How sharing cars could actually boost auto sales

Technological innovation in the auto industry, from the advent of Uber Technologies to a future with selfdriving vehicles, promises to change the game for commuters and carmakers.

This shift toward on-demand, shared, and potentially autonomous mobility that’s already underway addresses a glaring problem for drivers: Vehicles have high upfront costs to own and depreciate swiftly, but they aren’t necessarily heavily utilized.

But according to analysts at Deutsche Bank, there are a myriad of misconceptions about how the on-demand revolution will affect automakers — chiefly, about their impact on sales volumes.

“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 led by Rod Lache. “We believe that the consensus view may be wrong.”

The analysts acknowledge, however, that the proliferation of on-demand vehicles could ultimately reduce the number of cars on the road in the United States by more than 25 million, with population density serving as a key determinant of the size of the on-demand fleet.

“On-demand mobility is likely to be practical and financially attractive in the densest sub-sections which account for (circa) 31 per cent (on average) of total households in the metropolitan statistical areas we studied (13.2 million households, owning 15.5 million vehicles out of the total),” the team writes.

“Within these sub-segments, up to 61 per cent of households (owning eight million out of 15 million vehicles) may find it financially attractive to switch to on-demand autonomous vehicle mobility services.”

But this decrease in the number of vehicles on the road will coincide with a much shorter life-cycle for cars because they’ll be utilized much more heavily, on average, than they are now.

The life expectancy of an on-demand vehicle is expected to be just three years; this higher rate of turnover of a smaller fleet would see sales volumes rise, according to the analysts.

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

A caveat: a significant increase in ride-sharing could throw the analysts’ call of increasing aggregate miles travelled in jeopardy, they caution.

But if things play out as Deutsche Bank expects, the auto industry will also become less cyclical, as miles travelled, rather than the state of the economy and credit conditions, will drive sales volumes, so to speak.

Consider the early experience of ride-on-demand apps: while they’ve certainly eaten into revenues that would’ve accrued to taxis in the past, they’ve also managed to grow the size of the pie by encouraging people to take rides when they might otherwise have walked or use public transit.

Two factors explain this: securing an on-demand vehicle by smartphone is typically far more convenient and reliable than hailing a cab, and consumers have been offered a new option that’s less expensive than a taxi.