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Mar 06

Car Manufacturers Face Ride-Sharing Challenges

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Image Credit: Ford Media Center

As the world’s biggest automakers look at ways to diversify their revenue streams beyond manufacturing vehicles, most of them face obstacles that not only hamper those opportunities, but may negatively affect returns on what they do best.

Offering ride-sharing services has turned out to be one of those options that may have hit a dead end, according to a recent story published by Bloomberg. While ride-sharing may be the next big thing in the transportation business, think startups like Uber and Lyft, most vehicle manufacturers are experiencing problems trying to muscle their way into that emerging industry.

“There’s this perception of a mobility utopia that the market is buying into, but the science and business model really aren’t there,” said Bloomberg Intelligence analyst Kevin Tynan.

The demise of Chariot, Ford’s shuttle van attempt at crashing the ride-sharing market, is testament to those difficulties. After five years, some three million rides, and an investment of $65 million into the smart mobility offshoot, the company pulled the plug.

Meanwhile, General Motors continues to spend roughly $1 billion annually into its driverless Cruise project, which the hopes will eventually compete in the car-sharing market. But test results have yet to show promise in either performance or economic sustainability.

Others are looking for efficiencies by pooling resources.  Daimler and BMW teamed up to create the joint venture ShareNow after their respective ride-sharing services Car2Go and DriveNow couldn’t go at it alone.

Many of the problems experienced by corporations by Ford have been due to mismanagement and inexperience in how to tackle an emerging market. The ill-fated Chariot program didn’t garner much interest in the market, partly because passengers were dissatisfied with the limited routes available and their inability to choose people to share rides with.

The problems run counter to encouraging car-sharing market projections, including one issued last fall by MarketWatch, which predicted that the industry will grow annually by 20 percent and be worth $11 billion by 2024. Bigwigs with deep pockets sunk roughly $5 billion into car-sharing in 2018, almost three quarters more than what was invested the previous year.

But the major problem is understanding a business model that’s still a work in progress among more established auto-sharing players. For automakers, the learning curve is steeper given that they’ve long been accustomed to working in a product-based economy, which yield higher returns on investment. In the case of Ford, Chariot wasn’t even delivering a satisfactory enough profit margin to carry on.

“Out of all the different things that have been tried by these companies over the last several years, there’s one common thread, that nobody has actually figured out how to make money on this,” said Sam Abuelsamid, a mobility research analyst at Navigant, a U.S.-based management consultant firm. “Whether you’re talking about ride-hailing, micro-mobility, or car-sharing—none of them are profitable.”

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