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Uber, the ride-sharing service valued at $50 billion, is at the forefront of disrupting the taxi industry.
Consider this small but very telling fact…
A New York taxi medallion, the license that allows you to drive a cab in the city, cost $1.3 million in 2013. But today, you can pick one up for a (relative) song at $840,000.
The price has been plummeting since 2013 – the first time that's ever happened.
And you'd better believe the hospitality industry is taking seriously the threat presented by Airbnb, which puts temporary renters and guests together.
The sharing economy companies are basically telegraphing hostile intentions against "traditional" industries.
But instead of fighting this trend outright, one old-line stalwart is making a very savvy end run around the new competition. That's who we're "backing" today.
We'll be richly rewarded, too…
There's a lot of money at stake in this fight, and it's moving in waves from company to company, industry to industry.
You see, in the sharing economy, instead of buying goods from a corporation, consumers "borrow" – really, rent – assets from other individuals. And companies like Uber, Lyft, and Airbnb are the "conduits" that put those individuals together – for a big slice of the profits.
Many members of Generation Y and Z, especially ones who live in cities, are forgoing the once-ubiquitous ritual of buying a first car. Rather, they're depending on ride-sharing outlets like Uber, Lyft, and Zipcar.
And that's making auto manufacturers nervous. The industry-wide reaction has been mixed. Some companies are ignoring the threat posed by sharing; others are fighting it.
But Ford Motor Co. (NYSE: F) made an unorthodox investment in a new kind of "assembly line" to join the competition…
The San Francisco Experiment
In an experiment that runs through November, Ford is marketing the "Getaround" ride-sharing app to 14,000 Ford owners in the San Francisco area. Getaround is a peer-to-peer (P2P) platform that lets people rent all kinds of cars, for as little as $5 an hour.
Why would Ford, which sells cars, want its owners to rent their cars when Ford might be able to sell more cars to rental companies?
Well, as I just showed you, the sharing economy is so potentially disruptive that just about every business needs to figure out how to opt into this new paradigm. If they don't, they'll get ousted, just like the taxi industry is now.
Ford knows that Getaround, a San Francisco-based ride-sharing startup, rents all kinds of cars, from Fords to Ferraris (though good luck finding a Ferrari owner willing to rent to you on an hourly basis).
However, this deal is not about renting the cars – it's about customers buying them.
Here's Ford's thought process: If the renters like the Fords they rent, there's a much better chance they'll eventually buy a Ford than if they had never tried one.
After all, even Millennials will one day grow up, have kids, and move to the suburbs.
The Dearborn, Mich.-based automaker is only offering the marketing help and access to Getaround to Ford owners who financed their purchases – through Ford Motor Credit, of course.
And that's another reason Ford is taking part in this program. If an owner rents their car, they're generating revenue. That revenue can augment monthly payments. And if a car is rented enough, rental revenue can easily cover months of payments.
According to Padden Murphy, Getaround's head of business development, regular renters are averaging close to $600 a month in revenue in big cities served by Getaround.
If you follow the logic, it's easy to see that Ford can sell more cars if they help buyers make payments.
Helping to generate revenue from sold cars helps credit-impaired buyers and also buyers who wouldn't otherwise be able to afford a new car meet financing requirements. It also makes more expensive, higher-profit-margin cars more affordable.
It's a smart move by Ford and is no doubt going to be copied by other carmakers and car-loan finance companies.
This Could Disrupt the Disruptors Soon
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About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
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What about insurance for these "rentals"? Most insurance policies are explicit about not covering you when the your car is rented.
What insurance company will cover an accident by a car renter?
One consideration not listed here, is the impact on the insurance rates of the vehicle owners. The owners of the rented vehicles will no doubt have to deal with claims from accidents, that the vehicle lessor's are involved in, whether they are at-fault or not. Once the insurance company get's wind of an unlisted driver using the policyholders vehicle, rates will skyrocket and policy's will be non-renewed.
Insuring this new paradigm will also add another level of complexity to this innovation. Insurer's want to know who is driving the car they insure, so they can rate this risk. How do you think they will be able to get around this problem?
Actuaries will be very busy trying to assign a profitable rate for many unknown drivers. I would guess many companies will just not want to insure vehicle's being used for this peer to peer service. It will be a nightmare trying to get all those rates approved by State Insurance Commissioners.
Your thought's on how this will effect the viability of this idea?