Transportation as a “Service”

Guest Post by Eric Peters

Car ownership will soon be a thing of the past, some say.

Some wish.

Instead of buying a car every so often and driving that car for a period of years – and owning the car – people will simply tap an app and rent a car by the hour or day; whatever their need at the moment happens to be.

It sounds breezy – and oh-so-easy!

This may indeed be our metrosexualized future  . . . god help us. But not for those reasons. There are always other reasons. The real reasons.

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There is money to be made, naturally. Great huge stacks of it. Someone with a calculator and the instinct of a Don King or Colonel Parker did a little math and figured out that it would be orders of magnitude more profitable to rent people cars than sell people cars.

You can only sell a car to one person at a time, after all.

But rent? By the hour?

Theoretically – and probably, actually – you could keep a given car working like a Filipino Lady Boy, almost 24-7. Pimping the ride to one “John” after the next. With carpet vacuuming and Febreze in between.

Almost no down time.

The car that brings in say $400/month as a sale brings in that much – or more – in a week – as a rental. No wonder the stampede toward “transportation as a service.” GM especially – which is already implementing this via its Maven app in the New York City area.

It is the equivalent of discovering a new Ghawar oil field under Brooklyn. The price of real estate just went up.

It also gives the manufacturers – the GM corporate – direct access to your wallet (via revolving credit) which must be giving multiple orgasms to the people in GM’s accounting department. Dealers will be cut out of the picture – at best, reduced to parking lot attendants and service depots, the business side of that between them and the manufacturers, all costs of course folded into the rental fee charged to you.

Or did you suppose that eliminating the dealer would reduce the cost to you?

Like relocating assembly plants in Mexico and China, for instance? The Mexican line workers do not receive UAW wages or benefits – but somehow, amazingly, these savings to the manufacturer are not reflected in the price of the vehicles assembled.

Neither will the elimination of dealerships lower the cost of cars. It will just obscure them.

It will work just the same as it works if you rent an apartment. You do not pay anything for maintenance of the building or property taxes. You just pay rent, which payment takes full account of maintenance costs as well as taxes paid by the landlord. Or did you suppose he pays them out of the generosity of his kind old heart?

Suffer the children.

But we are only considering one angle of this transportation as service con. The really evil genius of the thing is this:

It is a way to stave off the looming crash of the car industry and to hide the real reasons why it is on the verge of crashing.

First, it is a way to hide the cost of government mandates – safety and fuel efficiency fatwas in particular – which are already at the point of being beyond the ability of a critical mass of individual buyers to afford. Six – eight – air bags don’t come without cost. And that is just one of the many costs incurred by the government but charged to your account, as the buyer.

The problem, though, is that the buyer is increasingly tapped out. The average “transaction price” of a new car now pushes $35,000 – which to give you some idea is the equivalent of about $5,500 in inflation-adjusted 1970 dollars (calculator here).

How much did the average car sell for back in 1970?

A new 1970 Corvette – Chevy’s most expensive model – stickered for $5,192 (here).

You could buy a full-size/six-passenger family car like an Impala for about $3,500. It, of course, did not have even one air bag and its V8 engine was subject to no federal fuel economy fatwas.

Which is why it could be financed over three years rather than six or seven, as now.

It also lacked power (and heated) leather seats and automatic climate control and all the many electronic baubles that fascinate people today much as seagulls are enraptured by pieces of aluminum foil. Not that there is anything necessarily wrong with power (and heated) leather seats or even electronic gadgetry. But it costs. And the problem is that most people cannot afford these things.

As distinct from financing them.

But six or seven years is just about as far as it can go. The cost-hiding expedient of stretching payments out another year has reached its terminus – or soon will – because of the reality check of depreciation. It is not financially viable to continue making payments on a car that is worth less than what you still owe. Which happens after about six years, for the typical car.

People won’t sign up – and more critically, neither will lenders.

Dead end.

Solution?

Transportation as a service – the ultimate cost-hiding expedient.

By renting the use of the car for a brief period of time, the cost of the car itself is cleverly hidden from everyone except the people collecting the rent. It is analogous to renting hotel room as opposed to buying a house (with several rooms). Considered in isolation, the overnight rental for a room seems quote reasonable when compared with the cost of a mortgage. But add up the cost of numerous overnight stays at the hotel and the math begins to tilt the other way – and at the end of the day, you own exactly nothing.

Transportation as a service is not just a money pit, it is a money vortex – a black hole connected to your bank account, withdrawals in perpetuity. Instead of payments for the next six years, payments forever.

Each individual payment will be smaller – and you will think (and be told) you are saving money. But like that hotel room – or that $3 cup of coffee at Starbucks that doesn’t seem like much considered one cup at a time – it adds up.

And at the end of the day, no matter how much you pay, you will end up with exactly what’s left in your Starbucks cup after the last sip you take.

Which will be precisely nothing at all.