Are On-Demand Riding Services Going To Supplant New Vehicle Purchase?

Posted by Knowledge Sourcing Intelligence 11-10-2019 Thought Articles

Transportation is the backbone of any country and its burgeoning use among the population across the globe due to rapid urbanization is giving rise to the adoption of new kind of mobility services among them. Mobility Services like on-demand riding services that includes ride-hailing/ridesharing, carsharing, bikesharing, mobility-as-a-service, and car rental are the transportation solutions enabled by emerging technologies and wireless connectivity that allow for more convenient and efficient travel. These services are fast gaining grounds not only in developed countries like the United States, Germany, the United Kingdom, and others but also in developing countries like India.

On-demand ride sharing services has expanded at an impressive rate in the past few years. The concept has enabled users to have access to transportation modes for a short-term and as per requirement basis. The burgeoning internet and Smartphone penetration has played a quintessential role for this segment and has led to a number of providers to come up with ridesharing and car rental services. Uber, Ola, Blah-Blah Cars, Lyft, and Turo are some of the prominent players of this industry that have gained significant market share in recent years. 

COMPARISON OF FEATURES OFFERED BY FOUR MOBILITY SERVICE PROVIDERS

 

The industry has attracted a huge investment from the players across the globe that has driven its market growth. Recently, on July 2019, Toyota has invested $600 million in ride-hailing service Didi to strengthen its presence in the shared mobility service market. Cost-benefit associated with them along with the rising consciousness among the customers regarding their travel expenses as the oil prices reach a new high day by day are luring a large pool of customers, particularly the millennial group, to opt for these services. Thus, the on-demand ride services are here to stay are poised to grow at CAGR of 6.25% during the period 2018-2024 as per Knowledge Sourcing Intelligence Analysis.   

 

Shared Mobility and Auto Industry: 

Recognizing the emerging trend of ride-sharing and growing concern related to road congestion and air pollution, the government in many countries is promoting such riding services and is taking measures to make policies to promote ride sharing in the country. Recently, in October 2018, the government of India planned model legislation for states that outlined the fiscal and non-fiscal incentives that can be offered to promote shared mobility. They encouraged all modes of shared mobility, including peer-to-peer platforms that provide car rental, carpooling, ridesharing services to the customers. This has greatly benefitted peer-to-peer transportation providers like Uber and Ola that are branching out into short-term car rental services. As a consequence, India car rental market is poised to grow at a substantial rate in the upcoming years.

However, many have speculated that the burgeoning adoption of such services is going to have a negative impact on the automobile sector. As per Nirmala Sitharaman’s statement on September 2019, Union Finance Minister of India, the automobile industry in the country has been under tremendous pressure and one of the contributing reasons for that is the changing mindset of the Millenials who prefers Ola and Uber services over purchasing a new vehicle. On similar lines, a statement was made by Anand Mahindra, Chairperson of the Mahindra Group, in 2015 that the age of access being offered by taxi-hailing apps like Uber and Ola is the biggest potential threat to the auto industry that could impact auto sales and their volume.

Conclusion:

In my view, the business models introduced by the new mobility services will not supplant the automotive sector rather it will contribute in the mobility revolution. Globally, they are a part of a gradual change in travel behavior towards a multimodal system that will allow automakers to adapt to this change and maintain their market position, despite the growing diversification of the transportation sector. This can be substantiated from the fact that automakers like General Motors in March 2018, has launched a kind of Airbnb for cars through its Maven car-sharing unit intending to enter into the car rental space and transition from manufacturer to mobility provider. After GM’s stock stagnated for years as investors worried over peaking car sales, the shares rose to a record high as its services like Mavin and self-driving plans gained traction among the investors. Also, with other automakers investing and partnering with tech companies to leverage the car rental market, the global car rental market is set to grow at a CAGR of 9.18% to reach a market size of US$106.211 billion by 2022 as per Knowledge Sourcing Intelligence Analysis. 

With respect to the Indian scenario, the state of automobile sector is due to a number of factors that includes Supreme Court judgment to ban the sales of Bharat Stage 4 vehicle from 1st April 2020 and introduction of BS-VI emission norms. This coupled with GST on automobiles and growing inflation is hurting the consumer’s purchasing power as a result of which they are deferring their purchase of the new vehicle, and are relying on riding sharing services provided by Uber, Ola, and Blah-Blah cars for transportation. This is further backed by Shashank Srivastava, Maruti’s Executive Director, which stated that millennial opting for ride-hailing services like Ola and Uber may not be strong to contribute to the current state of the slowdown as these services came into existence during the last 6-7 years during which auto industry also witnessed its best time.   

About the Author:

Shaurya Gupta, a Market Research Analyst at KSI, works on syndicated market research reports on multiple industries spanning from IoT to the automotive industry and have expertise in chemicals domain. With the addition to her formal education in Electronics and Communication, Mathematics, and Chemistry, she is able to provide more light on the macro aspects of the story. To read more articles by her, and for more information regarding multiple global markets, visit www.knowledge-sourcing.com.