For Vehicle Finance, 2013 started quickly with the news on 2nd January that ZipCar, the world’s largest car-sharing network, had been acquired by Avis Budget Group for nearly $500m. At first this would not seem to
be of that much immediate impact to funders, but it is a significant step for the whole car industry, as Personal Mobility hits the mainstream.
The purchase of ZipCar could just be seen as a car rental company buying a start-up that threatened their main business model. “As some of you may recall, I’ve been somewhat dismissive of car sharing in the past.” Ron Nelson, Avis’ CEO, told analysts. “But what I’ve come to realize is that car sharing, particularly on the scale that ZipCar has achieved and will achieve, is complementary to our traditional business.”
Car sharing will change vehicle finance not because the customers are moving to shorter term leases, but because the drivers are not using finance at all. They are paying for a service of mobility, rather than paying for the use of a car. And it is likely that the service providers, such as ZipCar, won’t fund the vehicles with asset finance – but rather have any debt secured against the revenue streams from the business. In effect, they will using infrastructure project finance rather than motor finance.
Car sharing, and other automotive technologies emerging at present, will bring radical changes to car ownership and all the financial services that have grown up around the industry.
Jeremy Clarkson won’t like it but a Toyota Prius drove down Las Vegas Boulevard on May 1, 2012. Not because James May was driving – or that it was a Prius – but because no-one was driving it. It bore the first Nevada licence plate for an autonomous vehicle – “Infinity 001”.
By August 2012, Google’s driverless car project announced that its ten vehicles had completed half a million kilometres of autonomous driving without an accident. The only collision has been when a human driver was been at the steering wheel (although conspiracy theorists say the human took the blame – like Chris Huhne’s wife!). As computers become more reliable than human drivers, could autonomous driving become the norm and manual drivers become uninsurable? Indeed could motor insurance policies become obsolete as human error is taken out of the equation, with the manufacturers putting up bonds for surety as they have in the Nevada experiments?
As well as safety, other tests with autonomous cars have formed nose-to-tail convoys of “virtual trains” for cars all going to similar destinations, that give increased fuel efficiency and much better use of road space.
Taking this crystal ball gazing further what happens when you combine car sharing with autonomous vehicles? One of the problems with car sharing is that cars don’t always get left in the places where the next customer needs them. As one driver arrives at their office, the car is needed near to the next drivers home for the school run. Could the driverless ZipCar drive itself to the collect their next passengers? At this point both taxi drivers and car-park attendants will start to rise up in luddite riots….
Is this all just science fiction? A report on self-driving-cars from KPMG and the Centre for Automotive Research in Michigan concludes “the timing may be sooner than you think”. We already have cars that will park themselves, adaptive cruise control, keeping to lanes, braking automatically to prevent collisions, and real time satnav changing your route to adapt to road conditions. And the car sharing is here now, with ZipCar having more than 760,000 members and over 10,000 vehicles.
There will also be social changes, with ownership of a car parked on your driveway having long been a status symbol. However this may not survive to the next generation, who have already proved to be quite used to music streaming, rather than owning an LP or CD collection. Indeed some car manufacturers see this as a way around future stagnation, fearful at signs that this generation of teenagers do not rush to get a driving licence and buy their first car. Whether the changes will be as welcome for Financial Services remains to be seen.