Owning an enormous fleet of vehicles is not a particularly desirable operation. Large car rental companies, while still viable, find themselves to be in a significantly less advantageous position than they were a decade ago thanks to - among other factors - the proliferation of ride-hailing services.
Author: Sam Chase, The Connected Car
As far as the automotive industry goes, the position occupied by tech companies is far more enviable at the moment. Companies like Uber and Lyft are called 'asset light' because they don't actually own the vast majority of cars that are used to deliver their services, allowing them to maintain greater profit margins. The fact that cars are an asset that depreciate in value rapidly only adds to the ride-sharing companies reluctance to own them. Still, someone needs to own these automobiles.
This dilemma is the subject of a column by Bloomberg writer Shira Ovide. Ovide's piece focuses on the newly established relationship between Lyft and Ford, in which each company seeks to mitigate its own prospective weaknesses for a self-driving car future by taking advantage of the strengths of its partner.
"Lyft has a network of customers, growing demand for rides and strong knowledge of transportation flow within cities," Sherif Marakby, Ford Vice President of autonomous vehicles and electrification, wrote in a Medium post announcing the collaboration. "We have experience with autonomous vehicle technology development and large scale manufacturing. Both companies have fleet management and big data experience. With our combined capabilities, we believe we can effectively share information to help make the best decisions for the future."
That's all well and good, except for the fact that Lyft doesn't exactly have significant fleet management experience - it would be more accurate to say that the company has driver management experience.
It's a distinction that Ovide seizes on.
"In the current transportation reality - including on-demand options such as Lyft - the burden of owning and maintaining cars falls to the drivers," she writes. "But in the planning stages of transportation without human drivers, there is a game of hot potato in which the tech companies are trying to avoid the responsibility and profit margin-busting potential of owning fleets of cars that will still need to have their tires rotated and oil changed."
But, as Ovide explains, OEMs aren't the only fleet owners interested in partnering with tech firms developing AV technology - rental car companies are, too, and for them it may be an imperative for survival.
"[Technology companies] know that owning fleets of rapidly depreciating vehicles is not the 'asset light' business model that tech investors love," writes Ovide. "Google and Uber do not want to be Hertz. For one thing, Hertz's negative 1.6% net income margin the last 12 months is not a good look compared with Waymo parent company Alphabet's 22% net income margin."
They may not want to be Hertz, but they certainly could benefit from accessing the resources of a fleet manager of that size. And now Google - or Waymo, rather - does, as the company struck a deal in June for Avis to help with the management of its Chrysler Pacifica minivans in Phoenix. Hertz has a partner, as well, in Apple.
Despite scaling back its autonomous vehicle project, the Cupertino tech giant is still working on an artificial intelligence platform of some kind, and is working with Hertz to do so.
"With members of the public using our growing fleet of self-driving cars, our vehicles need standard maintenance and cleaning so they're ready for our riders at any time of the day or night," said Waymo CEO John Krafcik, explaining his company's rationale for working with Avis.
For tech companies, there is a constant focus on iteration, and the hardware costs of moving from version 1.0 to version 2.0 are minimal. But that is certainly not the case with self-driving cars. So even if the tech companies don't end up owning the fleets, they will likely have to spend a lot more money than they're accustomed to finding someone who will.