Toyota, GM, and Ford must adjust to a future which on-demand rides are a big part of how people get around.
Toyota's recently-announced partnership with Uber will bring an unspecified cash infusion into the ridesharing giant and provide a fleet of Toyota vehicles to Uber drivers through a Toyota leasing program that takes payments out of drivers' checks.
The move is a reflection of how the broader transportation industry is reacting to the popularity of on-demand, app-based car services.
In the next few months to years, self-driving cars may not be fully deployed, or even partially outside of certain enclaves. But the number of people grabbing an Uber, and indeed eschewing car ownership altogether, may increase.
With that comes a lucrative market for new cars by tapping into a network of more than 162,000 drivers and counting. Those drivers will need cars that fit Uber's requirements. Toyota can provide those cars, and Uber can supply a way for buyers of those cars to gradually pay for them.
In other words, Uber and its ilk are forcing automakers to hedge against a future where private citizens are less likely to own an individual car than they are to use a car out of a fleet. Fleets are lucrative because car makers can sell in bulk—but at the same time, fleets tend to be more efficient in terms of usage, meaning automakers sell fewer cars. Regardless, it seems clear that car makers must adjust to a future which on-demand rides are a big part of how people get around.
No deployment of this scale has ever taken place
"All the major players are trying to see how they can be a part of it," Sam Abuelsamid, senior research analyst at Navigant Research and an expert on personal transportation, said. It's not just Toyota: GM invested $500 million in Lyft, and Volkswagen poured $300 million into Gett, a European competitor.
People are stepping away from owning cars, he said, driven by a move toward dense urban cores.
"At some point, the number of vehicles sold will peak and start to decline," Abuelsamid said, adding that it all ties into a push towards more electric or hybrid vehicles, more automation, and more technological integration and connectivity.
Toyota gets a good share of this emerging market by teaming up with the biggest player in the industry and investing its capital into the company. There's still plenty of time before Uber starts producing self-driving cars (or failing that, simply purchasing them). Until then, there will still be Uber contractors ready to take advantage of an easy path to a conveniently leased vehicle.
"In the near-term, there are still drivers that need vehicles," Abuelsamid said.
Prius as the new Crown Vic?
There's also a visibility effect at play. Toyota may lease a line of Priuses or Land Cruisers to Uber, but the cascade effect is that other cab companies and individual taxi services may opt out of the standard Ford Crown Victoria and move toward the Prius.
"Car companies often have relationships with the transportation industry," Saba Waheed, research director for the UCLA Labor Center, said in an email. "For decades, they've had agreements with cities to provide uniform vehicles for taxis—think of the iconic NYC Ford Crown and now, many taxis are Toyota Prius. So it's no surprise that they are moving towards transportation networking companies."
Damodaran points out that no deployment of this scale has ever taken place. With Toyota in 170 countries and Uber in 71 and counting, there's a huge global market, rather than a series of small and low-growth agreements like Ford may have struck with individual city's cab companies.
Easy being green
In talking about the Prius, it's hard not to mention: It could, in some ways, be an effort of corporate "greening" (apply your own cynicism there), in which Uber will announce the number of hybrid cars this is putting on the road.
Toyota will have six hybrid cars on the market in the next year, notwithstanding three Prius subtypes. This includes RAV4 and Highlander hybrid editions, both of which are compact SUVs. It may not be as big as a Cadillac Escalade, but it could look better on Uber's corporate green initiatives page.
Abuelsamid downplays a corporate "social responsibility" campaign, re: hybrids, saying, "For Uber, it's more a matter of getting their drivers into new vehicles," and that when drivers move people around all day, "paying for fuel can add up pretty quickly."
"It gives Toyota a market for hybrid vehicles, but also gives drivers the opportunity to get them at very competitive rates," he said.
Leasing—a new way to get hooks into drivers
Not everyone sees this as a net plus.
"Recruiting drivers through leasing and rental options is antithetical to their initial 'sharing' model where drivers use their own vehicles," Waheed said. "It will likely move drivers into driving for more hours to be able to cover the lease on top all the other costs but without the benefits and workplace protections."
A story published this week at Bloomberg highlighted the industry that is springing up around Uber drivers who take out car leases and sometimes get trapped in debt.
"We saw this with taxis. Drivers would often work 12-hour shifts to cover their costs, particularly the lease, to make any kind of income," Waheed said. "Yet, the risk falls completely on the driver."
Toyota and Uber are both going big on self-driving cars. Earlier this year, Toyota announced it will spend $1 billion to develop the technology and hire top Silicon Valley talent. In May, Uber revealed the first photo of its self-driving car on the streets of Pittsburgh, where its Advanced Technologies Center and all the engineers it hired away from Carnegie Mellon University are located.
For Uber, Abuelsamid says, building a relationship with Toyota could eventually mean having access to a manufacturer to develop the driverless car. "Over the long haul," Abeulsamid said, "it's unlikely that Uber wants to get into the manufacturing of vehicles."
"From Toyota's side," he said, "they want a part of at least one company deploying the vehicle."
Despite all the speculation around this deal, the partnership makes a lot of sense in the most obvious way. Uber needs cars, Toyota needs to sell cars.
"For the car companies, it's more customers," Waheed said. "Whether it's a taxi driver, Uber driver or carless driver, it's cars on the streets for them."