In most industrialized countries, households depend on personal vehicles for getting around. In the US, for example, there are two cars for every household.1 Society pays a high price for this inefficient system of transport in the form of pollution, congestion, and other societal costs. But in cities that are densely populated, where alternative transport options are available and where everyone is connected through the web, does it make sense for the majority of households to own a car? The emergence of new business models that facilitate carsharing and ridesourcing is leading many to ask themselves this question.
The Problem with Car Ownership
The list of societal costs from road transport is long. They include the effect of carbon dioxide emissions on climate change, local air pollution, traffic congestion, road accidents, road damage, and noise pollution, to name a few. These costs are significant. For example, road transport accounts for more than a fifth of global carbon dioxide emissions from fossil fuels,2 making it a key contributor to global climate change. Road congestion is expected to cost Europe and the US a total of US$293 billion by 2030.3
But the prevailing ‘car ownership’ model of transport has a number of characteristics that make road transport more damaging than it need be. One such characteristic is the cost structure of car ownership over time.4 Owning a car involves large fixed costs, including the car purchase, registration, and insurance. However, the costs of using the car—the most visible of which is fuel—are relatively low. Such a cost structure fails to provide a sufficient incentive for car owners to minimize driving and results in excessive car use, along with the associated societal costs.
A second problematic feature of the car ownership model is the inefficiency of owned vehicles. Indeed, while most cars are designed to seat five individuals, the majority of trips in industrialized countries are completed without passengers.5 Low vehicle occupancy requires additional cars on the road, further contributing to excessive car use.
Another factor contributing to the inefficiency of owned vehicles is the inability of the car ownership model to filter out old, fuel-inefficient vehicles. In a world where each household owns one or more vehicles, cars are only utilized during a small part of the day. Personal vehicles therefore depreciate slowly and are often driven decades after their year of manufacture. Consequently, too many old, fuel-inefficient cars continue to operate, further exacerbating the pollution impact of personal vehicles.
From Ownership to Access
Improvements in technology are driving a shift in the way people access goods and services. The emerging ‘sharing economy’ is seeing businesses and households exploit advances in technology by renting out underutilized assets. This is providing an opportunity for the road transport sector to shift away from the existing model of car ownership towards a model of car access.
Already, new business models like carsharing (short-term car hire) and ridesourcing (on-demand ride services) are providing low-cost alternatives to car ownership. These services can save many households money by avoiding the large upfront costs of owning a car, while providing a moderately higher cost per trip that incentivizes travellers to take public transport, cycle, or walk when possible.
These business models also have the potential to improve the efficiency of vehicles. Carsharing achieves this by providing access to newer, more fuel-efficient cars, while ridesourcing has the potential to increase vehicle occupancy through carpooling.
Carsharing programs provide access to private vehicles at an hourly rate. Members use a card to swipe into cars that are parked at central locations around the city like university car parks or city streets. Hourly rates are often US$20 or less, and can be as low as US$5 an hour.6 Carsharing is most common in large urban areas where alternative modes of transportation are accessible.
Access to carsharing significantly reduces the number of cars required in a city and incentivizes carsharers to limit their driving. A recent study of carsharing in North America found that each carsharing vehicle takes 9 to 13 cars off the road, since many people joining carsharing either sell their car or forego purchasing a car.7 The average carsharer reduces their annual driving by 43 percent.8 As a result of less driving and of switching from old, inefficient vehicles to newer, more efficient carsharing vehicles, for each household joining carsharing, greenhouse gas emissions are reduced by 0.84 tonnes per year per household.9
Carsharing has seen strong growth over the past decade. As of 2012, carsharing was operating in 27 countries, with an estimated 1.8 million members,9 up from approximately 350,000 members in 2006.10 Strong future growth is forecasted, with global membership expected to reach 12 million by 2020.10 One recent study found that a third of San Francisco Bay Area households (800,000 households) have at least one vehicle with a usage pattern that is economically conducive to carsharing.11
Ridesourcing is another emerging business model that is providing an efficient alternative to car ownership. Ridesourcing platforms allow individuals to use their personal car to transport others for a fee. Customers use a smart phone application to request a ride and to track the location of the requested vehicle. After the ride, payment is processed automatically via the app, and the customer rates the quality of service provided by the driver. The largest ridesourcing company to date is Uber, which operates in 45 countries and is now valued at US$40 billion, fast approaching General Motors’ US$53.2 billion market capitalization.12 Lyft is another major player in the US market, having facilitated 170,000 rides in the 12 months from June 2013.13
Ridesourcing services are similar to that offered by taxis. Taxis, however, have not been a viable alternative to owning a car because they are relatively expensive and less convenient than owning a car. Ridesourcing, on the other hand, is beginning to rival ownership on both price and convenience. Since ridesourcing is usually cheaper than taking a taxi,14,15,16 a number of websites have already begun estimating the potential cost savings of moving from owning a car to relying on ridesourcing services.17 In terms of convenience, a survey conducted in San Francisco—where ridesourcing was first introduced—estimated an average wait time of 2.5 minutes in comparison to 15 minutes for taxis.18 Ridesourcing has a number of advantages over owning a car, including avoiding the need for parking and the ability to relax or catch up on work rather than driving.
Travellers for whom ridesourcing is a superior alternative to owning a car pay a higher per-trip price for car travel, which provides an incentive to reduce car usage in the same way as carsharing.
An exciting prospect for ridesourcing is the potential to transition towards carpooling, whereby multiple passengers are picked up and dropped off along similar routes. Companies like Uber and Lyft now have large user bases in a number of cities, providing a critical mass that could allow carpooling to reach the mainstream. According to Lyft, 90 percent of rides could be shared if travellers are willing to wait an extra five minutes.19 Uber, Lyft, and Sidecar all recently announced carpooling features that allow customers in selected cities the option of collecting other passengers en route, cutting fares by 40 to 50 percent.20 Lyft recently announced that after only two months, one-third of rides are carpools.21
As the take-up of this new feature expands, the cost of ridesourcing is likely to decrease further, making it increasingly competitive with owning a car. In addition to reducing the price of ridesourcing, carpooling has the potential to significantly improve the fuel efficiency of ridesourcing by increasing car occupancy. Ridesourcing companies are uniquely placed to tap into what has been called the world’s greatest untapped source of transportation capacity.22 They have a strong incentive to do so since every additional seat filled represents additional revenue at little additional cost.
Why Will Carsharing and Ridesourcing Continue to Grow?
There are a number of long-term societal trends that are creating increasingly favorable conditions for the growth of carsharing and ridesourcing. First, many large cities in developed countries are seeing a ‘reversal of urban sprawl.’23 Urban sprawl refers to the geographical expansion of cities that has accompanied the growth in car use over the past 50 years, which has led to a decrease in city population densities. As cities have grown larger, however, many are now coming back in faster than they are going out, leading to an increase in population densities. This increase in population densities increases traffic congestion and makes carparks scarcer, favoring the expansion of carsharing and ridesourcing.
Another important factor driving the growth in carsharing and ridesourcing is changing attitudes towards ownership and sharing. The sharing economy is seeing people use technology platforms to share virtually everything from accommodation—through sites like AirBnB and Couchsurfing.com—to less tangible assets like personal photos and music through social media, as well as skills via sites like TaskRabbit. Even in the US, which is known for its love of cars, a recent study has shown that young people now value technology over cars and car ownership.24 Indeed, around the world, young people are driving significantly less than they used to.25
An Evolving Car and Taxi Industry
The emergence of carsharing and ridesourcing creates challenges but also opportunities for competing industries like car manufacturing, car rental, and taxi businesses. While these services are establishing new competition for car manufacturers and car rental companies, some manufacturers and rental companies have already begun making their own investments in carsharing.
Similarly, taxi companies have the opportunity to implement the same technologies as ridesourcing companies to become more efficient and competitive. A recent MIT study found that offering carpooling could allow New York cabs to serve the same population of customers while reducing total distance driven by 40 percent.26 A number of taxi companies have already released smart phone applications in an attempt to improve their quality of service but have yet to introduce carpooling.
Incentivizing Carsharing and Ridesourcing
A key limiting factor to the expansion of carsharing is the development of a dense network of parking locations.27 An effective way of incentivizing carsharing is therefore through parking policies. Most countries where carsharing is available already provide free or discounted on-street parking for carsharing vehicles. A number of countries also have dedicated carsharing parking zones.
Ridesourcing companies have been controversial because they have largely escaped existing regulations applied to the taxi industry, despite the similarities between the two services. This year Uber was banned in a number of countries, including Germany, India, Spain, and Thailand.28 Given the significant benefits of providing an alternative to car ownership, these services should be regulated such that the benefits can be realized, while minimizing adverse side effects.
The technology now exists to create a more efficient, less damaging model of road transport. It is important that governments are aware of, and react appropriately to, the opportunities presented by emerging shared-access business models.