Shared Mobility in a post pandemic world – the beginnings of a mobility revival? - Berylls

Are we seeing a mobility revival?

Covid-19 has had a massive impact on mobility everywhere. A recent Berylls survey found that many London residents have reduced the number of times they commute each week even post Covid-19 and that many, in addition to supporting the introduction of low traffic zones and vehicle bans, would welcome the introduction of new modes into the city’s mobility mix. No wonder then that curbing private vehicle ownership has become a key pillar in many European cities’ efforts to reduce their carbon footprint. Yet so far few have put forward concrete ideas on how they plan to close the resulting mobility gap, and many look to the private sector for solutions.

In this context it is worth noting, that when Volkswagen CEO Herbert Diess was asked to comment on his company’s €2.5 bn acquisition of Europcar, he said that it was Volkswagen’s intention to use Europcar’s assets to build a mobility platform. Diess’ remarks not only contrast sharply with the renewed focus on core automotive activities touted by many of his colleagues; they also come at a time when mobility platforms seem to be regaining lost momentum: barely a week after VW’s Europcar deal was announced, Uber rival Bolt raised € 600 m in a funding round that valued the company at €4 bn or double its €2 bn March valuation. Are we at last witnessing the beginnings of a mobility revival?

Authors

DR. JAN BURGARD

Berylls Group CEO

jan.burgard@berylls.com

Jens Garrelfs

Associate Partner

jens.garrelfs@berylls.com

Volkswagen is only the latest OEM that plans to build a vehicle-as-a-service platform, but many OEMs are reluctant to follow the company’s example

A look around shows that Volkswagen is only the latest OEM that plans to unite its leasing, rental, car sharing and vehicle connectivity services under the umbrella of a mobility platform. In fact, the outlines of what Volkswagen dubs its “One Digital Platform” have already been visible for some time at Stellantis, Toyota Kinto as well as Sixt. All these platforms have in common that they are built around a vehicle-as-a-service (VaaS) stack that gives access to a car for a flexible period of time.

On the surface, such one-stop mobility shops may seem to do little more than bow to changing customer preferences. As subscriptions models have closed the gap between rental and leasing, they have torn down the boundaries between what used to be – at least from an OEM’s vantage point – disparate service offerings. The result: the difference between leasing, subscription, rental, or car sharing models is no longer one of kind, but one of duration.

The automotive industry isn’t by far the only area of transportation where added convenience drives customer preferences for one-stop solutions. Yet many OEMs are reluctant to follow the example set by VW and others. The reason is that a VaaS platform’s underlying operating model doesn’t square with how they traditionally approach leasing or leasing-related services. Many OEMs consider leasing – even car sharing –sales-enablers first and foremost, and many captives measure their success by their ability to help their OEM parent grow unit sales.

This is not another mobility hype; VaaS platforms are means of leveraging core OEM strengths

Are VW and others pursuing a mobility vision that is fundamentally at odds with an automotive present in which private car ownership – not in spite but because of Covid-19 – continues to dominate? Does on-demand mobility no more than distract from the reality that for most automotive OEMs selling cars remains the single most important source of revenue?

We believe that such thinking is rooted in a failure to understand the larger implications of operating vehicles on-demand as part of an integrated VaaS platform. We see such platforms as a means for leveraging the full weight and breadth of what OEMs can offer – including sales – in the face of, for example, smaller competitors with more narrowly positioned subscription or flex leasing models.

By incorporating mobility services that cater to a broad range of mobility needs, budgets, and occasions, a VaaS platform creates a unified entry point with relatively low barriers to entry. Furthermore, where many OEMs conceived digital sales channels primarily as vehicles to ferry customers to dealer showrooms, a VaaS platform allows customers to move seamlessly from car sharing, rental, and ride hailing to other services – including in some cases the option to purchase a used car – as per their own needs, not an OEM’s desire to sell cars.

How much more customer-centric VaaS platform-based business models are compared with existing omnichannel retail offerings also shows in the kind of physical formats that complement them. Besides concessions at airports and railway stations, these include downtown pick-up and service locations. By cutting across digital and physical formats, VaaS platforms go where customers are and where their mobility needs arise.

A VaaS platform spreads customer platform and fleet operating cost across multiple verticals and has the potential to increase per-vehicle earnings or vehicle lifetime value (VLV®)

Uniting multiple verticals behind a single frontend allows the fixed cost associated with operating a digital customer platform and attendant physical network – cost, that is, which each vertical would otherwise have to carry on its own – to be spread across multiple verticals. The same applies to one-time customer acquisition costs and marketing expenses as well as costs incurred “behind-the-scenes” for managing, servicing, and cleaning a large fleet of vehicles. The model also permits moving vehicles between verticals to pro-actively manage weekly and seasonal demand peaks.

Best-in-class OEMs use VaaS platforms to optimize vehicle utilization over not one but multiple use cycles and a period of up to seven years, throughout which vehicles remain on balance and are serviced by OEM-owned or -affiliated outlets. The key to achieving this is an intelligent asset allocation engine that calculates the optimal next use for each vehicle that has reached the end of its current use cycle – say, a three-year lease contract – by using the vehicle’s age, model, equipment level and service history to match it to the service vertical or sales channel that promises the highest monetization potential. In our experience, this kind of data-driven approach to maximizing vehicle lifetime value (VLV®) can increase OEMs’ per-vehicle earnings by some 15-25%.

The end of the mobility hype in 2019 masked many OEMs’ failure to transform the way they sell cars – and Covid-19 has only added to this situation

Of course, even the added convenience of a VaaS platform won’t make private ownership go away anytime soon – or ever. Yet when the mobility hype ended in 2019, the failure of many OEM-funded new mobility ventures masked the simultaneous – and potentially more severe – failure on the part of those same OEMs to deliver on initiatives designed to fundamentally alter the way they sell cars.

Many OEMs toyed with idea of adopting direct sales models in hopes of reducing intra-brand competition and wooing customers with greater price transparency. In this model, dealers would act as agents while NSCs and importers would manage vehicle stocks centrally. In the event, few such initiatives advanced beyond the pilot stage. Many did little more than alienate dealers while barely moving the needle in terms of actual sales.

Covid-19 has only added to this situation, as the automotive sector’s surprisingly speedy recovery has made many OEMs dangerously complacent about such long-overdue overhauls of their operating model. To further complicate matters, OEMs no longer have the financial resources to invest in risky, cash-burning adventures; they need strategic initiatives that can show bottom-line returns fast.

A mobility platform follows the same operating principles as a direct sales model and can furnish relevant data and operational expertise

Among the key reasons why many direct-sales initiatives failed were lack of relevant customer insights and inexperience in managing large vehicle inventories. Both are areas where the operating models of a VaaS platform and an agent-based direct sales model overlap and even complement each other: With access to customer and vehicle usage data across a highly relevant set of day-to-day use cases, a VaaS platform can furnish intelligence on model and configuration preferences and deliver pricing insights on both new and used cars. Moreover, by giving operators the option of rerouting non-sellers to alternative uses, a VaaS platform can relieve price pressure on overstocked lots and thereby contribute to maintaining and managing residual values.

This also opens new opportunities for dealers beyond the role of acting as agents, such as operating new physical formats or mobility services through franchise agreements. Giving dealers and their investors a clear, long-term perspective is critical at a time when OEMs must look to external partners to share the cost of future-proofing their operating model with. VaaS platforms are therefore an opportunity to set existing partnerships on a new footing.

Conclusion: a sustainable operating model

In recent years, several automotive companies have launched vehicle-as-a-service-based mobility platforms. VaaS platforms follow an operating model that is at once customer-centric and cost-conscious. It is also compatible with – even complementary to – an agent-based sales model, which many OEMs have made the mistake of abandoning too soon. What we’re seeing then is not a mobility revival so much as on-demand mobility moving to the center of the automotive agenda, as some OEMs move toward a VaaS operating model that is sustainable not because it is built on customer-centric innovation but because it enables profitable growth through higher vehicle lifetime value.

Dr. Jan Burgard

Dr. Jan Burgard (1973) is CEO of Berylls Group, an international group of companies providing professional services to the automotive industry.

His responsibilities include accelerating the transformation of luxury and premium OEMs, with a particular focus on digitalization, big data, connectivity and artificial intelligence. Dr. Jan Burgard is also responsible for the implementation of digital products at Berylls and is a proven expert for the Chinese market.

Dr. Jan Burgard started his career at the investment bank MAN GROUP in New York. He developed a passion for the automotive industry during stopovers at an American consultancy and as manager at a German premium manufacturer. In October 2011, he became a founding partner of Berylls Strategy Advisors. The top management consultancy was the origin of today’s Group and continues to be the professional nucleus of the Group.

After studying business administration and economics, he earned his doctorate with a thesis on virtual product development in the automotive industry.

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