Uber vs. Car Ownership

by JT McGee

I think Uber is the most incredible business ever made:

Facts about cars:

  • The average car has a utilization rate of 4%, or roughly 1 hour out of a 24 hour day
  • There are 260MM cars registered in the United States.
  • Assuming an average value of just $5,000 per car — truly a WAG — American cars are collectively worth $1.3 trillion. (~50MM cars were sold in the last 3 years, which make up a substantial portion of total car values.)

Therefore…

  • Increasing car utilization to 20% from 4% could theoretically result in 80% fewer cars in the U.S.
  • This would free up approximately $1 trillion of capital currently tied up in mostly dormant vehicles across the United States.

Any large improvement in utilization rates will undoubtedly require something like Uber (car-as-a-service) plus driverless capabilities. But I really do think this the future.

Already, Uber has had a tremendous impact on at least one industry. Guess which one?

After growing at a 9.5% CAGR from 2007-2014, the outsize economic returns earned by the beneficiaries of a government-sponsored monopoly have declined precipitously to 2016. The world is better for it.

Crazy predictions:

  • The Big Three are living on borrowed time. Legacy costs (pensions) will be spread over fewer new cars produced.
  • The glory days of car insurance are behind us, as the combination of safer/fewer cars will result in substantially less risk, and substantially lower car insurance premiums/capita.
  • Car insurance could theoretically be managed via gas tax, as once argued in the book Invisible Bankers, reducing SG&A in car insurance and resulting in lower total premiums.

{ 2 comments… read them below or add one }

Nelson August 15, 2016 at 12:09

I’ve been thinking about this a lot lately.

Having a car sit for 23 hours a day is incredibly inefficient, and needs to change. But this change is going to be very slow because of the prestige surrounding cars. From the 16-year old who just gained their freedom from their oppressive parents to the middle-aged guy buying a hot rod, there’s a correlation between having a nice car and success. It’s the same reason why we all know couples who live in 2,000 square foot houses with no kids.

The wife and I share a car, which is a nice start, and I’ve started to ride my bike a little bit around town. I can also easily walk to work. But even for the two of us, our car still sits 23 hours a day. We still need the car for errands, getting groceries, etc. but technology is making those things easier than ever. I’m in the money lending business and I can get away with going to the bank less than one time a month thanks to electronic transfers and apps that allow me to deposit a cheque by taking a picture.

I dunno. I have no idea to play this, except for the way you’re playing it.

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JT McGee August 15, 2016 at 12:55

“Just over three in four people ages 20 to 24 in 2014 possessed a driver’s license, according to the report released Tuesday by the University of Michigan’s Transportation Research Institute.

The exact figure — 76.7% — represented a sharp decline from 79.7% in 2011, 82% in 2008 and 91.8% in 1983, according to the report by Michael Sivak and Brandon Schoettle.”

“Only 24.5% of 16-year-olds had a driver’s license in 2014, down from 27.5% in 2011, 31.1% in 2008 and 46.2% in 1983, according to the University of Michigan report.”

http://www.usatoday.com/story/money/cars/2016/01/19/drivers-licenses-uber-lyft/78994526/

It’s important to consider also that the price of gasoline has dropped significantly, so this decline is even more substantial than it may appear at first glance. Also, you need a license just to drive someone else’s car/a rental car. That’s a pretty big deal.

I agree with the coolness factor, prestige, etc. There is also a built-in buffer as people with working cars are unlikely (IMO) to sell it to go carless for a variety of reasons — negative equity, no incentive to sell functioning and low value car, etc.

Interestingly, the ride sharing apps benefit from network effects, and become better with each additional rider/driver, which creates a positive feedback loop. (My experience is that an Uber driver reaches my door ~6 minutes after requesting one. A relatively insignificant increase in “carlessness” in my area would probably result in a much faster response time.)

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