Navigant Research Blog

Market Solutions for Transit Deserts

— September 14, 2017

When discussing new disruptive mobility solutions, comments on their effects on public transportation are often not far behind. Many believe that public transportation cannot compete with the convenient, on-demand, door-to-door service offered by transportation network companies (TNCs) such as Lyft and Uber. Some see TNCs and other mobility services as poaching transit riders. Others view these solutions as complementary to public transportation as they provide services to unaddressed transit deserts or other underserved communities.

Two areas that provide opportunity for growth for TNCs—and an opportunity to support public transit operations—are transit desert services and first and last mile (a term used to describe the portion of a commuter’s trip between their place of origin and where they connect with a mode of public transportation). A few pilot programs demonstrate their potential and provide insight into how best to execute these services.

Centennial/Lyft Pilot Program

The Regional Transportation District (RTD) of Denver has had great success in providing public transit services throughout the region. RTD has launched three rail lines and one bus rapid transit line in the past 2 years and is expecting to open a fourth rail line before the end of 2017.

To provide a solution to a lack of connectivity and decrease single occupancy vehicle trips, the City of Centennial partnered with Lyft for a 6-month pilot program that provided Lyft Line rides free of charge to and from the Dry Creek light rail station within the existing RTD Call-n-Ride service area. Centennial subsidized these rides and service was exclusively offered through Lyft. While the program duration was short and had underwhelming ridership, results suggest that mobility solutions provided by companies may work as a supplement to existing transit services.

Lyft Shuttle and Ford Chariot

Recognizing that many of the rides given between 6:00 a.m. and 9:00 a.m. and 4:00 p.m. and 6:00 p.m. are for work commutes, Lyft now offers a new pilot service in Chicago called Lyft Shuttle. Looking at trip data, Lyft identified common travel routes that exist in transit deserts, then created fixed routes where riders could reserve a seat via the app and walk to designated pick-up locations to catch a shared ride at a reduced cost compared to a Lyft or Lyft Line.

In 2016, Ford acquired the San Francisco-based startup Chariot. Chariot offers a service similar to Lyft Shuttle. Riders can reserve a seat on a Chariot shuttle via the Chariot app and travel along fixed routes in transit deserts in select cities. Chariot’s business model is unique in that any community can crowdsource interest in a Chariot route by having 50 individuals express interest in using a route if it was offered by the app.

Automated Transit Networks

Automated transit network (ATN) is a catchall term for self-driving shuttles, and there are several existing electric ATN pilot programs around the world. These automated services run on predetermined routes and carry anywhere from 4 to 24 passengers at a time. Notable ATN systems include 2getthere, Vectus, Modutram, and Ultra.

ATNs can provide users with an automated, high frequency mobility solution along fixed routes. Existing ATNs provide services for universities, hospitals, business parks, and airports, but other services have been speculated, such as replacing costly public transit infrastructure or filling in gaps in transit services.

Several factors are creating opportunities for a shift in the classic paradigm of private automobile ownership. As increasing urban density and traffic congestion drive consumers to look for new alternatives, companies are racing to provide them with new mobility services. The services mentioned above are just some of the market disruptors responding to this shift.

 

Ford’s Big Management Shuffle Is About Changing Perceptions

— May 23, 2017

It is often harder to be a century-old company with a record of profitability than it is to be a young one with potential. This sums up the difference between legacy automakers like Ford and Tesla. With only two profitable quarters in its 14-year history, Tesla’s most recent resulted from strategic timing of paying bills and delivering cars. Meanwhile, Ford—despite periods of losses over its 114-year history—has generated immense profits, including records in the past 2 years. Nonetheless, Tesla is the darling of Wall St., while now former Ford CEO Mark Fields and communications VP Ray Day lost their jobs over the weekend.

In the 3 years since Fields succeeded Alan Mulally, the company’s stock price has dropped more than 35% despite record profits. Pre-tax 2017 profits are projected at $9 billion, which is more than Tesla’s total 2016 revenue of $7 billion. Yet, Tesla’s market cap recently topped that of both Ford and General Motors (GM). Clearly, the markets are placing their bets on the perception of where these companies are going in the coming years rather than on the fundamentals of each business.

Fields has been on point in Ford’s effort to be perceived as a forward-thinking technology company since his 2007 CES debut with Microsoft founder Bill Gates to announce SYNC. Even with repeated Las Vegas keynotes by Fields and Mulally and countless investments in developing automated driving and mobility services, investors perceive Ford and other companies that manufacture and sell physical objects as laggards compared to software startups.

Ford isn’t alone in this perception battle. Most automakers are making the pilgrimage to CES to woo the tech community. While few have been hit as hard as Ford, none of the incumbents are getting the love shown to Tesla.

In our Navigant Research Leaderboard Report: Automated Driving, Ford, GM, Renault-Nissan, and Daimler scored highest and ahead of several technology companies. Waymo is arguably somewhat ahead on the pure technology front, but automakers have necessary pieces such as manufacturing, service, distribution, and support infrastructure to make viable mobility businesses. Additionally, automakers have a proven ability to deliver physical products—not just the components and software that control them.

Ford’s leadership team, including Executive Chairman Bill Ford, EVP Joe Hinrichs, CTO Raj Nair, and many others, all supported the direction the company was heading under Fields. However, investors didn’t seem to believe in it.

During a press conference with new CEO Jim Hackett, Ford and Hackett both emphasized that the overall strategy of transformation into a mobility services company is moving full steam ahead. Hackett, who comes to the role from being chairman of Ford Smart Mobility LLC, aims to reinforce the strategy and focus on executing the plans. The elevation of Marcy Klevorn from CIO to EVP and the newly created role of President, Mobility highlights this ongoing commitment.

While Hackett’s success or failure won’t be evident for several years, Ford still needs to change investor and public perceptions to boost its stock price and the sales of vehicles it has today. That challenging near-term task falls to Mark Truby, who moves over from Ford of Europe to replace longtime PR chief Ray Day. Day and his team have had successes on the product communications front, but changing the overall perception of the company among investors who have favored high flying tech stocks has been elusive. Whether Truby or anyone else can succeed will be crucial.

 

Autonomous Ride-Hailing May Hail the New Era of the Minivan

— December 22, 2016

CarsharingIt’s been more than 3 decades since Hal Sperlich and Lee Iacocca redefined the family hauler with the introduction of the minivan. Over the subsequent 20 years, the minivan segment grew to become one of the largest in the US market before being overtaken by SUVs and beginning a long and steady decline. However, as we move into the era of autonomous mobility services, we may also see a resurgence of what had been derided as the “soccer mom-mobile.”

While the minivan market isn’t as big as it once was in total sales volume, as these vehicles have gained useful amenities, they have become quite profitable. Starting in 2016, the companies that have stuck by this body style have begun introducing redesigned vans, including the 2017 Chrysler Pacifica and the 2018 Honda Odyssey that will debut at January’s North American International Auto Show in Detroit.

Vans On Demand

When Google decided it was time to expand its development fleet of self-driving cars, it struck a deal with Fiat Chrysler Automobiles (FCA) to purchase 100 Pacifica plug-in hybrid EVs (PHEVs) and equip them with its autonomous sensing and control systems. With the self-driving car project now spun out of the X research lab as a separate company called Waymo, it has also announced an agreement with Honda to discuss collaboration on development and possibly commercialization of autonomous technologies. In Navigant Research’s 2015 Autonomous Vehicle OEM Leaderboard Report, Honda was ranked eighth among 18 companies evaluated, so working with Waymo could provide a boost relative to the market leaders.

Since auto industry veteran John Krafcik came on board as CEO of what is now Waymo in October 2015, the program has apparently shifted its focus from developing complete cars to working with existing carmakers to supply its systems as well as potentially building mobility service platforms. As the shape of future mobility services continues to evolve, these platforms are likely to include a broad range of vehicle types to support different needs. One- or two-person pods may be adequate to provide first/last mile transportation in dense urban areas, while something more akin to a minivan can support families or larger groups traveling on a variety of routes that don’t have sufficient density to make mass transit viable.

Ford-owned San Francisco-based startup Chariot is already providing hybrid on-demand services in San Francisco and Austin, Texas with human-driven vans. As autonomous vans become available, they could be deployed in the same way. For these types of transportation services, the easier ingress/egress of a van would be much more practical than climbing up into an SUV.

Growing Trend

Volkswagen will also be joining in on the autonomous van trend at January’s Detroit show. The embattled German automaker will be unveiling a new battery electric micro-bus concept based on the same new modular electric platform that underpins the I.D. concept shown at this year’s Frankfurt Motor Show. FCA will be participating in the 2017 International CES in Las Vegas for the first time and will reportedly show a battery electric version of the Pacifica.

FCA’s program with Waymo only extended as far integrating autonomous hardware into the minivan and does not include system development. However, as one of the companies in the back half of the pack in the Leaderboard rankings, FCA would also be a good candidate to adopt a production autonomous package from Waymo or one of the larger Tier One suppliers such as Delphi or Continental. We’ll probably be seeing a lot more self-driving minivans in the coming decade.

 

Autonomous Vehicles as Both a Sustaining and Disruptive Innovation

— December 9, 2016

Electric Vehicle 2While listening to a recent episode of the Exponent podcast, co-hosts Ben Thompson and James Allworth had a vibrant discussion on one of their regular topics: sustaining versus disruptive innovation. The topic was in the context of whether Apple should acquire Netflix, but as the hosts’ conversations often do, it got me thinking about the auto industry. With self-driving vehicles, transportation is on the precipice of a dramatic change that many argue will be exceptionally disruptive. I’d like to take a slightly contrarian view by arguing that autonomous technology will be sustaining to parts of the auto industry and disruptive in ways that many in the tech industry may be missing.

Sustaining vs. Disruptive

Disruption is an often abused word in the world of technology, but as defined by Harvard University’s Clayton Christensen, it boils down to innovations that create new markets and value networks and eventually displace existing market leaders. Sustaining innovations evolve existing markets and improve value.

An example of the latter is the way that manufacturing automation improved productivity and quality in the way cars are built over the past several decades. However, as in any complex analysis, these things are never simply binary. While new manufacturing technology was sustaining for automakers, it was extremely disruptive to the people that worked in their factories. Similarly, any argument that autonomous vehicles will be purely disruptive of the auto industry is a vast oversimplification. If automakers had followed the path of Nokia in the mobile phone business and ignored the threat posed by Apple when it introduced the iPhone in 2007, incumbent automakers would be facing extinction in the face of autonomy.

Instead, I would argue autonomy will instead be sustaining for many (although probably not all) automakers. Someone will need to build these vehicles regardless of whether they are piloted by computers or humans, and the companies that already have design, engineering, and manufacturing expertise are well-positioned to do so.

Just as other real-world examples are rarely black and white, there will be disruption from the autonomous vehicle. Most obviously it will affect those that make a living from driving, whether by taxi, bus, or truck—society will have to address this employment displacement in the next decade.

Retail Side

Perhaps the less anticipated and more impactful disruption is faced by the retail side of the auto industry. There are nearly 17,000 franchised car dealers in the United States currently selling about 17.5 million vehicles a year with more than 1 million employees. If transportation shifts as expected over the next several decades (i.e., from an individual ownership model to on-demand autonomous mobility services), the business of these retailers will evaporate. It won’t be overnight, but it will almost inevitably happen.

However, someone still needs to own these vehicles, right? Sure, but unlike the Silicon Valley investors that pumped Uber’s valuation to more than $60 billion, I doubt it will be standalone ride-hailing companies. I’m increasingly of the opinion that mobility services will be provided by the manufacturers themselves, leveraging their existing expertise in building, logistics, and financing along with strategic investments in the software platforms needed to connect people with rides.

Disruption by its nature takes people by surprise. The self-driving car will be both sustaining and disruptive, and probably not in the obvious ways.

 

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