- Business Insider/Corey Protin
Traditional carmakers are investing in, providing vehicles to, and in some cases even buying up buzzy Silicon Valley startups.
This was abundantly on display this week as Uber showcased it Pittsburgh contingent of self-driving cars – all Ford Fusions (later, they’ll be using Volvo XC90 SUVs). Business Insider’s Danielle Muoio was there.
Meanwhile, General Motors invested $500 million in Lyft, Toyota just invested an undisclosed – though reportedly modest – amount in Uber, and VW put $300 million into Gett.
GM also bought Cruise Automation – a self-driving startup – while Ford bought Chariot, a San Francisco-based shuttle-van service. And both GM and Ford have started advance-transportation divisions, complete with outposts in Silicon Valley: Ford’s is called Ford Smart Mobility, and GM’s is dubbed Maven.
The money being waged is tiny, but in the grand scheme of the valuation of an Uber – more than $60 billion, with over $10 billion in venture funding raised – they’re cautious forays into the space.
For the sake of comparison, a major automaker will spend $1 billion to develop just one new vehicle, and all automakers contribute to a multibillion-dollar advertising gold rush every year to market the cars and trucks.
Much of the commentary around these investment plays has highlighted the 100-year-old-plus auto industry’s reluctance to get left in the disruptive dust by hot new enterprises that are, allegedly, shifting the world away from car ownership – a bogus claim, obviously, as automakers are now selling more cars and trucks than ever.
But what GM, Ford, Toyota, Volkswagen and other automakers are really doing is attacking one of their thorniest challenges.
The problem of ‘fleet’
It’s called “fleet sales.” In a nutshell, these are the cars that automakers sell in large numbers to certain customers, such as rental-car agencies, governments, and corporations. Fleet sales usually see vehicles discounted on a per-unit basis, and while they can add to an automaker’s monthly sales tally, they’re also seen as a weak point because carmakers can use them to unload excess inventory.
- Wikimedia Commons
Enter all of these new ride-hailing outfits, which rather pointedly don’t buy cars. Rather, they rely on independent operators to buy acceptable cars and then qualify to participate the ride-sharing platform.
You can see why automakers would want a piece of this. Instead of selling hundreds of discounted cars to a ride-hailing service, an automaker finances, leases, or rents a new vehicle to a driver. The Toyota deal with Uber actually bakes in the financing, and Uber drivers who get a Toyota vehicle will be able to use their earnings to make payments.
This all wouldn’t be such an appealing arrangement for traditional automakers if Uber, Lyft, and others didn’t need to have their drivers in relatively high-quality, new-ish cars. A beaten-up Toyota Camry is OK as a New York City yellow cab, but it isn’t as an Uber vehicle, which is supposed to provide an environment that’s more like a “black car” executive limo.
The partnerships get even sweeter if Uber’s Pittsburgh experiment moves to other cities and the company is able to massively scale driverless vehicles.
This is because while Uber doesn’t really buy cars at the moment, it may begin to once drivers are no longer necessary. In fact, Uber could become one of, if not, the biggest fleet customer on the planet.
So there you have it. Ride-hailing startups have inadvertently supplied automakers with a magic bullet to change the dynamics of how they do fleet sales. And all the automakers have to do its invest a few hundred million bucks and go along for the ride.