Powered by smartphone applications, the sharing economy has dramatically changed the way people work, travel, and go about their day-to-day lives. With the advent of services such as Uber and Airbnb, owners of underutilized assets like automobiles and dwellings can share them with 80 million worldwide users for monetary and non-monetary benefits. According to an estimate by The Economist, the sharing economy’s value will reach approximately $264 billion by the end of 2030.
Ride-sharing companies like Uber and Lyft, which connect customers to affordably-priced drivers with just a few button taps, have transformed themselves from startups to multibillion-dollar companies that are disrupting the car industry. Presently, car dealerships are feeling the brunt of the disruption as ride-sharing has reduced car sales and will continue to do so by an estimated 1.2 million units by 2021. But the disruption will soon move beyond car dealerships and affect car manufacturers, too.
In a video for L2 Daily, Professor Sundararajan of New York University’s Stern School of Business, author of The Sharing Economy, notes that the effects of Uber and Lyft on car dealerships are only the first of three phases of a “massive disruption that is going to completely reshape [the car industry] over the next 20 years.” In phase two, people will use ride-sharing technologies to order partially autonomous cars, which self-drive but allow for a human driver to take the wheel in case of an emergency. Thanks to research and tests by Google, who joins Apple, Inc. in striving to enter the ride-sharing market, by phase three, cars will be fully autonomous with no pedals or steering wheel for a human driver to use.
The key element of the disruption is the shift in the public’s mindset from buying a car to buying transportation from point A to point B on an as-needed basis.
Dr. Sundararajan predicts that car industry profits will be made from selling products in the digital economy rather than the physical one. Although companies like Ford and Volvo are already developing digital technologies akin to Uber or Lyft, the biggest challenge for automotive companies will be to get consumers who trust them for the integrity and safety of their physical products—the cars that they make—to trust their digital user interfaces for ride-sharing. People already trust Uber and Lyft, and, as cars become fully self-driving, they are likely to trust Google or Apple software more than software created by any one auto company.
However, the outlook for the auto industry may not be as grim as some suggest. Recognizing that that ongoing income streams can substitute for lost profits from decreased car sales, some big automakers have partnered with ride-sharing services. Earlier this year, Toyota bought a small stake in Uber and agreed to supply its drivers with leased vehicles. The partnership was announced soon after Volkswagen invested $300 million in Tel Aviv-based Uber rival Gett and General Motors invested $500 million in Lyft, the United States’ second-largest ride-sharing service. GM also started leasing cars to Lyft drivers in Chicago, and its president, Dan Ammann, joined Lyft’s board of directors.
Automakers are also competing with Google and Apple to create their own fully autonomous cars. In August, Ford announced plans to put fully self-driving cars on the road by 2021. They will first be used by ride-sharing services, and will eventually go on sale to the general public. Similarly, BMW also plans to create an autonomous fleet of vehicles by 2021. In addition to its investment in Lyft, GM bought Cruise Automation, an autonomous car startup, in order to create a fleet of driverless Lyft taxis.