Fifteen years ago, the term “ridesharing” did not exist. There were taxi and coaching services across the country, but ridesharing as an industry emerged in the late 2000s. It changed how people could “catch a ride” when using a personal vehicle was problematic or not a good decision (For example: driving after a night of drinking alcohol or when the rider is not old enough to drive).

Ridesharing differs from taxi services in a couple of ways, the most notable difference being the “network effect.” Taxi services are, or at least were for the most part, city-specific, and the network effect that rideshare applications developed made it so that consumers could download one application and have access to a ride in almost every major city across the country. While many companies may call themselves things like the “Uber of X”, an early pitch deck for Uber called it the “NetJets of car services.”

While taxi displacement is core to Uber’s rideshare operations, it’s called rideshare, not taxi replacement, because a key tenet of Uber’s pitch was to reduce emissions by allowing strangers to carpool. In theory, this would structurally reduce the number of vehicles on the road, a major potential threat to auto dealers. Individuals could turn on a ridesharing application on their mobile phone while on the way somewhere and make a few extra dollars by picking others up and taking them to their destination as well. While this convention certainly caught on and was to the liking of environmentalists, there was another impact that the creators of ridesharing might not have seen coming, the rise of the “gig economy.” The gig economy propelled ridesharing into the stratosphere by giving people a way to work on their own time and using their own resources, namely their personal vehicles.

As mentioned previously, the crux of the rideshare strategy was pitched as reducing the number of vehicles on the road, with Uber replacing taxis and also doubling as personal vehicles. It is important to note, however, that executives and shareholders’ goals for ridesharing companies are primarily to earn profits and expand market share, while other stakeholders may view the ridesharing industry as a means to combat climate change and shift United States’ culture away from an automobile-centric society.

This “culture-shift” sentiment contradicts the common goal of auto manufacturers and auto dealers, which is to sell as many vehicles to as many consumers as possible. As the rise of mass rideshare companies took hold in the early 2010s, many players in the auto industry were left wondering what the rideshare wave would mean for auto dealerships.

In this post, we focus on the impact of Uber and Lyft on the auto industry as a whole, particularly as compared to initial concerns. We address the questions: “How has the rise of rideshare giants affected the auto industry?”, “How did the COVID-19 pandemic affect ridesharing?” and “What can we expect from the rideshare industry going forward?”

Expectations and Results – What Was the Anticipated Effect of Ridesharing on the Auto Industry?

After Uber Technologies (founded in March 2009) and Lyft (founded in June 2012) took the main stage, some auto industry experts predicted that vehicle sales would not be heavily affected by the rise of the rideshare industry. These optimists expected regular taxis and public transportation (buses, trains, subways, etc.) would take the largest hit from these companies’ emergence. Vehicle ownership was not expected to decline in a meaningful way, as vehicles were expected to remain a staple of the United States’ culture and the economy.

On the flip side of the coin, pessimists predicted that rideshare services would lead to a decline in sales volumes of automobiles as more consumers use rideshare applications in lieu of personal vehicles. To take the pessimists’ outlook to the next level, many thought that fleets of autonomous vehicles would soon take over the road, eliminating the need for personal vehicles, especially in larger cities where public transportation has historically cut into consumers’ need for a car or truck.

From our viewpoint, with the benefit of hindsight, it appears the optimists’ opinions were on the money. Carmakers were experiencing a record sales pace before the COVID-19 pandemic (more than five years into a world with ridesharing applications). The taxi, luxury coaching, and rental car industries were reeling, however, as rides from rideshare applications were much cheaper than these traditional operators, mostly due to aggressive pricing designed to capture market share during each company’s growth phase.

From a macro perspective, auto dealers and manufacturers had to be relieved that the pain was felt elsewhere, despite taxi, coaching firms, and rental car companies’ position as an important revenue source for auto dealers through fleet sales. However, fleet sales to these operators have traditionally been at much lower margins than sales of autos to individual consumers who might decide to become rideshare drivers. That shift could actually be a positive development for auto dealers.

How Did the COVID-19 Pandemic Affect the Ridesharing Industry?

The COVID-19 pandemic brought Uber and Lyft to a halt. In April 2020, ridership from both companies dropped between 70-80%. Both operators went into a “survive until we can thrive” mode, intending to hold out until passengers felt comfortable returning to the convenience of ridesharing. This revenue crater was not to the advantage of public transportation either, as those services saw a nearly 90% drop in ridership over the same time period. As an aside, auxiliary services like Uber Eats cushioned the pandemic’s blow on ridesharing companies (Uber Eats revenues grew more than 50% during the first quarter of 2020). This came as a result of consumers leaning into food delivery as a response to fears of being infected by the virus at the grocery store or at restaurants.

The drop in ridership was accompanied by a sharp contraction in the SAAR metric, a measure of sales pace for auto dealers. The sales pace for automobiles across the country slowed to a crawl in April 2020 as dealer lots remained packed with vehicles that had very little interest from cautious and confused consumers. Not many folks were willing to make a large purchase with so much uncertainty abound, especially not the purchase of a vehicle during stay-at-home orders and the work-from-home movement.

So did the pandemic change the landscape as it relates to auto dealers and the effect that ridesharing is having on the industry? We would say no. A recovery by both rideshare giants in late 2021 and into 2022 was encouraging to see for their investors, and as many of our readers know, auto dealers have seemingly been printing money in late 2021 and 2022. One industry’s success has clearly not been a bad thing for the other industry. Perhaps the pessimists mentioned earlier in this blog were wrong.

What Can We Expect From Ridesharing Going Forward?

Can we expect the ridesharing industry to continue to co-exist with auto dealers? Our answer is yes. The rise of Uber and Lyft has certainly impacted overall mobility. However, auto dealers have not borne the brunt of this displacement. The emergence of ridesharing has instead displaced taxis, coaching services, and rental car companies.

At Mercer Capital, we follow the auto industry and adjacent industries closely to stay current with trends in the marketplace. These give insight into the market that may exist for a private dealership which informs our valuation and litigation support engagements.