Mike Smitka from Brunate, Italy
Sorry for the sorry attempt at a pun, but I had my normal 4-week Spring auto seminar that included a week with students in Detroit and daily classes. The closing week included two two-hour Skype sessions with co-blogger David Ruggles, fit in between his guitar lessons while he remained home in Las Vegas. Then came the Industry Studies Association conference (where I presented a paper on why there will be no disruption in the auto industry in terms of new entry, but already has been in OEM profits). Then it was off to the GERPISA global auto industry conference in Paris, where I gave two presentations in two sessions, moderated a third session and took part in a meeting of the organization's steering committee, 4.5 days of work. My wife accompanied me to toot around, and then we headed to Germany (my brother was finishing a month in Freiburg), are now high above Lake Como at the top of the funicolare above the city, and leave this morning for the southern end of Lake Lucerne for a day en route to the Zurich airport and home. OK, enough with excuses that I'm sure elicit tears of sympathy.
On to higher topics: Uber. The firm's death spiral should now be visible for all to see. I'm not thinking of the firing of the founder by the board, but of the string of a dozen-plus executive departures, many voluntary (example: the CFO). People are fleeing the Titanic, the big players with Golden Parachutes (lifeboats would be demeaning), while tough times their plebeian drivers face are getting tougher (including loss of market share to various and sundry rivals). Investors (crocodile tears) in our latest dot.com fad are set to go down with the ship, as any hope of an IPO have surely vanished.
I've mentioned from time to time Airlib', a Paris "new mobility" provider. While they target a different segment from Uber, their experiment suggests wider problems with the hailing/sharing segment. Their cars are visible in residential areas of the Paris, where they have charging stations and the parking spots to go with them. (Which is more valuable, I wonder?) My wife and I watched their all-electric fleet of by-the-hour rentals come and go; they had a row of vehicles on the sidestreet of our hotel, plus we ate outside at an adjacent restaurant. On the surface they have plenty of business, families swiping their pass at a window to open a car up, and after unplugging the charger it was off on a quick shopping trip, things of that sort. There were also a lot of Airlib' staff, apparently repositioning cars to places with too few while freeing spots where users might want to drop vehicles off, and cleaning cars. But Autolib' cars are not clean, they're old and dingy, custom-made Pininfarina cars amidst a sprinkling of new Renault ZOEs.
Apparently the company is not doing well (conversations with Paris-based researchers, not my own research). First, that we saw a lot of Airlib' vests was not unrepresentative: their personnel costs are high. People don't treat shared cars as their own, so they need constant cleaning. That requires a car to take drivers to Airlib' parking locations, who then take them to a cleaning facility. Of course a car then needs to be sent to pick up drivers once they've returned a car to a slot. The bottom line is that the process requires two people and a car that is then unavailable for rent. The above photo is representative of what soon happens: a hub cap missing, body panels that have been repaired, an overall dirty exterior, and an interior that has seen better years (not days). One side aspect of the constant cleaning, though, is that it facilitates repositioning cars.
Second, cars remain in the fleet: custom, bare-bones electric econocars have no resale value, so need to be driven until they die – they soon look like taxis everywhere. I didn't have the keypass to get inside one, and didn't want to interrupt a family unloading groceries, but apparently the insides are worse than the outsides. Third, the rentals are short-term, too few hours to generate the expected level of revenue. Finally, from a public policy standpoint, survey data (researchers at the GERPISA conference) suggest that users would otherwise use public transport: they are not giving up cars. Airlib' does not lessen urban vehicular congestion, it makes it worse.
I also wonder about the parking spaces they occupy: do they add to urban congestion by leaving fewer free, resulting in more circling of the block in search of a spot? There's a US parallel: friends down from New Jersey report that they don't drive into the city very often, midtown is occupied by Uber vehicles. Since unlike a regular taxi they can't be hailed, they obtain no benefit from cruising the streets. Instead they park, or more properly "stand" with their drivers inside, taking up a visible share of the already sparse Manhattan parking spots. My friends are patient people, they're in to visit their architect daughter Stephanie Goto, but it's insufficient for the Uber hurdle.
One parallel business is Zipcar. They've been acquired by Avis; I've not tried to see if that segment is broken out. Is the short-term rental business profitable? I have my doubts, but at least Zipcar is now owned by an experienced fleet management company, with "ordinary" cars that can presumably be remarketed (sold at auction) and replaced by new vehicles on a regular basis to keep them fresh in user's eyes.
Anyway, I have a wealth of topics coming off of the past two months, including my own preliminary presentation at GERPISA on the geography of the Chinese industry. Are producers locking themselves into high-cost production locations, driven to the provinces by industry policy – I mean, there's a car plant on the province-island of Hainan! Is Shanghai becoming a new Detroit, a center of global R&D, with most global suppliers having engineering centers there? More on those issues later: I've summer research money to compile data from a 900+ page company directory. There's also notes from the GERPISA visit to Renault's R&D center, including their competitive analysis "teardown" hall (a room doesn't have enough room).
Now really, to be profitable, new ventures should focus on high-margin businesses, not low-margin ones. What do you get by disrupting the latter with an app? Low margins. Unfortunately the auto industry as a whole is a low margin business. That's why over the past 50 years there's been scant new entry: it's not for lack of imagination, it's for lack of profits to be had.
