As the shared economy grows, auto industry trends are developing. Here's how auto businesses can tap into the shared economy with Fifth Third Bank.
As a business owner in the auto industry, you're bound to notice a lot changing within your industry — especially around competitors taking advantage of the sharing economy. The main players of the ride-share economy may have different scale and goals than you do, but you can take cues from these major companies to learn how to improve your approach to the sharing economy and integrate it successfully into your business model.
Building a Business on Market Demand
In order to capitalize on the sharing economy, you'll want to build a new segment of your business by identifying unserved customer demand and cultivating the market for it.
Start by understanding the two core types of business models:
- Taxi service on demand. This looks much like a normal taxi or limo service, except users can book and request their reservations on demand — sometimes on extremely short notice. This may be the one you're most familiar with. Some companies who follow this model don't hold inventory themselves, and rather have drivers bring their own cars. Others just take the model and apply it to their own fleet.
- Borrowing by subscription. Major companies are turning their lease businesses into rental businesses, enabling consumers to ostensibly borrow cars through a subscription. This model is something that would have been unheard of years ago, but now looks to be a sustainable revenue stream for the future of the auto industry. Cleverly, this approach relies on customers driving themselves.
When re-evaluating your own business model, look to take advantage of your market's particular demands by figuring out where it is underserved. For instance, do consumers from your target market lack the ability to get a ride, carpool, or borrow a car? This should guide your answer as to whether you'll want to consider offering up a "traditional" ride-share model like Uber and Lyft, or something more like ZipCar, where rentals are the focus.
Whatever the answer, you may be able to monetize against the trend that an increasing number of millennials desire to not own things — particularly cars — regardless of whether you're in the city or the suburbs.
Effectively Capitalizing on the Sharing Economy
You'll need to heed a few things to successfully pivot toward the sharing economy.
- Understand your business model. This sounds obvious, but it's the most foundational step of all. Knowing your sharing economy business model inside and out will enable you to understand how much inventory you need (or whether you do at all), where your revenue will be coming from, what tiers of service you need to provide, and more. Without having a deep sense of your direction and how you're planning to break even and become profitable, you won't know what changes to make or financing to seek.
- Upgrade your tech. Reservation systems are key to effective auto-sharing, and many are done with apps. This can be a major investment, but you should look at the spend as mandatory if you're hoping to build something that will catch on.
- Strengthen your inventory and optimize operations. Quality inventory that people want to drive or ride in will be key to creating a desire for your product. You'll also need to take care of some operationally focused questions and logistics. Among those questions: Who is going to clean your cars? What kind of pick up/drop off situation will you have? How will you handle the issue of insurance for drivers who may be uninsured?
- Tailor your service. Many auto companies have made ride-share service personal. There are a few ways that you can do this with your company, such as by offering high-end service that makes customers feel like the ride is just for them with door-to-door service. Alternately, another personal touch is offering more affordable solutions for a tier of consumers not willing to pay a premium (such as carpooling or shuttles). When building out your new model, give customers a reason to choose you — whether that's service or price.
- Prepare a solution for cash flow issues. The sharing economy dramatically changes your cash flow, since purchase amounts may be variable, desire is out of your control, and you won't be as able to predict when people will use your service. (You'll still find trends in seasonality, don't worry.) Prepare a solution for cash flow issues should you run into them. Should it be a business line of credit or a savings account, having a stash to tap can make all the difference.
Pivoting toward the shared economy may be a big investment — and probably will be — but the investment is necessary, especially if you want to find success. Don't forget that you can look for specialty financing, like equipment financing or lease-specific banking offerings, to help make the new phase of your business possible.