How Could Ride Sharing Sell More Cars?

The Uber app shown as cars drive by
Uber app | Andrew Caballero-Reynolds/AFP/Getty Images

The future of inner city life is a strange and scary place. A concrete sarcophagus where machines and dirty apes duke it out for control of whatever is left of humanity, as the lowly remainder of the workforce hails autonomously driven cars and slurps down meal replacement shakes with the complacency of caged wildebeests. It’s that, right? Or do I need to quit watching so much sci-fi?

According to a recent report by Bloomberg, modern technological advancements in the auto industry “promise to change the game for commuters and carmakers.” This well-known fact was voiced primarily due to the shift toward “on-demand, shared, and potentially autonomous mobility,” an increasingly popular transportation trend that could prove quite fruitful over time. In Bloomberg’s report, analysts at Deutsche Bank AG discovered that there are a lot of misconceptions about how the “on-demand revolution will affect automakers,” starting with the topic of new car sales.

Jesse Vega checks a vehicle at the first of Uber's 'Work On Demand' recruitment events to recruit 12,000 new Uber drivers
Uber driver | Mark Ralston/AFP/Getty Images

“The consensus view is that auto sales will decline, and that this will be negative for U.S. original equipment manufacturers,” writes Deutsche Bank’s team leader, Rod Lache. “We believe that the consensus view may be wrong.”

While the analysts did admit that the influx of on-demand vehicles would more than likely prune down the number of cars on America’s roads by more than 25 million, the firm says that there’s one major loophole everyone is overlooking: If things progress the way Deutsche Bank predicts, the auto industry will become less cyclical, as a fat dollop of additional miles traveled for each shared car will likely drive sales volumes skyward.

Sure, an overall drop in the number of people buying new vehicles due to ride sharing will hurt in the short run, but after a while these cars are going to rack up a ton of miles in a short period of time, and that means faster replacement rates. According to the report, “the life expectancy of an on-demand vehicle is expected to be just three years,” and it’s this higher turnover rate that could potentially drive car sales in America.

“U.S. sales nonetheless increase under every scenario we’ve examined because vehicle scrappage is determined by miles driven,” analysts concluded, “Each on-demand vehicle will travel more miles (10 to 20% more) than the cumulative six to nine privately owned vehicles that it replaces.”

Lyft passengers and driver
Lyft ride | Mike Coppola/Getty Images for Lyft

Nevertheless, analysts also noted that, “the cost of on-demand mobility services continues to decline rapidly. [Therefore] Costs should continue to decline as efficiencies are gained and as providers use information technology to create new offerings.”

Consider the unprecedented success of ride-on-demand apps, as these companies have convinced millions of people that they should be riding instead of walking, and that hailing taxis or using public transportation is outdated. Utilizing a smartphone and getting all the details you need right away has also aided in the increase in on-demand ride sharing, especially when people travel to an unfamiliar city. These apps show exactly where cars are on a live map and how expensive they are, offer stats on each vehicle and driver, and are often far less expensive than a taxi, so no wonder people aren’t driving their own cars anymore.

Lyft driver waiting to pick up passengers
Lyft driver | Mike Coppola/Getty Images

But back to how wear and tear on a car is going to boost auto sales. According to Deutsche Bank’s research team, “On demand mobility is likely to be [more] practical and financially attractive in the densest sub-sections, which account for 31% of total households in the metropolitan statistical areas.”

This basically means that urban dwellers are more likely to give up their personal vehicles than any other demographic, and in certain ways that will make cars depreciate even more rapidly, further boosting auto sales.

Big cities are an automotive torture chamber, with potholes, fender benders, curb rash, stop-and-go traffic, and all manner of road grime making matters worse. Simply put, since shared vehicles are most in demand in big cities, they typically won’t last that long, and this means more new car sales.

There is also this phenomenon called “empty legs,” where taxis and on-demand vehicles are completely passenger-free between picking one passenger up and delivering another. But even if a vehicle is not delivering a passenger to a particular destination, the odometer is still racking up the miles. A prime example was made when the analysts noted that “nearly half of the miles that uberX drivers travel in New York City are without a passenger,” a statistic that makes you wonder exactly how much more efficient this industry could be.