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The disruption in car ownership

May 17 2016 12:00
Glenda Williams

Ten years ago if you didn’t own a car you were on the road to nowhere. Mobility options were limited in urban areas, and non-existent in suburban areas.

Today it’s a different story. Effective public transport systems like the Gautrain and MyCiti Bus now exist. Then there’s Uber. And now car-sharing, like local start-up Locomute. Unsurprisingly, all these mobility trends are disrupting the need for car ownership.

Locally the new vehicle market faces stiff challenges, not least of which is an ailing economy that also contributes to inflated vehicle prices and an increase in used-car purchases.

New car sales are being squeezed, with April figures from the National Association of Automobile Manufacturers of SA (Naamsa) showing a year-on-year drop of 13.2%.

The core model for motor manufacturers has been the building and selling of cars. But future mobility trends and their impact on car sales are likely to see car manufacturers transforming their business models to tap into mobility models as a revenue stream and, in so doing, shaping and transforming both individual mobility and the automotive industry.

Since 2013, mobility disrupter ride-sharing service Uber has provided rides for more than half a million locals in five SA cities. But mobility is not just about flexibility and convenience such as that which Uber and Locomute, SA’s first car-sharing network, provide. It is also about affordability.

Car ownership is an expensive business and while South Africa has a burgeoning middle class that aids ownership, ownership in Africa is only around 44/1000 people.

In some markets like Ethiopia it is as low as 5 or 6/1000. It means opportunities on the continent for SA’s auto industry, including those that come from more affordable mobility solutions, can contribute to increased industry volumes, Mike Whitfield, president of Naamsa and managing director of Nissan SA, told me.

Tapping into individual mobility disrupters

The automotive industry has always been innovative when it comes to adjusting to the changing habits of consumers, Whitfield explained, adding that manufacturers are looking to address “the need for greater flexible mobility solutions and the opportunities these present”.

This thinking is evident from the BMW Group, which says the development of customer-orientated mobility services will be a central business field and it will continue to position itself as a mobility provider and not just as a car manufacturer.

According to Whitfield, of the increasing number of solutions for moving around, carmakers view car-sharing as their biggest opportunity. Some have already tapped into this market.

Daimler AG subsidiary Car2Go, provides car-sharing services in Europe and North America while DriveNow, the joint car-sharing venture between the BMW Group and Sixt SE operates a fleet of more than 4000 vehicles in five countries in Europe and Scandinavia. BMW also recently launched ReachNow, a sharing service in Seattle, USA.

BMW SA told me it will be able to adopt the DriveNow model once car-sharing, Uber and other reliable public transport models become as effective locally as they are in developed countries.

Scientific studies show that a DriveNow vehicle is substitution for at least three privately owned cars.

But rather than negatively impacting vehicle sales, BMW expects the scheme to introduce new target groups to its brands.

The company is confident that partnerships in the area of car-sharing and public transport systems will enable it to increase or balance vehicle sales appropriately.

BMW announced a pilot project with Uber and Nissan, called UberGREEN, that will run in Johannesburg until 3 June and will give Uber users the option to be picked up by a Nissan Leaf or BMW i3.

Disruption in SA

The vital automotive industry contributes 7% to GDP and is one of the country’s largest employers. Despite pressure on the new car market, investment by carmakers and the related industry continues to exhibit confidence in the local economy, with projected investment by the seven major motor manufacturers in 2016 currently standing at a record R7.63bn, according to Whitfield.

Maybe it’s a case of the smart guys investing in tough times, knowing they will reap the benefits in an economic upturn through exports; an increased footprint in car-sharing; as well as public transport partnerships.

Market research company Gartner forecasts that 10% of current urban vehicle owners will switch from ownership to on-demand vehicle services by 2020.

But SA, with its vast suburban tracts, is not yet in the position of developed countries where transport infrastructure minimises the need for a car.

And South Africans love their cars. Aside from a means of transportation, car ownership for locals is important as a signifier of success and social status.

But even those that do forgo car ownership are still likely to contribute to vehicle sales in the form of the ride-sharing or car-sharing solutions they use to keep them on the move.

*Glenda Williams is a long-time finweek contributor, focusing on property and motoring.

This article originally appeared in the 12 May 2016 edition of finweek. Buy and download the magazine here.

uber  |  gautrain  |  car  |  public transport
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