The pandemic took an impossibly big bite out of all face-to-face services, including ride sharing. But serious problems in the sharing business model existed even before the pandemic: in 2019, Uber lost $5 billion in one quarter while Lyft lost $2.6 billion over that year. Notably, that was significantly more than the $1.8 billion Lyft lost during the pandemic.
So, has anybody figured out how to do ride and car sharing profitably at scale? Is this transportation option dying out?
My original thought for this blog was just to update the data on OEM car sharing investments from our e-Book with fresh new 2021 data – especially since I couldn’t find that data anywhere else. But as I updated our research, I kept finding automakers shutting down their car sharing operations. These were the ones I knew about like GM’s Maven, and the ones whose death were still newsworthy to me like the many times renamed and reformed Daimler and BMW’s Share Now. I also stumbled on new investments, spinoffs, and independent startups that were all being written off, spinning down, or shutting their doors. This wasn’t limited to OEM sponsored companies either. Many car sharing startups were closing operations or had already given up the ghost.
What is going on?
Thin car sharing margins
One big factor as pointed out by Forbes is that cars are – relatively speaking – inexpensive. Automaker financing arms, supply chains, and manufacturing efficiencies have been fine tuning for decades how to make car ownership as achievable as possible for everyone.
Car sharing is a tough business with a razor thin opportunity for profit.
You can get an entry-level car like a Chevy Spark or Mitsubishi Mirage in the US for around $15,000 – or $250 a month over five years. A quick back-of-napkin estimate on gas and maintenance adds around $1,500 a year for each while insurance adds about $720 a year, giving us $10.25/day for your transportation needs.
For many people the cost of transportation is their biggest consideration on whether to buy or rent. If buying your transportation per ride is significantly more expensive than owning, fewer people will see sharing as desirable. That pushes down the achievable car sharing margin, making it harder to make money.
Unreasonably low ride sharing rates
The issue with rates is compounded by Uber. With the amount of cash they’re hemorrhaging, one can guess that Uber is selling services at less-than-market rates. My guess is that they’re hoping to drive all their competitors and taxi companies out of business to effectively monopolize the ride sharing market. (After all, Uber’s never been known to have a highly evolved sense of business ethics.) Next time you’re wondering why your Uber ride is half the price of a comparable taxi, make sure you thank all those VC investors who keep pumping Uber full of cash in the hopes it’ll eventually pay off.
Those unreasonably low rates effect every other ride sharing operation. When a ride sharing company is forced to compete against Uber’s sub-value structure versus charging profit-making rates, they find themselves in a race to the bottom with unsustainable profit margins.
Owned fleets a massive burden
What’s even worse for OEM-sponsored car sharing companies is that most own their vehicles, and those assets are a massive cost burden to carry. Many of these companies use and promote cars from their luxury lines. While this may work to bolster riders’ interest in eventually owning their own premium car, this marginal marketing is a heavy load to carry for the car sharing operation.
Car sharing potentially cannibalizes an OEM’s existing business lines.
The Uber/Lyft model – where gas, maintenance, and ownership costs are pushed onto the driver – makes for a much smaller investment to carry on the balance sheet. But a driver-owned model doesn’t necessarily provide any tie-in to OEM branded vehicles, so it’s not a great choice for an OEM.
Marketing optics or successful business venture?
Traditional automaker business models that rely on car sales are certainly threatened by car sharing, and it’s only natural that they try to forestall any losses with their own spinoffs and partnerships. However, car sharing is a tough business with a razor thin opportunity for profit. And, even if successful, car sharing potentially cannibalizes an OEM’s existing business lines.
That’s why OEM car sharing companies keep going out of business. Automakers need to make hard choices between car sharing as marketing optics or car sharing as a successful business venture. They are exploring options, not using an “everything we’ve got” approach to make car sharing succeed – I think in part, because they almost don’t want it to.
So. we end this blog with the promised OEM car sharing investment landscape, updated for 2021.
Automaker bets in the sharing economy
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