The Era of Car Ownership Is Over. And These 4 Charts Prove It

It may take a while to play out, but car ownership rates in the U.S. will ultimately drop in the long run

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The big news story in financial markets this week is the troubled Wall Street debut of ride-hailing, or ride-booking, giant Lyft (NASDAQ:LYFT). The intiail public offering (IPO) unicorn went public at a list price of $72 per share, and LYFT initially popped to nearly $90. But, since that initial pop, it’s been nothing but down and out for the company. LYFT stock now trades hands at $68.

The big question surrounding this company: what is going to happen to car ownership over the next several years? Lyft’s S-1 filing is riddled with metrics and language implying that the old American dream of owning a car is now coming to an end, and that the rise of the sharing economy will ultimately erode the need for consumers to own a car in the future. If so, that would imply heavier reliance upon and use of ride-hailing services like Lyft, which would be a huge win for LYFT stock and the soon-to-be-public Uber.

On the flip-side, there are plenty of bears who think that car ownership isn’t dead and gone. They argue that just because a few youngsters don’t want to own cars, the American desire and need for personal car ownership runs deep, and will ultimately support sky high car ownership rates for the foreseeable future.

Who is right? Right now, data suggests the former thesis is correct. Car ownership rates are dropping, the reasons to not own a car are piling up, and access to cheaper and more convenient ride-booking services is rapidly growing.

As such, it does appear that the era of widespread car ownership in the U.S. is over. Here’s a deeper look:

You Don’t Need Car Anymore

At the heart of the end of the car ownership argument is that consumers simply don’t need a car anymore.

In short, the rise of ride-hailing and car-booking services, coupled with a rampant rise in the broader gig and sharing economy, has enabled a plethora of transportation services which have made personal car ownership less and less important and necessary. You don’t need a car to get from point A to point B anymore. Indeed, in many urban areas, getting from point A to point B is actually quicker and cheaper with a ride-hailing service, after you factor in parking costs and time.

Data supports this thesis and, importantly, underscores that it is the majority belief among younger consumers. According to a recent survey from Cox Automotive, nearly four out of ten Americans agree that having transportation is necessary, but owning a vehicle is not. Further, among millennials, the rate jumps to 45%. Among Generation Z consumers, 55% agree that you don’t need to own a car anymore to get around.

We’ve Got Too Many Cars On the Road

If consumers don’t need a car, one could argue that the desire to own a car could be enough to support strong car ownership rates for the foreseeable future. But, the problem with this thesis is that consumers are losers when car ownership rates are high, and are actually incentivized to reduce car ownership rates going forward.

According to data from the Texas A&M Transportation Institute, a rampant rise in the number of cars on the road over the past thirty-plus years has created a surge in traffic-related problems. Specifically, the amount of time Americans spend stuck in traffic has increased from 18 hours per year in 1982, to 42 hours per year in 2014. The total cost associated with those traffic delays has risen from $42 billion in 1982, to $160 billion in 2014.

As such, consumers are actually incentivized from a time and cost perspective to reduce the number of cars on the road. Best way to do that? Start booking transportation services.

Consumers Are Using Ride-Hailing Services In Bulk

Because too many cars on the road presents huge time and cost challenges, consumers are increasingly adopting ride-hailing services to get from point A to point B.

Combing market share date from Second Measure and rider data from Lyft, one can reasonably see that the ride-hailing market in the U.S. and Canada has grown significantly over the past several years. In 2015, the ride-hailing market measured just 25 million riders in the U.S. and Canada, or about 7% of the addressable population. Today, the market measures over 60 million riders, with a high teens addressable population penetration rate.

This isn’t a coincidence. Americans and Canadians are rapidly adopting ride-booking services as traffic problems have grown because ride sharing’s cost and convenience advantages have become that much more apparent. These advantages will only grow as ride-booking companies get bigger, and the ride-hailing market will continue to grow by leaps and bounds.

Car Ownership Rates Are Dropping for the First Time In Modern History

For all the reasons mentioned above (you don’t need a car anymore, traffic delay problems are getting really big, and ride-hailing service access and use is rapidly rising), car ownership rates in the U.S. are now dropping for the first time in modern history.

Specifically, according to U.S. Census Bureau data, the percentage of no car households in the U.S. has steadily and dramatically decreased since 1960 as the American dream has encompassed owning a car. From 1960 to 2010, the percentage of no car households in the U.S. dropped from well over 20%, to 8.9%.

But, for the first time since 1960, the percentage of no car households actually increased to 9.1% from 2010 to 2015. That’s no coincidence. During that stretch, ride-hailing services went mainstream and millennial consumers (who, as we saw earlier, don’t think cars are necessary) became the driving force of the economy. These trends will continue. Ride-booking is only growing in popularity. Generation Z consumers are now turning into the economy’s driving force, and they are more pro ride-booking than millennials.

As such, this trend of car ownership rates dropping will continue for the foreseeable future. Big picture conclusion? The era of widespread car ownership in the U.S. is over.

As of this writing, Luke Lango did not have a position in any of the aforementioned securities but may initiate a long position in LYFT within the next 72 hours. 


Article printed from InvestorPlace Media, https://investorplace.com/2019/04/4-charts-car-ownership-over/.

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