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There are four waves of innovation sweeping through the automotive industry that will disrupt vehicles more in the next 10 years than they've changed in the last 100.

Each week, we explore connected cars, electrification, changing ownership models, and autonomous self-driving vehicles, as we seek to understand and prepare you for the future of transportation.

Sep 11, 2019

EP019 - Future of Ownership Deep Dive

Episode 19 is a deep dive into changing ownership models, recorded on Wednesday, September 4th, 2019. Scot breaks down the past, present, and future states of car ownership, including:

  • The three phases of auto ownership; from birth, through the lease and financing adolescence, and into the digital present.
  • Who will claim the largest share of the $1.2 trillion transportation industry in the US?
  • A look at where car ownership stands today and identifying the largest shifts from traditional dealerships.
  • Breaking down the pros and cons of every rising trend in ownership, such as ride-sharing, car-sharing, and subscription models.
  • Conservative and radical projections for the impending shift in vehicle sales, expected over the next decade.
  • The hopeful future, where you can turn your car into an autonomous taxi.

We recommend following along with Scot’s presentation from the Auto Intel Summit, which you can download here. If you enjoyed this episode, please write us a review on iTunes!

The four pillars of Vehicle 2.0 are electrification, connectivity, autonomy, and changing ownership models. In the Vehicle 2.0 Podcast, we will look at the future of the auto industry through guest expert interviews, deep dives into specific topics, news coverage, and hot takes with instant analysis on what the latest breaking news means for today and in time to come.

This episode was produced and sound engineered by Jackson Balling, and hosted by Scot Wingo.



Scot:    Welcome to the Vehicle 2.0 Podcast. I'm your host, Scot Wingo. This is episode 19, being recorded on September 4th, 2019. We hope you've enjoyed the last six episodes, which we recorded live at the Auto Intel Summit. And today we are going to do our first in a series of deep dives. A deep dive episode is where we spend the entire episode. It's going to be a little bit longer, so that may take you a couple listens to get through, but we're going to do a deep dive into one of the vehicle 2.0 concepts as a refresher. The Vehicle 2.0 framework has four components. We talk about the electrification of vehicles, autonomous vehicles, connected car, and then last but not least, ownership. And that's what we're going to spend today on. This is actually a version of a presentation I presented at the Auto Intel Summit. This is going to be a unique podcast because it actually does have a pdf that goes along with it that will enhance the podcast.

Scot:    So if you're listening in your car or while you're exercising, the audio will be fine alone. But if you are at a computer, you may want to pull up the PDF. If you go to our show notes, you'll find the link to that pdf there. And I do recommend you pull that up now. So we'll assume that you guys have found that and jump right into this. So one of the, I come from the ecommerce world and one of the things I found interesting about the auto world is in the ecommerce retail world, everyone is squarely on board with the fact that the pace of change is logarithmic now. So for example, Sears was started like 150 years ago and then now is almost bankrupt because that company did not keep up with the pace of change that's happening coming into the auto industry. You're looking at another industry that's kind of over right around a hundred years old.

Scot:    And it's really interesting. I don't think I'm, as I've talked to folks from the various constituents of dealers and OEMs and whatnot I don't think that the industry has really caught up to that pace. So one of the things that I like to show is a chart which is for those of you falling along is essentially slide two, page two. And this shows the rate of adoption of different technologies. So what's happening is we as humans, you know, we wake up every day and we kind of work our work our eight hours and, and our awake for 12 to 16 hours and we go to sleep. And every day is very linear. A lot of the change we're dealing with is logarithmic. So logarithmic change happens in a, you know, powers of 10 effectively. So what used to take a hundred years can now take 10 years.

Scot:    So I'll give you a real world example of that. So for example microwaves I remember I'm from a small town in South Carolina. I remember our first microwave was like $900 is a huge investment. And we were one of the first people in, you know, not only my neighborhood, but probably our city to have a microwave. Microwave's took a good 50 years to get to the adoption rate where they're at over 90%. Now. You'd go to Walmart, you know, now they're essentially a, and everyone has one. If you look at the adoption rate of this kind of technologies, what's happened in the last 10 years and this is because we've got all these platforms now, like smartphones and digital payments and whatnot, it's taking a lot less time for things to get to 100%. So if you look at social media, Facebook went from zero to over a billion users in about five years.

Scot:    Uber went from zero to, you know, near a billion users very, very rapidly. So, so what we're dealing with is a rate of change that we as humans, and especially if you're in an industry that has been slower moving is frenetic. And I think that's a good backdrop as we think about these different ownership models. You know, will, how fast will these things happen and what should, should you do if you're in one of the, the industry and you're going to be impacted by that. So let's dig into ownership. So what we're going to talk about today is a little history about car ownership. I think it's always helpful to make sure we're all on the same page about where we're coming from. And then also in that vein, what's at stake, why, why should we even think about this, these new ownership models.

Scot:    Where are we today with these models and then what's the future hold? So I think of the US ownership and kind of a model of three phases. The first phase we'll call that the birth of car ownership. And that's from 1908 with introduction of the model t by Henry Ford to 1945. So kind of post World War II. Then we go from 1945 to 2006. That's the ownership adolescence phase. And then last, what we're in now is what I call the digital phase, which is 2007 to 2019 let's dig into the birth phase. So in the birth phase, we had kind of the first cars coming out in 1908, as I mentioned. And those were essentially, you had to buy them outright. So there was no purchase plan or anything like that. But a an interesting company started called the Ford Delivery Company and they were the first rental car company and they did this per mile, so you would pay, you know, something like 10 cents per mile.

Scot:    So cars were very novel. They wanted to get people in them. And they came up with this interesting kind of rental car model. So real cars didn't really become super popular until later, but that was the first introduction of that model of car ownership essentially is a, almost like a, a, a test drive, an extended test drive. Then in 1919 GMHC came out and introduced financing. So you used to have to pay for cars upfront and then they actually introduced financing so you could pay for them over a year. So that's kind of fun to think through, you know, all right. Now you know, let's say one of these cars was the equivalent of I don't know, $30,000. Essentially the financing back in those days was essentially in a, it was almost more like a Stallman plan to pay for it over a year.

Scot:    Obviously a financing has changed dramatically over the years, but that was, those were kind of the ownership models in the early phases. So buying outright a financing was introduced. And then rental car, then we go into the adolescence. And so an after 1945 in the fifties, leasing was introduced, leasing was before then before the fifties, leasing was popular for commercial vehicles, but it had not been applied to, to non-commercial or individual ownership type models. A company called U s leasing came out and, and essentially brought that in. Did we had a really long period of time where there wasn't a lot of innovation and car ownership. So we go literally from 50 years, from 1950 to 1999. And the big innovation in 1999 is Zipcar. So Zipcar was founded by two folks that went on a European vacation. And they were really surprised and pleased that in, I believe they were in Germany where they found this car sharing model.

Scot:    We're in Germany. They could go and find a, a car in a dock area rent that car and drive it around for the day and then return it. They thought that model would do well in the United States. So they founded the companies of car. So now we have the introduction of car sharing here in the very early days in 1999 now that brings us to where we're gonna spend the bulk of our time, which is the digital phase, which started 2007. I anchor this on 2007 because that's when the iPhone was introduced iPhone one. And if you remember, remember iPhone one, it was very controversial, a Nokia and Microsoft laughed at it and said you know, not only is it a terrible phone for making calls, but it's pretty much useless. No one's going to own these things. Boy, were they wrong? So the, the genius of the iPhone, and this didn't come along until iPhone two was the app store. So that's, that's where the iPhone became this open platform that exposed you know, caused the creation of a lot of these new models that we're going to dig into. So it's really important. And, and that's why I anchor the digital phase on the birth of the iPhone.

Scot:    So what, what the iPhone has allowed to be created is a whole new model called ride sharing and ride sharing. Has an interesting history. In 2008 Uber Cab launched, which was essentially going to put an app overlay on top of the existing taxi infrastructure. That didn't work out very well. And then Uber moved to more of a model around black cars sort of limousine type vehicles. And then they had a competitor in San Francisco called lift that launched in 2012. And Lyft was really person to person ride sharing. So, so trying to figure out you have all these folks out there that are willing to drive other people around. They don't know each other. But could we use our phones as a way to not only connect those people but get to a destination safely? In response to lift, I'm kind of going to the person to person ride sharing model.

Scot:    Uber launched, which was well into the ride sharing world on the taxi side or the, the limo side Uber came out with Uber X, which is the person to person writing platform. So from there we were off to the races and here we are in 2019 and obviously both those companies are, are quite large and public. Now the other interesting model that has been introduced a couple of years ago is it kind of person to person car sharing. So, so you know, when I think of Uber and Lyft, that's ride sharing. So someone owns a vehicle and they're going to drive you. That's ride sharing. Car Sharing is where you're essentially you know getting a vehicle in, from someone in, it's either a, B to c kind of model like Zipcar. So that business is car sharing with you or a person is car sharing with you.

Scot:    These, these businesses were kind of born out of the airbnb ethos of all right. People have a second home or a vacation home or a room in their house or a guest house or something like that. And they want to rent it out to folks you know, person to person. That's how airbnb was born. So a lot of these care show, car sharing, person to person, car sharing, companies use that. A lot of the same language and a lot of the same thinking in their businesses. The, the two big guys here are Toro and get around. So this is where you're seeing a lot of innovation right now. It's kind of the next wave behind the ride sharing companies. Uber and Lyft is in the person to person car sharing segment. So we have Toro Toro has raised 438 million obviously a, I think that puts it into what they would call a unicorn status in silicon valley.

Scot:    So over a billion dollar evaluation. And their competitors get around who hasn't raised 443 million. So you know five, 5 million more than Toro. So these companies are raising significant capital, which indicates that they're kind of in their hyper-growth phases and making a run at, at, you know, becoming large companies, possibly ips. In the B to B side of car sharing, you have maven and cargo, which we'll talk about later. Another area that's really popular from a press standpoint but less popular consumers is vehicle subscriptions. So there's a soccer company called clutch, which is now owned by Cox Automotive and they they essentially power a lot of the car sharing subscription programs out there. And then some of the companies have actually done their own. So a lot of the OEMs are expanding, experimented with this. So Volvo has care by Volvo.

Scot:    Cadillac had, they actually closed us down book by Cadillac. BMW has accessed by BMW, Mercedes bins has the Mercedes Benz collection and Porsche has Porsche passport. There's also some individual dealers that are experimenting with this model. And a lot of other kind of startups in this area like drive, black tie and prime flip. So in conclusion, if we kinda think about these three phases, what we end up with is seven different ownership models for cars that are out there today. If we go back to the birth, we have number one, which is outright ownership, and then number two, finance in three rent. Then as we go into the adolescence phase, we have leasing. So that's our fourth car sharing and I kinda count car sharing as one. But there's two flavors of car sharing. There's the B2B side and the person to person side.

Scot:    And then we have ride sharing and subscriptions. So those are our seven ownership models that we're going to dig into. Before we do that, let's look at what's at stake. Why are people investing 500 million, you know, over $1 billion just in one of these segments? Well, the u s consumers spend over $1 trillion a year on transportation and they drive over one and a half trillion miles just in the u s alone in passenger vehicles. There's 280 million vehicles on the road today. So, you know, this is a really big addressable market. If you could just get, you know, 10% of that, that's $120 billion market. Essentially. And if you can get 5% of that you know, just 5% of the market, it's $60 billion. So while we see these companies all have very, very small market shares, we have such a big number that spent on transportation every year that you can build really big companies here.

Scot:    Even if they're going to be having a one, 2% type impact. So that's very attractive to both entrepreneurs and investors. Also, you know, I mentioned earlier, you have an industry that's been around for over a hundred years and the car ownership experience, you know, I remember going with my dad when I was like 10 and buying a car and then now when I buy a car, it's almost exactly the same experience. You know, you, you go, you meet that sales guy, no one really loves that process. Then you have to negotiate with his manager. Then you sit down and you go through a very long kind of you know, process to, to end up buying the vehicle with all these financial options and things thrown at you. So, so you're looking at an industry that, that I think has, you know, hasn't really changed in a hundred years, has pretty low customer satisfaction.

Scot:    You know, the, the whole car buying and owning process is not amazing. Compared to kind of compare that to like an Amazon prime type experience. There's a lot of room to go there. Another factor here is the cost to buy a new vehicle has gone up substantially. So if you look back kind of 10 years, a new vehicle on average was $28,000. Well, with all the new you know, the, the user consumer preferences towards SUV type vehicles, all the new electronics and all the new features and functionality, the average vehicle cost has gone up to 35,000. So that, that's pretty material, right? That's a 7,000 you know, almost like a 30% increase over 10 years and the price of a new vehicle and some of that is self inflicted by consumers by, by what they're choosing. But that, that's Kinda the, the essentially owning a car has gotten way more expensive in just 10 years.

Scot:    The, the cost of owning and operating a car. So you would think a lot of this new technology, you would reduce that. Actually it's gone up pretty substantially. So the cost of owning and operating a car is about $9,000 a year right now. So, so that, that's pretty substantial. And that's those two things create demand at the consumer level for new models. Okay. So let's dig into each of these models. So we have outright ownership, financing, leasing, renting, ride share, car share with the two flavors of B2B and p to p, a person to person. And then subscriptions. So for those of you following along, I'm going on to page 21 in the, the presentation. So if we look at ownership finance, lease together as kind of a subsection of those ownership models. Last year in the United States, 17.2 million cars were sold.

Scot:    11.8 million of those were truck SUV. So you can see that a, you know, substantially large percent of these are now are in that truck SUV category. Many, many manufacturers have stopped making sedans. So, so the consumer demand for sedans is way down. The, the average alone on these vehicles. If we, if we look at how many people buy outright, only 14% of consumers buy a vehicle outright, which makes sense. This is, this is a pretty expensive, you know, this is kind of pretty much you know, a year's worth of income that you would have to accumulate to buy a car outright. So because of that, 86% of people finance their vehicles within that finance bucket, 30% are leased and 70% are traditional car loans. That always surprises people. I think a lot of people I talked to lease vehicles and they are surprised.

Scot:    Other people aren't leasing, but again, 70% are doing the finance kind of model where they're gonna own it out right after four or five years. And then more you know, I would say a more fluent segment is leasing the vehicle at 30%. And then that leasing segment it's interesting as we think about ownership, a lot of people kind of think, all right, I'm going to pay, you know, two, three, four or $500 a month for, for a car. And that's kind of going to be a steady state. And this is Kinda like a gateway into the subscriptions that we'll talk about the average loan for those folks that are financing the vehicle, the average loan is over 30,000, $800. And today you're looking at a 68 month term. So what is that? Five and half years. So, so five to six years.

Scot:    So, so folks are really you know, the financing vehicles have grown up to have a pretty low monthly payment, but what they're doing is they're just pushing out the terms. Compared to that first kind of installment plan I talked about, which was paid a year, the rental car market is fascinating. And, and here at Spiffy, we, we work a lot with rental car companies. When you talk about this for folks outside the industry, you know, what your intuition would say is, wow, ride sharing. The, the rise of ride sharing miles from Uber and Lyft must really be hammering these rental car companies. And what you actually find out is there's a little bit of truth in there, but then there's also a side to that and unintended consequence you may not be aware of. So let's look at that. So there's over 2 million vehicles in the United States active today.

Scot:    It's a $28 billion a year industry. And that industry grows right in line with GDP. So it's growing three to 5%. Just like GDP, the, the impact. What's interesting about rental cars is yes so they think about trip duration. So, you know, they have a segment of users that will do kind of day trips. So that same, same day rental, same day return. Then you have one, one, two, three, four, five day, and then greater than five day increments. What's interesting is, so some of the public companies, so, so hertz for example, listening to their conference calls, what they're seeing is ride sharing is hurting the super small trips. So as most impacting day trips and then one day, but then two day plus have not been impacted by ride sharing. So, so they're seeing, I think they've taken about a, a 7% hit on these shorter trips due to ride sharing.

Scot:    So then you would think, you know, all right, maybe that's 10% of what they're doing. So, so you, you would expect them to be shrinking, not growing three to 5%, but where they're making up for that actually is on the tail end. So prior to ride sharing these companies would hold vehicles up until about 50,000 miles, then they would wholesale them out at auction. What they're doing now they have so much demand for longterm rentals from Uber and Lyft drivers that they're now keeping the vehicles from 50,000 miles to 80,000 miles. And in that, those 30,000 miles they're renting them out on 30 day periods into the Uber and Lyft networks. And that's actually more profitable for them because the short trips are very expensive and not super profitable for, for the car rental companies because they, they, you know, if it costs $30 to turn around a car and it comes in and out every day, then you haven't made enough revenue to cover the turnaround.

Scot:    So what's happening is they're actually, they've lost, let's call it 7% on the short trips, but they're making up that plus a lot because it's more profitable on the back end of the life of the vehicle by putting them into the car networks. So you may not realize it, but the, you know, especially in big Metros, the, the car, your Uber or Lyft driver is driving, could very well be a rental that they've done a 30 day rental from Hertz, Avis enterprise or of their imprints. So, so that's really interesting and that's a, is fascinating to see the unintended you know, the, the counterintuitive reaction that's happening in these things. It also shows, I like to talk about these ownerships models as if they're separate things, but they actually are really starting to overlap and interesting and fascinating ways that we'll look at. Now let's look at ride sharing.

Scot:    So that's the rental cars and now we're into ride sharing. So again, in my, my, my vocabulary ride sharing is you know, you have a driver that comes and gets you. You're usually using an app to hail that driver. And Uber and Lyft are the big players in the United States. So there's a lot of buzz around this obviously, and you've got two large public companies that have been created, multibillion dollar companies. But really when you, when you look at it if you look at 2018 and this is, this is government data that essentially from the Department of Transportation and if we look at 2018 really one and a half a million miles have been from ride share which is 0.9%. So we're not even like 1% of of transportation miles yet from rideshare. So, so very, very small overall and it's forecasted to stay about the same.

Scot:    But you know increased by 2028 be about 3% of overall miles. So it'll be growing really rapidly, but still it won't even be kind of 5% of miles for the next 20 or 10 years based on the modeling that's out there. So it's still very early days for this and this because the transportation industry is so large, you know, we're, we're, if we're traveling one and a half trillion miles, it takes a lot of, of ride share miles to make it den on them. What I find fascinating is, you know, why are people using ride sharing. You hear in the press beats the drum on this that, you know, people are giving up their cars for ride sharing, but when you actually look at the use cases, I think it's fascinating and it's certainly that's going on in some of the larger Metros like New York, Boston, Chicago, San Francisco.

Scot:    But I think once you step outside of those areas, it's really interesting to see why are people using ride shares. So this is from a Wall Street firm called JMP securities. They did a pretty large survey of thousands of ride shares to kind of say, why are you using a ride share? The number one use case at 46% is a trip to the airport. So, you know, this is fascinating. You know, I, I think, I think the, the people that are actually the companies that are impacted the most by ride sharing is airport parking. So folks are doing the math. You know, fortunately here in the Raleigh Durham area parking is like maybe 20 or $30. But in large cities, you know, you can easily pay $100 a day to park your car. If you're at Boston. So you know, the math doesn't make, it doesn't make sense to park your car there.

Scot:    So everyone's taking a, a ride share to the airport is the number one use case. The next couple of use cases are a, we're familiar with here at Spiffy because it creates a lot of problems for Uber and Lyft drivers and that is leaving a clar a club or a bar at night. So 33% of consumers that use rideshare are using it when they're out drinking and partying. 16% is at a party. So you add those together and you get what? 49%. and then there's going to a dinner, going to a concert and going to a sporting event. When you roll all those up, it's like 70%. So actually the biggest use case I think of ride sharing is I want to go out, have a good time, and not worry about having a designated driver or getting a DUI when I come out.

Scot:    I haven't seen any stats on this, but I, I think there's this probably this interesting freakonomics like study we could look at where I think the rise of ride sharing is probably plummeted DUIs. So, so I think that's, that's great too because we have less people out on the road driving intoxicated. So, so there's this, you know, there's really interesting use case. I don't, when I talk to people in the industry, they don't think about the reason we see this a lot is spiffy is unfortunately when you do transport, a lot of people that mount drinking accidents happen and we call those biohazards. And we, we do a lot of help with those situations here at spiffy way down at 10%. Sub 10% is the use case of my daily commute. So most people are not using Uber and Lyft for their, their daily commute.

Scot:    So as we peel the onion on ride share and look at Uber, Uber has all the stats we gave you or as of the reported first quarter of 2019. So these now these companies are public. We have a lot of really good data here. Uber has 6 million active drivers and a 62 million active riders. That's a global number. They don't break that out by the u s but half their businesses. U S so I would say probably 3 million active drivers in the U S and about 30 million active riders in the United States. So, so a lot of, lot of people really using these services. If you think about the u s we have 300 million folks with us. So anything, you know, 30 million active riders would be about 10%.

Scot:    I'm looking at Lyft. Lyft has 2 million active drivers, so about the same size as Uber when you compare apples to apples for the u s market. But because Uber invested very heavily in going international. They're about twice the size of Lyft or, or more. They also have Uber eats. Lyft doesn't have that. So Lyft, Lyft has 2 million active drivers, 20 million active riders and delivered over 205 million rides in the first quarter of 2019. When you look at these companies, if you're really interested in this, I strongly recommended recommend when you go public yet to file a document with sec called an s one. So if you googled, for example, Uber s one or Lyft s one, you'll get a really nice you know, this is going to be like a 300 page document that these businesses put together detailing every aspect of their business. I recommend pulling those down, looking through them.

Scot:    And then I always the, the way the SEC requires you to draft this it's kind of like all the good stuff's in the middle. So you have to kind of like talk as if your business is terrible. And then you'd talk about some of the good stuff and you have to end with why it could be terrible. A lot of people misread that. And you know, as wow, y w this business is terrible. So the section you want to go to is the management discussion. So the, it's called the management discussion and analysis or the MDA section. It's usually literally about a third of the way through the document. That's, that's really where you get in the heads of the CEO and the team running the company and understand how they think about the business. And that's where you can really get, get really deep understanding of these businesses.

Scot:    So, so if we look at in the U S if we look at if we compare where they are Uber versus Lyft effectively in 2016, Lyft had 22% share an Uber pretty dominant at 78%. But Lyft has made a really big push and is gaining share. So as we, as, as we left 2018, which was kinda the last time data was available Lyft had 40% market share, an Uber 60%. So, you know, what lets doing is competing on price and really trying to differentiate. And have happier drivers. They share a little bit more revenue with drivers. Lyft was the first out that let you tip the driver. So really kind of trying to have a different brand kind of model than Uber. Uber had some challenges with their previous CEO and some of the things he said did. And then now they're kind of on the mend with a new CEO, a new, a new kind of trend in the industry.

Scot:    And I, I'll kind of put this kind of still inside the ride sharing bucket is we have these new suppliers that are being born that, that will try to supply into the transportation network companies. So a lot of the industry publications will call Uber and Lyft transportation network companies. So there's all these new companies that are supplying in there. Previously I mentioned the rental car companies. So the rental car companies, I would hazard to guess, and there's not a lot of data on this, but just because of their scale are probably the largest suppliers into the TNCs. So what that means is again, Hertz, Hertz, Avis and enterprise essentially taking tail end cars, cars that have a fair amount of miles on them, usually 50,000 up and supplying them into Uber and Lyft drivers. There's also several other companies doing this, such as Hyrecar. And for those falling along, I'm on slide 28.

Scot:    You know, so higher car a is really a, a smaller company. I'm thinking about a hundred million in revenue, then went public and they really just provide short term 30 day ish rentals for Uber and Lyft drivers. Lyft is actually, Uber didn't experiment where they would actually lease cars into their own. Drivers. They, they exited that business before they went public and that merged into f a I r so fair is a very large supplier for the TNCs. Lyft is doing it's own program called Lyft express drive. And then another company that's really interesting is in New York called Buggy where, you know, they're, they're essentially doing these short term rentals where you can go in and sign up online and within hours you can have a vehicle. And they've, they've done the math on, I think they have like two or three models that work really well in New York City.

Scot:    So I think one is like a Prius and one is a newer Toyota Corolla and they, they're so tied into the networks. They will say, all right, if you want, one of the ways paths you can go through is they'll say, do you want an Uber select vehicle, an Uber XL vehicle or an Uber x vehicle or a vehicle that would be available for Uberpool. And they know those requirements and they have vehicles that meet those requirements. So as a driver you can say, you know, wow, my, my daily driver, I can only do Uber X. And I've heard Uber select is where all the money is in New York. So you can go rent a car that gets you into that Uber select tier from one of these suppliers. So a lot of really interesting kind of innovation happening as a feeder into Uber and Lyft that, that you wouldn't know about, but it's right there under the surface.

Scot:    Now let's talk about car sharing networks. So I talked a little bit about Zipcar before. Let's do a little bit of a deeper dive to kind of understand how this was born. So Zipcar, as I mentioned, was started in two, in 1999 and you know, you can imagine before you had a smartphone, it wasn't super useful. So you know what, these are gated. So what the user experience was largely around college campuses and, and areas like that. So you would know, hey, in my college, I'm a student in, at my college campus, I've seen these d zip cars parked and two or three locations, you sign up, you pay a monthly subscription, they could use certain number of miles. If you go over those miles, you pay a per mile fee. But if your student, you know, you could go and say, all right, I really need to run errands.

Scot:    So you would go to the grocery store, go to the mall, and then you use the car for four hours and put it back in one of the gated areas. And then you would go, you'd use your desktop essentially to log your, your miles in and out and whatnot. 2009 once the app store is open this, this really took off a lot more because the phone is a much better use case where you can say, now, all right, I am in location X. I press a button and I can, I'm pleased to see there's a zip car three blocks away from me that I can go use. And I can see that there's one there. So you get, so the phone added Geo location, kind of hyper geo knowledge of what's going on. And then availability of inventory, which is really critical to this model because what really stink is if you're a college kid, you walk all the way across campus and then the two zip cars are gone.

Scot:    So really bad user case there not having visibility. So the phone has really solved that. So that really took off. They did have some controversy around the founders that got kicked out. New new team was bought in and the company went public in 2011 after kind of two years of hypergrowth after the introduction of the smartphone app they ended up getting acquired by Avis in 2013 for about $500 million. So, so definitely a big success story in, in, in the transportation space. Unfortunately, once they're acquired, Avis hasn't really provided a lot of information. What I can tell you is they're available in 500 cities globally, over 12,000 vehicles out there. The average trip is 47 miles. And then within car sharing, one of the innovations is Zipcar is kind of the earlier model where they're, what were called docked.

Scot:    So again, there's these branded parking spaces you have to go to this parking spaces. It can be relatively inconvenient both on the pickup and the return part of this transaction. Especially if, you know, let's say you did all your grocery shopping in the doc for the Zipcar is a fair distance away from your dorm and you're a college student. Now you got to lug all that stuff. You bought a across campus back to your dorm. So a lot of the you know, a lot of the innovation in car sharing has been in the undocked category, but over in the docked category, we do have Maven which I believe is supported by GM. And then that's, that's out there as, as an option as well. The undocked companies. So you have cargo share now reach now, drive now enterprise car share.

Scot:    And a lot of the OEMs are testing this. So Toyota has a test in Hawaii called Hui. I don't know how to pronounce that. We'll, we'll call it hooey. So, so a lot of really interesting things going on there that we'll explore. So one of the challenges is the reach. So because there's a business that's owning these, it's got to someone's to pay for the car. Right? so if you look at Maven for example, it's available in like seven us cities. And you know, so Ann Arbor, so a lot of these start in Michigan and, and the Detroit and our Arbor areas are always possible. Chicago, a lot of them kind of start in the Midwest and then go out to the edges. And then another challenge with these car sharing networks is security. There's a high profile Cartago I believe, or may have was maven.

Scot:    They had you, it was the Mercedes one, which is car to go. They had 75 vehicles stolen. So, so people you know went to the dark web, they got some, you know, American Express credentials. So they stole credit cards, use those stolen credit cards to get access to the vehicles and then stole the vehicles. And well all of these vehicles have tracking whatnot before the local authorities could track them down. The vehicles were stripped down to the skeleton and all the parts were gone. So a lot of these companies have actually exited the Chicago market because they, they there's a very efficient car theft capability there that, that I don't think you can, you can get around. Well the big news and the car sharing networks is consolidation. So BMW and Daimler both had separate programs and they got into kind of realize, you know, hey let's go in this together.

Scot:    If we each kind of, you know, are going to spend tons of money looking at this type of a program that's inefficient. We're all developing the same models. Let's, let's pool our interest. So they reached a joint venture recently here in 2019 that brings Cartago and reach now under one roof. The brands here are a little confusing. So I think they all have this now things, so they have share now, reach now and Parkville all within this, this whole conglomerate. And the share now is the car sharing program that we're talking about. Park now is their acquisition of park mobile. So you know, you, you have some, the jury I think is still out on car sharing, both in the doctrine undocked if it's going to take off, it's going to be the undock. It's also you know, what's interesting is in the ecommerce world, we see brands going direct very aggressively.

Scot:    And I think we're gonna see that in the, in the auto world which will obviously disrupt the dealer networks. So most of the experiments in car sharing or from the OEMs here, it's 50, we're under NDA with many in it, you know, OEMs that are doing experiments around car sharing largely in the San Francisco and La areas. So there's a lot going on, even more than than I can report here. And it's mostly the OEMs kind of directly figuring out, you know, is this going to be a whole new model that they should be involved in? And because they're making the cars it kind of is viewed as a verticalization of supply chain in an interesting way. So the jury is still out on that one, not really up to scale. And I would argue subscriptions are kind of in that program where we are seeing a lot of scaling up is the car sharing.

Scot:    From a P2P perspective. So I mentioned earlier we're got this kind of very similar Uber versus Lyft battle forming between Toro and getaround. So Toro decided to go wide very quickly. In the, in the early days trows decision was to get an in many cities as quickly as possible. Get around said no, the user experience is more important. We want to have a limited rollout and we're going to ask every one of our car owners, what they do is they use this airbnb language. So a car owner as a host and then a car renter is a guest. They don't use rental language at all because they, they're trying to stay out of all the regulations around rental cars for the consumer. It feels like a short term rental. This a lot cheaper than, than a normal rule. But the companies themselves use airbnb type language.

Scot:    So I will, I will adopt that as I talk about them. So get around, requires their, their host, which are essentially the people that own cars. So we'll call this host to have a device installed that gives the guests the iPhone, the smartphone ability to lock in and lock the car and have access to the car. That's really a nice user experience because now you don't have to mess with getting the keys. So, so get around. That device is called Getaround connect. And for the longest, a very long time, it was a required part of it. They've since loosened that up. So if you look at them today, Toro has a 5,000 cities, over 5,000 cities, thousands of cars. They're running this really interesting Porsche host program where Porsche goes in and they say certain hosts that have one or two Porsches available are almost like ambassadors for the brand.

Scot:    So you can get a, essentially an extended test drive. So you can go rent at nine 11 for a day from a Porsche host. And that host is going to be able to tell you all about the features and functionality that car and really you know, highlight what's great about a Porsche. So that's an interesting kind of another intersection of the OEMs promoting this, this kind of short term rental model. I'm in the car sharing world. Toro came out with its own device you can install called Toro go. And on the consumer side you can say, all right, I want a Toro in San Francisco that I want a Tesla and I want it to have this device installed. Most recently Toro raised $250 million from interactive court. So you see a lot of the biggest investors in this space are Interactive Corp, Cox automotive car are automotive Kar.

Scot:    And then you also have Softbank, Softbank in the world of startups. Softbank is the, the, you know the Mac daddy of the gangster, of investing in, in large companies scaling up and that's who's invested in getting room get arounds in 300 cities. They just acquired a competitor called Drivvy; d, r. I, v, v. Y. Um, and over in Europe which gave them an international presence. They say the average car on their network owns, earns $500 a month. And then they recently raised 300 million from Softbank and they have a partnership with Uber where, you know, again, all these companies are kind of becoming suppliers into the the ride sharing companies, which I know it gets confusing. But you know, you can say let's say you have a second car, you can rent it on, you know, for 30 days to an Uber, Lyft driver through get around.

Scot:    So, so a lot of really interesting things going on there. Only compare these two guys according to some of the folks that measure the data here. This is sourced to second measure on, on slide 34, if you're following around, Toro has about 80% market share in the u s and get around 20%. So it looks like it looks like kind of Toro is going to be the Uber and get around. It's going to be the lift, but we'll still see us very early days. Again, these companies have all raised hundreds of millions dollars recently. So, you know, I am, I'm actually starting to see TV ads and things from all these different models out there. The thing that we see as 50 that's interesting is we see this lifecycle with get around in Toro. So, so here's how it works. So let's say you, you you hear about one of these things and you're like, wow, I would love to make some, you know, some extra money from my vehicle.

Scot:    So you start, you start putting it on with these networks and you really, the extra capital that you're getting, let's say, you know, a week out of a month you rent a car and you get $150, you know, that's nice and helps you maybe cover your car payment and pay for gas or anything. But then what you start to realize is having someone in your daily driver is Kinda Weird, right? Because it was just kind of strange sharing your car with someone. But then what a lot of people do is they'll buy a second car and that's Kinda like their investment car. And they'll say, or they'll buy a new car and they'll take their primary driver and turn it into their, their car sharing car. So they'll effectively have two cars, a daily one that they live in, and then a second one.

Scot:    And they'll, they'll put that out there and they'll reel, they'll start to make $500 a month, they'll pay off that car very quickly and they'll realize that, that that's a really good way to earn, you know, effectively own a vehicle. Pay It off and then start generating cash. So once you pay off that vehicle becomes a cash cow then they'll buy another one, another one, another one. So, so what we find is these power hosts have developed where there's folks that own five to hundreds of vehicles and they're, they're using this you know, they're using these networks to build pretty interesting micro fleet businesses. So, so then they start parking them around airport parking. So this is interesting because now you know, now we're back to airport parking, which is suffering from ride sharing. But if you do want to do a longer term lease from a truck, get around and you're going to lax or SFO what you'll find is most of the parking now is occupied by these types of vehicles.

Scot:    So it's Kinda funny how these things all intersect. I do expect this model will have an impact on their rental car company. I don't think the scale is there quite yet. But I think in three or four years you're going to start to hear them have to react to these things. And maybe they'll, they'll actually participate. Or you know, if I'm, if I'm hurt, I start to say, well, why is it fair? These guys can essentially run out cars and not pay all the rental car fees I have to pay and all the regulatory things. And it's gonna be interesting to watch. Just like the taxi industry fought up against Uber and Lyft. I think we're going to see the real car industry start to really kind of come at these car sharing companies. Okay. The last model to look at before we start looking at the future is subscriptions.

Scot:    So, so these, these sound good, you know, you're kind of like, all right, I'm already leasing a car. And what if I paid a little bit more and everything's included. So the insurance is included. Everything I think you pay for the gas, but all the maintenance and everything is included in what they offer. That's pretty cool is they all have a different degree of being able to switch cars. So some of the programs, usually you have a different kind of a good, better, best program in these things. So, for example like the let's say the BMW one, you have three tiers icon, the legend and BMW m. So that's where you're going in the m class, which is their highest end. So the icon you have, you know, kind of the three and four series BMWs and the legend, you get the five and six series and then the m you can get kind of like the convertibles and the fancier cars.

Scot:    As a consumer, it's an interesting use case because you could say, you know, I have three kids, so during the week I want a, you know, an SUV type car. But on the weekends my wife and I are going to the beach or we're going up to the mountains, we'd like to have a convertible or a different type of vehicle or maybe you need a four wheel drive. So, so there is an interesting use case there. The challenges, the costs. So that BMW when I was telling you about the lowest end is $1,000 a month and then it gets up to about $3,000 a month for the high end. So you know, just feels like it's priced itself way outside of even luxury consumers when you're competing with, you know, that would be nice, but if, you know, I could have one of these BMWs for five or $600 a month, I'm not sure consumers willing to pay 10 x then.

Scot:    So, so I'm just not really sure where this is going to go and what we'll have kind of, you know, seems like there's something there, but they've got to figure out how to get the cost way down. It needs to be, you know, the killer app is if we were designing this is it would be lower than my lease payment or, or equivalent and I could do peak vehicle flips and you know and have access to, you know, some vehicles I probably wouldn't normally have access to. So I think we're a long way from there. All right. So those are the seven models and a deep dive into where we are on all of them and what's going on. Where is the future taking us? So we want to conclude here by, by kind of looking forward and I'm on slide 36 for you home gamers.

Scot:    So where are we today? Vehicles are only used 5% of the time. So you have, you know, it's largely people's. If you rent as prior, your your biggest asset and if you own a house, it's your second biggest asset. So you're actually using your, one of your biggest assets 5% of the time. And it just feels wasteful. You know, think of all the cars just sitting there parked right now while I'm talking to you. So think of all that real estate that you know, could be green space or bike lanes or parks or whatnot. 89% of trips are single writer. So again, as we think about the environment that's really inefficient. And then again, the average cost of the vehicle is $33,000. So, so where the, the metric I have found that drives a lot of these models about where the future's going is cost per mile.

Scot:    Right now we're at a cost per mile and the term kind of ownership model of, you know, again, a finance own outright our lease and about $3 per mile. So, so that's the real key driver. How do we drive that cost down? So electric vehicles are one of the ways, you know, so with electrical vehicles, you're obviously not consuming gas. You know, the cost has come down like on the model threes and some of the other models coming out where you're not having, it's not a luxury kind of a, a vehicle anymore. It's in that you can get vehicles are getting closer to that $33,000 number. The, the key driver though is autonomy. So there's a couple of models here. I'm sorry. So I went out and kind of looked at all the different models about when is Carner ship really gonna Change.

Scot:    The first model is from BCG analysis and it's onside 38 for those of you falling along. And what it shows is kind of a, what I call a slow boil. So here we are in 2019 and they really don't show much of an impact until 2030. And a lot of that is from autonomous vehicles, so, so they're kind of saying by 20, 30, 70% of cars will still be you know, individual ownership kind of conventional models. And then 30% will be these, you know, Robo taxis and car sharing is all the models I've talked about outside of individual ownership. So so that, that, that feels right to me because I come from the ecommerce space and you know, we're only about 15% of of sales are e-commerce and we've been at this 20 years and it's obviously a better model, but there's still just a bunch of people that don't trust the security.

Scot:    They like going to the store, they love parking, and you know, waiting in line for hours to get stuff. I don't, I don't a hundred percent understand it, but you know but you do see pockets where it's as high as 50, 60, 70%. So, you know, that's one model and I call that kind of the slow Boyle. Then there's the a model that shows crazy fast. And this is from some guys out of Stanford that, that have a model. And they have a company called rethink x that published this and their model, we, the new, they kind of use a miles kind of a metaphor, but it's about the same. And this model, 80%, by 2030, 80% of the cars will not be owned by individuals and 20% will be these new models. And when you, when you dig into how is it possible that, that a smart people are forecasting such different things?

Scot:    What you find is it's the autonomy piece. So to get that, to get down from $3 a mile to sub a dollar a mile, which is where as consumer, you will logically then according to these economists, you'll logically choose to not own a car anymore. Because owning a car will be $3 a mile and using one of these other things that will be a dollar a mile, it takes autonomous vehicles to be pretty prevalent in Robo taxis. So that's the real crux of this is when are we going to have, you know, large numbers of miles driven being able to be done by autonomous vehicles.

Scot:    A good example of that is on slide 41, where, you know, when we're at $3 a mile, then the addressable market for these new modes of transportation is about $20 billion. So, so large. But once autonomous vehicles get you to a dollar, then it mushrooms up to 750 billion about 150 times the market today. And then once you can get a below a dollar, then it will be 300 times today. So that, that's the real dry or the model. Let's see if you're interested in this. On slide 43 Tesla did a effectively a, a full day on autonomy. And then there you know, there's a lot of really interesting discussion around the technology behind autonomous vehicles, like lidar versus cameras and whatnot. But then at, towards the tail end when Ilan was wrapping up, he talked about Tesla's overall plan to have robo taxis out there.

Scot:    So these vehicles will be under $38,000. So call it a Tesla Robo Tock taxi, which is effectively a model, a model three or a model y with kind of a base configuration. And you know with full autonomy, he thinks they can get the cost down to 18 cents a mile. You could charge less than a dollar a mile for a profit of 65 cents. And then this, this vehicle could be out there generating 30 k a year for you in profit. So, so really interesting. The application of electric and autonomy you know, they, I think they can get the miles down to, you know, way below a dollar a mile. But again, you know and of course in typical Elon fashion, he said, we're going to have a million of these in a year. So I, I think that's very aggressive. I think the regulatory environment is not gonna allow that to happen.

Scot:    But it is interesting to think through, here's a real car maker thinking through these economics and you know, putting, putting off flagged down at six, 18 cents a mile. The other big trend that's driving the future of transportation is multimodality. So multi-modality is that the kind of the holy grail for transportation is imagine you have an app. This app says OK you tell the app, I want to go from point a to point B, and that may be I'm in New York and I want to go from, you know, Tribeca up to I don't know central park. And that app will tell you here's the optimal, do an optimize on time or, or money or, you know, maybe there's a slider in between there. And depending on what you do, that app is fully dialed into all modes of transportation.

Scot:    So that app may say to you, all right, for time, you're gonna take a scooter to the subway stop. And here's, here's, here's 12 scooter companies and you're going to, there's a lime that's close to you and we're going to go ahead and light that up. And you get to the line, you take it to the subway stop, you park it, now you get on the subway and the app has timed it to where you're there two minutes before the trainer eyes. Now that train takes you somewhere and then it puts you on a, you know, now you take a ride, share to the next leg of your journey, et Cetera. So kind of intermingling all these transportation modes from micro mobility on bikes and scooters. Two medium distance from ride, ride sharing and maybe down the road, Robo taxis. And then also intermingle mingling, car sharing.

Scot:    So another use case could be, alright, I'm in New York and I want to go to Maine on vacation. So this app says, all right, here's how we're going to connect to this. You know, you're going to take a let's see a bird from here to the subway, that subway is going to take you out to LGA. And you're now going to go to this long distance LGA parking area where there's a Toro waiting for you and we've rented it for the two days you need, and that you're going to take that Toro, do your trip and come back, and now you're gonna have to, you know, the, you know, for whatever reason Toro wants you to return that to a different location. And here's how I'm going to get you home. So that's, that's, that's kind of the big driver of the future of multimodality.

Scot:    So everyone's gunning for this. So it's gonna be interesting to see who, who gets there first. You know, you, you obviously, so Uber and Lyft are trying to get there very aggressively. So you have some multi-modality there between, you know, the different ride sharing all the way from, you know, the XL, the black cars to select to scooters. Some of them are starting to pull in there. You had the map companies. So you know, I use, when I go to New York, I use Google maps for this. It does a really good job of telling me, you know, walk here, do this. It doesn't really have the scooter thing in there. And the bike thing I'm not really big on those models, so I'm fine walking to the subway stops and it tells me where to go. The other thing I'll depart with is there's always a lot of interesting unintended consequences.

Scot:    So with availability of ride sharing, for example, this is slide 47 you know, what they're finding is over half of the, the ride sharing trips are new miles. So a lot of lot of folks thought, okay, Uber and Lyft are going to really increase utilization. But what's happening is because they've made it so easy for people to go to from point a to point B, people are actually increasing the number of miles they travel. So, so a lot of these are new trips and so you know, one of the surprises is ride sharing is actually increased congestion in big cities like New York, Boston, Chicago, San Francisco. That's, you know, what suffering from that a little bit is public transportation. So if you're in New York, it's actually, you know, a much better user experience to ride a ride hailing vehicle than get a taxi, which would be too expensive.

Scot:    So cheaper than a taxi and it's more expensive than public transportation, but it's a better experience. So, so a lot of incremental new miles coming out of unintended consequences. So what's this mean for you? So you're obviously listening to this podcast because you're somehow connected to the transportation industry. You may be an ecommerce person that thinks about package delivery and you know, if we do have these robotaxis that that's going to be a game changer. But, but essentially think who's going to own the vehicles and when are we going to see this? This flip happen largely driven by autonomy. Who's going to maintain all these vehicles once you have more, you know, if we're, if we're kind of currently at a 5% utilization and we take these vehicles up to a hundred, that's a lot more miles per vehicle, a lot more drivers, a lot more maintenance.

Scot:    Who's going to do that? What happens to car dealers and these new models where, where do they sit? Are they the guys that are the parking lots and the maintenance for these vehicles? What happens to the OEMs? Do they essentially go direct and cut out dealers or do, does everyone still have a role if you're, if you're not autonomy does, does that mean, you know, that has consumer, you don't really care. The difference between a Volkswagen and Mercedes is no longer a status symbol because you're just using this thing for five miles and you don't really care. What, what's that mean? You know, what happens to the ride share and car share companies when autonomy comes along, they're obviously investing heavily to make sure they, they kind of put themselves out of business in that model. And then, you know, there, there's always a scary side to this kind of stuff.

Scot:    But what I found is these kind of really big changes create opportunities that are bigger than the downsides. So, so what does it mean for your business and how can you innovate and be a part of this and capture some of these, you know, hundreds of billions of dollars that are going to spill out when, when this happens. And last, you know, we, we have kind of seven, seven big groups that are really fighting over this. So we have the car sharing networks both docked and undocked we've got the P to p companies, we've got the subscription companies, we've got the traditional rental rental car companies, the ride sharing companies, and then all these companies investing along with, so you've got the OEMs and other companies you know, investing heavily in autonomy. They're all in a collision course trying to fight for this one and a half trillion dollar market.

Scot:    And it's gonna be really interesting to watch that. And if you find this topic interesting, you're in the right place. Cause we are going to keep you up to date on everything going on with these ownership models on the vehicle. Two Point Oh podcast. Thanks for joining us. We hope you've enjoyed this deep dive. And if you have any questions. So first of all, we would love a five star rating over in your favorite podcast listener. And if you have any questions you'd go to our Facebook page over at spiffy a or I think through our vehicle 2.0 page. You can ask some questions, be happy to answer those. Thanks. And happy driving.