Mobility in an Uncertain Economy

At STRATIM, we spend a lot of time thinking about the mobility industry—the world of ride-sharing, car-sharing, scooters, bikes and self-driving cars. As part of the KAR Global family of companies, we have an even bigger-picture view of the world of automotive. In the mobility space over the past few years, we’ve seen both highs and lows of new product launches, new service offerings and new technologies that all aim to make an impact on helping consumers get from Point A to Point B.

This same period has also paralleled a period of broad economic market expansion—both here in the U.S. and globally. While it’s unclear yet whether the current 11-year market expansion may be ending any time soon, we do know it won’t last forever. This prompts serious questions about the future of mobility initiatives and business models: What happens to mobility in a slower economic period and/or a recession? And what are the impacts on consumers and mobility companies?

First off, we’re defining this slower economic period as a reduction in economic activity. We’ll leave the exact definitions of a recession and GDP to experts at the Fed. For us, it just means that economic activity goes down for a prolonged period of time. So some clear examples of how a slow-down in the economy might play out downstream include consumers becoming more cautious in their spending and companies slowing down their investments and hiring.

As we examine what might happen to the mobility industry, let’s take a look at the different players:

Consumers

Over one-third of U.S. adults—primarily in urban locales—have embraced mobility efforts. For some, mobility offerings have replaced their own private vehicles altogether, while for many more it has supplemented their transportation needs. Only about 4% of U.S. adults use ride-sharing apps on a weekly basis, according to a study by the Pew Research Center.

Many consumers have specific use cases for mobility: using Lyft when they go out to dinner, using LimeBike when they have to be somewhere close, using UberPool to commute to work and using Turo when they need a car for a weekend trip. For many consumers, the amount they spend on Uber or Lyft is additive to their car payment, insurance and maintenance on a vehicle.

In an economic slowdown, we would expect consumers to reduce their discretionary spending, which could mean:

  • Less ride-hailing:  Consumers may take fewer individual Uber and Lyft rides given the higher costs of riding alone coupled with fewer outings/occasions for these rides.
  • More ride-sharing:  Given the much lower prices on shared rides, consumers may utilize ride-sharing through UberPools and LyftLines even more.
  • Return of the bus:  In many cities, public transportation, including the train and the bus, might become even more popular in an economic slowdown.
  • Micro-mobility flattens: Given the relatively low cost of these services, it’s likely that consumers will continue to use bike- and scooter-share programs.
  • New car sales decline:  Consumers may opt to hold on to their primary vehicle for a longer time period and/or consider purchasing a used vehicle instead of purchasing a new car.

Companies

Mobility companies have provided some very innovative offerings for consumers over the past decade. However, many of these companies have built their offerings using venture capital and still remain unprofitable. In an economic slowdown, we would expect companies to also reduce their spending and investment, which could mean:

  • Concentrated effort on core solutions: Today, companies can try to do it all in all markets. In an economic slowdown, we will likely see a focus on the core service offering in markets where it makes the most sense.
  • Fewer hires:  Mobility companies may hire fewer people as they focus on profitability.
  • Focus on unit economics:  Offerings will need to be contribution margin positive including all COGS (Cost of Goods Sold) and customer acquisition costs. This likely means higher prices for consumers, potentially causing even less demand.
  • More drivers: If there is a significant economic slowdown, some people will lose their primary job or see their hours reduced. This could enable more drivers for Uber or Lyft. That increase in supply might stabilize prices for consumers.
  • No more unending cash flow: Venture capitalists and other investors or financial backers may scale back investments, reducing cash flowing into mobility companies and forcing companies to change their business model or face a steep revenue vs. costs cliff.
  • Profit before growth:  Related, many companies have used venture capital to grow fast with weaker margins. In an economic slowdown, profit will win the day.

Although none of us have a crystal ball to see into the future, we can use what we’ve learned from other transportation industries to make a rational, educated guess about how the mobility marketspace will react during an economic downturn. There will always be consumers who need to get from one place to another, and companies will still be there to provide that service.

Companies that are the most stable, nimble and forward-thinking will be the ones that rise above the competition and even expand, and in the long-term become better for it.

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