Dearborn, Michigan - Car companies facing multiple threats to their business from nimble tech firms such as Apple and Uber are reinventing themselves as “mobility” companies that can accommodate all the different ways people get around.
General Motors has already announced a long-term alliance with ride-hailing company Lyft and started a car-sharing service called Maven. Ford has created a technology-focused division based in Silicon Valley that will invest in promising transportation startups, and launched FordPass, a smartphone app that helps users find parking or share their cars, while Fiat Chrysler is partnering with Google to test self-driving software in 100 of its minivans.
In congested and expensive cities, people are increasingly content to share cars or summon rides using their smartphones. Analysts at Boston Consulting Group predict that 35 million people globally will be using car-sharing services within five years, up from 5.8 million now.
That means 550 000 fewer cars sold each year. Within another few decades, fleets of self-driving taxis could replace the need for personal car ownership altogether. Automakers that don't adapt risk being supplanted by high-tech competitors.
“We're investing in future-proofing,” says Elena Ford, who led the development of FordPass and is the great-great-granddaughter of Ford's founder.
Also read: Ford to invest in future mobility trends
Making vehicles is complicated and expensive, and car companies have stumbled when they've taken on new businesses. GM bought software maker Electronic Data Systems in 1984 but sold it 12 years later. Ford owned Hertz rental cars but sold it a decade ago. Chrysler owned aircraft manufacturer Gulfstream in the mid-1980s. In each case, the companies sold those businesses to refocus on making cars.
There's also the open question of whether drivers want automakers to do more than make cars. Ford CEO Mark Fields is confident they do.
“It goes back to Henry Ford and one of his favorite quotes: 'If I asked people what they wanted, they'd say they wanted a faster horse’,'“ he said. “We want to transform, fundamentally, the relationship between car maker and customer.”
Fields adds that the financial case is too compelling to ignore. Global revenue at traditional car companies totals $2.3 trillion (R36 trillion) a year, he says; the transportation business, including taxis, buses and car-sharing, is worth $5.4 trillion (R85 trillion).
Companies are targeting people like Shannon Serenko, 32, who works at Johnson & Johnson and lives in downtown Ann Arbor, Michigan. Paying for parking, insurance and fuel for a car she barely uses would be a hassle, she says. Instead, she rents a Chevrolet Volt from Maven for $42 (R660) a day when she wants to run errands.
“I'd just rather be spending all that money on other things than parking a car for six out of seven days,” she said.
Record sales
Detroit carmakers aren't the first to offer mobility services to compete with the likes of ZipCar and Uber. Daimler launched Car2Go, a car-sharing service, in 2008; it now operates in 29 cities in Europe and North America. BMW started a New York-based mobility venture capital firm in 2011. Toyota has 70 tiny electric cars zipping around Grenoble, France, as part of its own car-sharing service.
But after surviving the recession, Detroit is enjoying record US sales and ploughing the profits into mobility experiments.
GM has been the most aggressive of the Detroit companies. In January, it invested $500 million (R7.8 billion) in Lyft and said it will co-develop a service that lets customers summon self-driving cars. Three months later, it paid a rumored $1 billion (R15.7 billion) for Cruise Automation, a startup that makes autonomous vehicle software. Around the same time, it launched Maven, a car-sharing service in Ann Arbor and Chicago.
GM President Dan Ammann said that when GM sees potential value, it can't afford to sit back and see where the market heads.
“We believe in speed,” Ammann said.
So far, Wall Street is on board. Colin Langan, an auto analyst with UBS, said investors understand the need to invest in new mobility, and expect companies to spend hundreds of millions of dollars a year doing so. But alarm bells may go off if they're routinely spending more.
“Historically, car companies have not been good allocators of cash,” Langan said.
Open-ended partnership
Fiat Chrysler boss Sergio Marchionne says it's dangerous for carmakers to place big bets on one solution. He stresses that FCA's partnership with Google is open-ended and not exclusive. If the companies decide to keep working together, they will eventually hammer out details such as licensing fees for the software.
“Walking in a collaborative fashion with people who have historically been viewed as intruders and potential enemies of our business - walking with them at their speed - is the best possible solution for us in terms of determining what our future state will be,” he said.
Ford has done much of its mobility work in-house. The company has run more than 30 global mobility experiments over the past 18 months, including a concept in India that lets multiple families or co-workers share a car and a ride-hailing van service for workers on its Dearborn campus.
But Fields says Ford is flexible and open to partnerships. The FordPass app was developed alongside Pivotal, a Silicon Valley software company in which it has invested $182 million (R2.85 billion).
FordPass lets Ford owners remotely start their cars and make car payments. Users of the free app - who don't have to own Fords - can also reserve and pay for parking bays, get help from a live operator, rent their cars through FlightCar and earn points at partners such as McDonald's.
Ford will continue adding features; one day, users might be able to summon a self-driving vehicle or borrow a Ford-made bike.
“People spend about four and a half hours a year in a dealership, but they spend 900 hours a year being mobile. So how can we have an ongoing dialogue?” Elena Ford said.
AP