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Car-sharing apps pose threat to motor sector

London - The humble smartphone could throw a spanner in the works of the car sector's post-crisis turnaround, with the big manufacturers facing a long-term threat from apps that make it easier and cheaper to share or hire vehicles than to buy them.

Investor sentiment is on a knife edge. Car sales are back in recovery mode in most major European markets, yet the fragility of the turnaround could yet be exposed by another economic slowdown while investors have flagged the potential danger posed by web-based services further down the road.

The rise of the likes of car hire app Zipcar and car-pooling rival BlaBlaCar are expected to present new challenges to mass-market carmakers such as Ford, GM, Volvo , Renault and Volkswagen while presenting fresh opportunities for existing rental networks.

Online taxi business Uber is another seeking a slice of the market with its UberPop operation, which links private drivers to passengers, though the US company faces legal challenges in countries including France and Germany.

Cathie Wood, chief executive of ARK Investment Management, is among the growing band of investment professionals expecting a significant behavioural shift among the car-buying public.

Public project

"Thanks to web-enabled services like Zipcar, Uber and Lyft, household vehicles are beginning to feel like the stranded assets they are: High in cost but utilised on average only 4% of the time in a 24-hour day," she said.

The realisation of such by consumers could eventually prove costly for carmakers. Specialist automotive consulting house AlixPartners says that every vehicle in a car-sharing network represents about 32 scrapped decisions to buy.

ARK Investment Management, meanwhile, says that a rise in car-sharing to 5% of all journeys could almost halve US auto sales.

At this early stage, the projections remain a little nebulous and like-for-like comparisons between auto sales and car-share figures are particularly difficult. But it is clear a trend is gathering momentum and there appears to be no shortage of backers keen to tap the austerity zeitgeist.

French billionaire Vincent Bollore unveiled plans to park 3 000 electric cars on London's streets by 2016 as part of a car-sharing project announced in March.

The Bollore group, which also operates car clubs in the French cities of Lyon and Bordeaux, said it would invest £100m ($157m) on the UK initiative.

At a global level, the trend has the potential to slow automakers' annual revenue growth to less than 2.5% from 3% between 2014 and 2020, according to Yasmina Barin, analyst at Swiss bank and fund management group SYZ.

Costs

The initial outlay for a vehicle and running costs that have soared for young drivers because of elevated insurance premiums are another factor in the growth of car-sharing or rental apps.

Uber's latest funding round valued the company at $40bn, broadly equivalent to the combined market capitalisation of Peugeot, Fiat Chrysler and Volvo.

Gary Paulin, head of brokerage firm Aviate Global, said the trend would also benefit car hire companies such as Avis Budget Group and Hertz but could be more challenging for the traditional carmakers.

"The big listed auto makers will need to adapt," he said.

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