This Pandemic Could Cause A Long-Term Shift in Car Ownership

A

Power of Ideas

This Pandemic Could Cause A Long-Term Shift in Car Ownership

Author(s)
Michael E. Webber
Michael E. Webber
(Chief Science and Technology Officer, ENGIE)

The conventional wisdom is that the fear of getting infected in crowded trains and buses will cause commuters to ditch mass transit to travel in private cars instead. Indeed, early data indicate increasing interest in car ownership.

But the long-term trend might actually be the opposite: The pandemic, together with the emergence of ride-hailing services, might accelerate an irreversible decline in the traditional model of automobile ownership.

One of the most impactful and visible outcomes of the pandemic has been the rapid implementation of telework for wide swaths of the economy. In 2013, about 86 percent of employees drove to work in a private car. Another 10 percent of employees commuted to work by public transit, walking, biking, or other means. The rest worked at home. By 2017, telecommuting had increased to just under 5 percent of the US workforce. But that changed quickly in the pandemic: During the peak of shelter-in-place orders to minimize COVID-19 transmission, about half of employees did so

The pandemic, together with the emergence of ride-hailing services, might accelerate an irreversible decline in the traditional model of automobile ownership.

How many of these will keep this practice after the worst of the pandemic is over?

Many managers who had resisted allowing their supervisees to work from home have been forced to get comfortable with the idea. In parallel, the tools for connectivity have vastly improved in the last few years, making it more effective than before. Employers are discovering that their expensive leases, utility bills, and tabs for office furniture can be dramatically reduced by encouraging employees to work from home at least a few days each week. Employees win by avoiding a time-consuming commute each day they work from home. Consequently, Brookings anticipates a permanent shift toward telecommuting. Global Workplace Analytics predicts that by the end of 2021, 25-30 percent of the workforce will work from home multiple days each week.

Importantly, this trend undermines some of the rationale for owning a car. When drivers only need cars for commuting two to three times per week, the economics of private car ownership worsen. By contrast, for urban and suburban locations, mobility services and ride-hailing will be cheaper. Those services might be provided by cars (via Uber, Lyft, etc.) rather than mass transit, but they will compete with individual ownership. That means original equipment manufacturers will need to make cars designed for higher utility at a lower volume and get into services more aggressively.

Frankly, this trend was already afoot before COVID-19. A Wall Street Journal article in 2017 titled “The End of Car Ownership” laid out the case for ride-hailing to replace the century-old model of car ownership and noted that every major auto manufacturer was already experimenting with new business models to prepare for this shift. 

My research at the University of Texas at Austin, together with the US Department of Energy’s Oak Ridge National Laboratory, demonstrated that as of 2017, it was already cost-effective for about a quarter of American drivers to use ride services instead of owning and driving their own car. A car’s costs comprise much more than just the purchase price and gasoline—other costs such as the insurance, depreciation, parking at work, and property taxes on the garage at home all add up. All told, the average cost of car ownership and operation is nearly $17,000 per year. The biggest line item in that tally is nearly $7,000 of lost productivity, which is the valuable time we spend behind the wheel of a car. With mobility services, that time is available for some other productive activity. A report released by Intel in June 2017 bills this newly useful time as the “Passenger Economy,” and predicts it will be worth $7 trillion in 2050. Mobility companies will sell entertainment, business connectivity, meals-on-the-go, and possibly even hair salon services. 

So how do these things come together? The rise of mobility services means that commuters have more options to get to work than ever before. The rise of telework means that employees might commute to work half as often. If the economics of individual car ownership are already bad when cars are used 5 percent of the time, they will be even worse when they are used only 3 percent of the time. 

These two factors combined mean that individual car ownership will face an inexorable decline as one of the lasting effects of the COVID pandemic. 

Published July 15, 2020