. But market forces are taking care of that. Uber rival Lyft has a surge ceiling, and Gett has fixed pricing with no up-charging. The differences show that there is room for upstarts and competition; yellow cabs had no competition before except for much pricier hired "black cars."

Toyota, like other marketers that have linked with Uber for testing, signed a memorandum of understanding with the ride-sharing king that will include trials in various countries where ride sharing is allowed. The deal comes with an investment from Toyota Financial Services and its Mirai Creation Investment Limited Partnership.

The investments in ride sharing services are a bit different from the era of the 1980s and 90s when car companies took stakes in rental car companies as a means of having a captive fleet for sales of its vehicles. Ford, for example, used to own Hertz, and regularly stuffed excess inventory of vehicles into Hertz fleets. GM owned a stake in Avis . Chrysler owned a stake in Thrifty. And so on.

The investments and deals being cut with ride-sharing services will, on one hand, give automakers a place it can channel vehicles, especially electric vehicles that can run around cities and be fast-charged at captive charging stations. But they will also serve as test beds for autonomous driving technology.

With GM’s $500 million investment in Lyft, it has begun a partnership to launch Express Drive, a short-term rental car service for Lyft drivers. The program will begin in Chicago, and then roll out Boston, Baltimore, and Washington D.C.

How will it work? For $99 per week, including insurance and maintenance, plus $0.20 per mile, drivers in Chicago can rent a Chevrolet Equinox crossover for up to 8 weeks. The cost goes down as drivers complete more Lyft rides. If a renter completes 40 rides in a week, Lyft will pay GM the per-mile charges for that car. At 65 rides in a week, Lyft will also cover the overall $99 charge, making the rental effectively free for the driver.

GM also plans to channel a number of its Chevy Bolt EV vehicles to Lyft when it hits the market this Fall. The Bolt will go in excess of 200 miles on a charge. GM is already testing autonomous Bolts in San Francisco.

“We see the future of personal mobility as connected, seamless and autonomous,” says GM President Dan Ammann. “With GM and Lyft working together, we believe we can successfully implement this vision more rapidly.”

There are only so many established ride-share services with scale that would attract investment from the likes of GM, Volkswagen and Toyota. And while Uber and Lyft seem to be the GM and Ford of ride sharing right now, there will surely be new entrants. And when they establish themselves, the investment money will likely be there. This is a change of behavior that isn't going to go back to people hailing cabs and hoping they get to their next meeting on time.

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