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The future of car ownership

The future of car ownership

Technology is changing many aspects of our lives, from how we shop to the ways we work, rest and play. Will it also change our relationship with cars?

What’s changing?

A revolution in buying behaviour is leading more young people, in particular, to have a Netflix-style subscription relationship with their cars.

New alternatives to ownership are on the rise, with people paying for short-term access to cars as and when they need them, including through subscription deals and car-sharing apps and clubs.

Will buying cars soon be a thing of the past?

Niv Calderon, tech blogger and business and marketing strategist, thinks there will be a huge shift in the market by 2030. He predicts an explosion in ‘ride-sharing’ companies that will be every bit as disruptive as the arrival of Netflix and Amazon Prime have been to the TV market.

Niv Calderon

Tech blogger and business and marketing strategist

“By 2030, people will have been born into the ride-sharing/car-sharing economy, just like people who are today 15 and grew up not knowing a world without smart phones.

“I think 'usership' and 'subscription' models will eventually overtake traditional car ownership in some parts of the world.”

ING, the international banking corporation, has predicted that by 2035, the average sales of ‘shared cars’ will be 1.5 million units, or one in every nine cars sold per year.

What, then, are these alternatives to outright car ownership?

Alternative forms of car ownership are often referred to as Mobility as a Service (MaaS). A Maas scheme combines access to several forms of transport services within a single app, typically accessible through a smartphone. Using a MaaS app, people can pay for a variety of public, shared and private transport in an integrated booking system.

Options for future car ‘ownership’ include:

  • Innovative vehicle financing options;
  • Subscription models that include everything bar fuel for a monthly fee. (This can be through manufacturers such as Volvo or services like Drover, where people can choose from a range of cars to ‘subscribe’ to);
  • Peer-to-peer services;
  • On-demand car sharing services;
  • Car clubs

Many young people have less disposable income, in real terms, than their parents did at their age.

Dr Matthew Niblett, director of the Independent Transport Commission, believes the financial circumstances of many young people are fuelling this change in car ownership.

Dr Matthew Niblett

Director of the Independent Transport Commission

“The fact is, particularly in urban areas, we don’t need to use the car a great deal. If you are not driving above a certain number of miles then it is becoming expensive to own a car in urban areas."

It isn’t just cost that’s causing the change in car ownership. Some young people view their cars and transport choices in a completely different way to their parents. That’s especially true among people who stream music, read eBooks and subscribe to TV services. They don’t tend to be as desperate to own items outright.

"The idea of the car being a status symbol and something that is essential to own, is less strong than it used to be.”

Why are people seeking out alternatives to traditional car ownership?

  • Cost – Compare the Market’s Young Driver Tool shows the price of popular models for 17-24 year-olds. The most popular for this age category are Vauxhall Corsa (average car value £3,182.54), Ford Fiesta (£4,539.30) and Volkswagen Polo (£5,105.35). The annual cost of running a car for this age group is £2,231.08.
  • Culture – Young people are used to alternatives to outright ownership through music streaming, TV services and subscription boxes (such as Birchbox and Graze boxes).
  • Convenience – We’re used to on-demand communications and shopping.
  • Technology – Apps and tracking technology make it easy for people to book and use car sharing services – something that will grow as cities get ‘smarter’.
  • Environment – About three quarters of the public (74%) say they are very or fairly concerned about climate change.
  • Government – Policymakers are pushing to reduce congestion and emissions.

The shift in ownership needs to be seen within the context of other key market trends. Fewer young people are learning to drive, and there has been a rise in the popularity of electric and automated vehicles. Also, we are entering the age of ‘smart cities’ which use interconnected technology.

Yet we can’t write off traditional car ownership just yet, according to Dr Tim Schwanen, who is director of the Transport Studies Unit at the University of Oxford. He is also one of the authors of the ‘Young People’s Travel - What’s Changed and Why?’ report, which analysed the travel habits of 17 to 29-year-olds.

Dr Tim Schwanen

Director of the Transport Studies Unit at the University of Oxford

Dr Schwanen argues that ‘Mobility as a Service’ will be more about changing the way we make use of the cars we own.
He said: “A lot of the conversation around ‘Mobility as a Service’ is very much about increasing the efficiency of cars, given that they sit idle 90% of the time. It’s about trying to make more use of a car as a resource.”

He believes the car is still an important status symbol, not simply a way to get from A to B.

He added: “It’s also about how people use cars. They’re not quite living rooms, but they are spaces where people keep all sorts of things.

“Using a different car each time you go for a drive is all very well if you have nothing to carry around. If, for your job, you need to keep things in your car or if you have children, your priorities may be different. Don’t forget, cars can offer convenient storage.

“Ultimately, people have far more complex relationships with their cars than they appreciate.”

Dr Niblett, for his part, expects changes in car ownership to be “gradual” and linked to the economic pressures faced by young people.

‘Black box’ insurance helping to cut cost of car ownership

Insurance accounts for more than half of the average running costs for 17-24-year-old drivers, as revealed in our Young Drivers Tool. Telematics insurance – aka black box insurance – can help to reduce it. This involves the policy provider tracking the driver through GPS, to determine their payments based on distance covered and how they drive.

Car financing: The current options

We’ve already moved away from a world in which a full cash purchase is the only option for car ownership.

These are the other types of car ownership:

Personal loan

You take out a loan from a bank or financial lender to cover the cost.

Hire purchase

You pay the price of the car off in instalments, with a deposit up front.

PCP

A Personal Contract Purchase allows the driver to rent a car by paying low monthly instalments over a fixed period. At the end, they can choose to return the car, purchase the car completely by making one large lump sum ‘balloon payment’, or use the resale value to fund another car loan.

PCH

Personal Contract Hire (sometimes referred to as ‘leasing’). This involves paying a fee to hire a car – covering everything bar fuel. There’s no option to buy at the end.

The Financial Conduct Authority recently warned that some customers were being overcharged by more than £1,000 when taking out finance from car dealerships.

Jonathan Davidson

Executive director of supervision at the FCA

“We found that some motor dealers are overcharging unsuspecting customers over £1,000 in interest charges to obtain bigger commission pay-outs for themselves. We estimate this could be costing consumers £300 million annually. This is unacceptable and we will act to address harm caused by this business model.

“We also have concerns that firms may be failing to meet their existing obligations in relation to pre-contract disclosure and explanations, and affordability assessments. This is simply not good enough and we expect firms to review their operations to address our concerns.”

The rise of car clubs

Car clubs are one popular alternative to individual car ownership. They are springing up across the UK, some as community co-operatives and some run by commercial companies.

Several local authorities are trying to expand the number of car clubs. And many housebuilders are calling for local authorities to make provisions for car clubs, to reduce the amount of parking spaces they need to provide. Businesses with limited parking are also embracing the concept of car clubs.

CoMoUK is an organisation that promotes car clubs as a means of maximising the advantages of shared transport. Antonia Roberts, CoMoUK’s deputy chief executive, said a number of measures were needed to expand car clubs, including:

  • Inclusion in council transport strategies
  • Restrictions on private solo car trips in congested areas
  • New car club bays
  • Automatic consideration to be given to the creation of car clubs in new business parks and housing developments
  • Scrappage schemes to encourage people to sell their cars and join clubs.

Antonia Roberts

CoMoUK’s deputy chief executive

When asked if clubs can replace traditional car ownership, she said: “If there is sufficient infrastructure in place. And people need a choice of vehicles within walking distance from their home.

As we move towards automated vehicles, the line between ownership, taxis and car clubs will be blurred."

Transport for London is trying to recruit a million members to its car clubs by 2025.

A spokesperson for TfL said: “In the coming years, London faces challenges of population growth, congestion and the environment. Car clubs provide a cost-effective and flexible alternative to owning a car, and can help tackle these challenges.

“Joining a car club provides the convenience of owning a car without the hassle or costs of repairs, servicing or parking. Members can book cars locally for just an hour, up to a whole weekend or longer.”

ING investigated the potential market for car sharing across Europe by canvassing nearly 13,000 people in 13 countries. It found that 30% of European drivers surveyed were interested in using car sharing schemes. Moreover, 60% of those polled were prepared to share their car in return for money.

ING predicted that smart technology and apps will help boost the popularity of car sharing, and could lead to 7.5 million shared cars on the road in Europe by 2035.

“Car sharing’s a no-brainer for me”

Clapham-based financial consultant Saskia Jones uses car sharing services to supplement, rather than replace, car ownership.

Saskia Jones

Financial consultant

"I own a car but I use car sharing because it means I don't have to return my car to my drive. I use it much more as an A to B drop-off service, rather than for round trips.

I used to use Uber cabs for going to my boyfriend’s in the evening as the bus takes 35 minutes and costs me £1.50. But with car sharing it takes me 10 minutes and costs £2 to £4 - it's a no-brainer for me."

Experiences such as Saskia’s show why MaaS is just as much a part of the conversation around the future of public transport, as normal car ownership.

Are we ready for the revolution?

The Transport Committee has urged the UK Government to get on the front foot by ensuring the rules and framework needed for MaaS are in place.

In a report published last year, it warned: “If MaaS develops in an uncontrolled way, it could have unintended, negative consequences. For example, a poorly implemented MaaS scheme could increase road congestion and worsen air quality, or exacerbate digital and social exclusion.

“If a scheme’s geographical extent is limited, it could create difficulties for people wanting to make journeys outside the area or between areas covered by different MaaS schemes.”

The Transport Committee said MaaS represented a big opportunity to put the UK at the forefront of the mobility revolution.

However, it argued: “We are concerned that the Government does not yet seem to have recognised the full extent of the role MaaS could play in transforming mobility, delivering truly integrated transport solutions.”

In its written response to the Committee’s recommendations published earlier this year, the Government said: “The Department is keen to be one of the best places in the world for businesses to innovate in transport. This is why the Department is funding trials across the UK to understand the impact of MaaS systems, the role of local authorities in developing these technologies, and public attitudes towards such models.

“These new business models will rely on open data and making use of smart phone technology, and the Department has developed work programmes to address these issues.”

London leading the charge for electric infrastructure

Since the Transport Committee’s MaaS report was published there have been significant changes, not least in September 2019. In that month, the Government announced a £400 million fund package to boost the UK’s infrastructure for charging electric vehicles.

At launch Simon Clarke, the Exchequer Secretary, said: “We are driving ahead with plans to make travel greener while backing British innovation and technology.”

Then in November 2019, the Department for Transport published a league table showing the number of public electric car charging points in the UK. The data revealed that London was leading the way for electric car infrastructure, with nearly 4,000 electric charging devices available to drivers in the region.

Scotland had 1,500 electric charging points, with the North West of England, South East and South West in hot pursuit.

The table revealed that charging locations outnumbered fuel stations. But it also highlighted the fact that more than 100 local authorities have fewer than 10 charging devices available to the public, per 100,000 people.

The Government has called on local authorities to “take advantage of £5 million of funding to help increase the availability of electric vehicle charging points for the public”.

Electric dreams

The car ownership model is changing, and so too are the types of vehicles we are driving. While automated vehicles could completely alter our driving experience in the long term, the rise of electric vehicles is already under way.

The Society of Motor Manufacturers and Traders (SMMT) noted that in October 2019, 14,231 ‘alternatively fuelled’ vehicles (AFVs) were registered in the UK. That represented a 9.9% share of the new car market in October for AFVs.

Alternative vehicles include hybrid and fully electric vehicles.

New vehicle registrations in October 2019

  1. Total: 143,251 – a decline of -6.7% compared with October 2018
  2. Diesel: 34,666
  3. Petrol: 89,371
  4. Mild Hybrid Electric Vehicle (diesel): 3,251
  5. Mild Hybrid Electric Vehicle (petrol): 1,732
  6. AFV: 14,231

The Government has said the sale of new petrol and diesel cars will be banned by 2040, with the vehicles themselves outlawed by 2050. But there is growing pressure for these dates to be brought forward. MPs on the parliamentary Energy & Climate Change Committee have argued for a ban on new sales to come into effect in 2030.

The spread of electric vehicles

This rise in AFVs has happened despite plans announced by the Department for Transport (DfT) to phase out the current £3,500 subsidy available to buyers of electric cars.

Mike Hawes

SMMT chief executive

“Car makers have made huge commitments to bring to market an ever-increasing range of exciting zero and ultra-low emission vehicles, and give buyers greater choice.

However, these cars still only account for a fraction of the overall market. If the UK is to achieve its electrification ambitions, a world-class package of incentives and infrastructure is needed.”

Dan Hutson, Compare the Market’s head of motor insurance, said three key issues stand in the way of the mass adoption of electric vehicles. He explained: “Firstly, there’s the lack of infrastructure, i.e. where am I going to charge my car? Linked to that is range anxiety, i.e. am I going to run out of power on a longer trip? Finally, there’s cost, i.e. an electric car is typically more expensive that its traditional fuel counterpart.”

Most popular plug-in hybrid and electric cars on the road in the UK (Department for Transport data, referenced here):

1. Mitsubishi Outlander PHEV (32,048)
2. Nissan Leaf (19,624)
3. BMW 330e (9,143)
4. BMW i3 (9,024)
5. Mercedes-Benz C350e (8,867)
6. Tesla Model S (6,972)
7. Renault Zoe (5,751)
8. Volkswagen Golf GTE (5,411)
9. Volvo XC90 T8 (3,338)
10. Nissan e-NV200 (2,639)

Putting MaaS on trial

Pilot schemes in Scotland and the West Midlands have tested practical ways in which MaaS can be rolled out more widely.

In April 2018 Whim, the mobility app originally developed for Helsinki, was launched in the West Midlands. Users were able to sign up to a tailored transport package that included buses, trams, taxis and hire cars. At the time of its launch, the plans included:

• Pay per journey
• Pay £99 a month for unlimited public transport, with taxis and cut-price car hire
• Pay £349 a month for unlimited public transport, all taxi rides within a three-mile radius of the user’s location and up to 30 days car hire per month.

Sampo Hietanen

Founder of MaaS Global, the company that created the Whim app

“We want to challenge the way people start to think about their journeys and let them see that vehicle ownership doesn’t have to be the only way forward.

On average, cars are parked up unused for about 96 per cent of their lifetime, but we still have to pay for them, sometimes in conjunction with other transport options. Owning a car is a burden for many people, but there’s been no realistic alternative until now.

We’re certainly not anti-car - we offer access to cars when needed, via taxis or through hire. But we are showing people that they don’t need to be so reliant on car ownership. Once people realise this, the benefits are huge – less traffic, less pollution, less stressful journeys.

And more space in our towns and cities thanks to fewer cars parked on the road."

In Dundee, a group of 98 young people aged 16-25 took part in NaviGoGo between October 2017 and March 2018. Under the scheme, the group members could search for, book and pay for transport through one internet app.

At the time of the launch, Humza Yousaf, Scotland’s transport minister, said: “For me, this is the next transport revolution. It’s happening right here.”

He added: “The way people travel is going to be completely transformed over the next 10 or possibly 20 years.”

Once bus use was fully integrated into the NaviGoGo app, 84% of users in the pilot agreed or strongly agreed that NaviGoGo would make public transport more attractive. Meanwhile, 66% agreed or strongly agreed that it made shared modes of transport more attractive. However, only about two fifths – 39% - said they would use a car “less or never”.

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