Why Automakers Are Investing in Ride-Hailing Services

Why Automakers Are Investing in Ride-Hailing Services

The rapid growth of ride-sharing services is transforming transportation in 2016. Car manufacturers are preparing for a technology dominated future, one in which owning a car is no longer the necessity it once was.

New approaches are required to attract prospective buyers. On Tuesday, two of the world’s largest automakers, Toyota and Volkswagen, announced they would partner and invest in ride-hailing companies. These are the latest in a string of alliances between technology companies and traditional automakers.

The following blog will examine why partnerships between automakers and ride-hailing companies are becoming more common.

Partnerships

Tech companies like Uber, Lyft and Tesla are disrupting the traditional automotive industry. They are accelerating the development of self-driving cars, electric cars and ride-hailing services. Automakers have become increasingly concerned about those technologies and are beginning to respond with investment.

Toyota has formed a partnership with and invested an undisclosed amount in Uber, the world’s biggest ride-hailing company. Meanwhile, Volkswagen has invested $300 million in Gett, a popular ride-hailing app in Europe.

In a joint statement released yesterday, Toyota and Uber said they will create new leasing options in which car purchasers can lease their vehicles from Toyota Financial Services and cover their payments through earnings generated as Uber drivers.

Gett is the latest company to sign a strategic partnership with an automaker. Volkswagen has invested $300 million in the Tel Aviv-based startup to fund its growth in Europe and New York City.  Gett currently operates in over 60 cities worldwide, including Moscow and New York, and plans to expands its services further as part of the alliance with Volkswagen. Last month, it completed its bid to buy London’s Radio Taxis.

The German car manufacturer made the investment to boost its digital offerings. It has placed digital services and connected cars as the cornerstone of its strategy through to 2025, which will be presented in mid-June. But Volkswagen and Toyota are far from the first car manufacturers to get involved in the ride-hailing business.

General Motors bought a 9 percent stake in Lyft for $500 million in January. More recently, Apple said it would invest $1 billion in Chinese ride-hailing service Didi. Ford has also made no secret of its ambition to expand beyond manufacturing and selling cars, with Chairman Bill Ford saying on Monday that "you'll hear more from us" as the year progresses.

New Technologies

While car manufacturers believe individual consumers will remain the primary source of their business, it is clear that they are hedging their bets. There has been considerable investments made in autonomous technology, which is seen as the driving force in the industry going forward. It is creating numerous opportunities in the industry, with the latest reports expecting the connected car market to value $95.75 billion by 2020.

Major automakers and technology companies are racing to develop and sell vehicles that can drive themselves. Last month, Fiat Chrysler reached a deal with Google to develop a fleet of 100 self-driving prototypes based on Fiat’s Chrysler Pacifica minivan.

Automakers are also making acquisitions in the tech space. General Motors acquired Cruise Automation, a San Francisco startup that develops autonomous vehicle technology. Although a figure was not disclosed at the time, reports suggest GM paid close to $1 billion. GM President Dan Ammann said they intend to use Cruise’s technology to accelerate its efforts in developing self-driving cars, potentially as part of ride-sharing fleets.

There is keen industry interest in testing autonomous technology in on-demand taxi and delivery services. Uber recently announced that it is in the early stages of testing self-driving car technology with the ultimate goal of removing the need for drivers from its ride-hailing business. NuTonomy, an autonomous tech spinoff from the Massachusetts Institute of Technology (MIT), plans to deploy thousands of fully self-driving taxis in Singapore by 2019.

On-Demand Deliveries

Car manufacturers are investing in ride-hailing services for a number of strategic reasons. It provides a way of keeping up with two burgeoning waves of technology - the sharing economy and car technology. Automakers also see the potential for ride-hailing companies in delivery services.

Uber has already begun experimenting with on-demand deliveries. It launched UberRUSH in New York, San Francisco and Chicago. This allows users to hire a courier to pick up requested items and make a delivery. Only last month a dozen trucks from manufacturers like Volvo and Daimler completed a week of autonomous driving across Europe. Startup Dispatch has even designed a fleet of autonomous delivery vehicles for sidewalks and bike paths.

Automakers are also recognizing mobile’s central role to the in-car experience. Advanced infotainment systems and a fast connection to the wireless network are the two prominent features that could potentially enhance the market growth.

One thing is for certain - technology is bringing dramatic changes to the automotive industry and nobody is sure how it will evolve. But automakers are making every effort to react and keep up.

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