Lyft-ing Autos

What will Uber and Lyft do to car sales?

Photo: Senator Mark Warner. Source: FlikrCC-BY-2.0

Ride-sharing has seriously impacted the taxicab business. The price of a taxi medallion – once a safe, appreciating asset – has fallen by over 80% in the last couple years. A lot of folks are concerned about what this will do to auto sales, in the US and overseas. On the one hand, there are techno-optimists, who envision competing ride-sharing companies with fleets of self-driving vehicles dominating the highways. On the other are hand are pessimists – or as they style themselves, realists – who point to technological, regulatory, and social challenges that could limit ride-sharing to urban centers, essentially an alternative to regulated taxis.

To understand the impact on auto sales, we should look at the kinds of autos that ride-sharers use, and that ride-sharing would supplant. To date, Uber and Lyft are principally urban services, focused on large city centers. The most popular Uber sites are urban attractions, like the Metropolitan Museum of Art in New York or Wrigley Field in Chicago. And the most popular cars among ride-share drivers are large SUVs and hybrid electric cars.

Photo: Kai Pilger. Source: Wikimedia

Some academic researchers looked at the impact of Uber and Lyft on car sales by examining data from 1,200 car dealers in 68 different geographical markets over five years. They found that ride-sharing resulted in an 8% decline in new car sales for entry-level compact cars like the Ford Festiva or Chevy Spark. SUV and truck sales weren’t impacted. This is consistent with the idea that many young people are moving to urban centers, like New York, Washington, DC, and San Francisco. Not owning a vehicle when you live in those cities is a distinct advantage. The price of a permanent parking space in a major city can be greater than what it costs to rent a small apartment – with parking – in the suburbs.

But while Uber and Lyft are shifting auto demand around, they won’t decrease the total number of passenger-miles driven, at least in the short-run. In fact, they may even increase the need for new cars, as ride-sharing becomes more convenient than mass transit, and Uber drivers use their vehicles more intensely. We tend to overestimate the changes that can happen in two years. Nevertheless, if autonomous vehicles can begin delivering groceries and replacing “Big Scary Trucks” on long-haul treks, they’ll be part of a much larger self-driving ecosystem – one with far-reaching, unexpected consequences.

After all, we also tend to underestimate the changes that will happen over two decades.

Douglas R. Tengdin, CFA

Charter Trust Company

“The Best Trust Company in New England”

By |2018-07-16T23:20:57+00:00July 16th, 2018|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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