Ford Motor Company as a transportation company not a "car" company: bike share and small scale transit

What spurs this piece is that on Friday Ford Motor Company, made some interesting announcements concerning small scale transit services and bike sharing in the San Francisco Bay area.

Millennial demographic and psychographic changes are changing the US automobile industry. With the recession, the amount of driving has declined significantly, although it's ticking back up as the economy improves and gas prices have dropped.

Even so, on a per capita basis, VMT or vehicles mile travelled, was on a decline before the recession.

The rise in urban living also reduces demand for motor vehicles, because people can satisfy their mobility needs with other modes.

These trends are intensified as more people spend more time connected to and engaged in "the Internet" in various ways, especially on mobile phones, younger demographics have less propensity to get driver's licenses and to buy cars.

Telecommunications enables car use without car ownership.   Advances in information technology and telecommunications services enable different ways of mobility that enable car use without car ownership.

Car sharing was the first highly visible example, where regular car use could be accommodated by "time sharing" through the creation of a telecommunications-connected fleet of distributed vehicles within a defined geographic area, creating a different way of "renting" vehicles, where cars could be rented for a period as short as one hour, and later by one-way services like Car2Go, by the minute.

Research shows that each car share vehicle reduces demand for automobile purchases by about 10 to 15 cars.

Ride hailing services, with lower fares subsidized by capital investment, also shift consumer spending away from car purchases.

Driverless technology is expected to be a similar game changing exogenous shock, reducing the cost to provide fractional use to the point where more people may be willing to give up car ownership in favor of car sharing-taxi-ride hailing type relationships.

(Personally I don't think it will be as transformational as people think, at least in my lifetime, for technology and cost reasons, and because it may be that a goodly number of people willing to shift from owning and operating their own car is already captured by car sharing services.)

New entrants competing to sell cars using different technologies or business models.  And other companies, be they technology companies like Google, or new companies like Tesla or Local Motors, are entering the market and compete for vehicle sales.

Tesla has repositioned the way people think about electric cars--still much less competitive on cost terms in the US because gasoline is 1/3 the cost compared to countries like the UK or the Netherlands where gasoline is highly taxed--although it's unlikely the company will ever become a successful mass manufacturer, they are helping to reset the market away from gasoline-based vehicles.

General Motors.  In the classic book on creative marketing, Marketing Imagination, by Ted Levitt, one of the chapters makes the point that GM needed to think of itself as a transportation company, not a car company. From the original article that led to the book:

"Management must think of itself not as producing products but as providing custom-creating value satisfactions." Companies should be marketing-led rather than production-led. That will happen only if and when there is a total commitment by senior management (and especially by the CEO) to satisfying current customers so that they remain loyal, and, to attracting new customers. Only marketing creates or increases demand. Without demand, there are no customers.

When I read it at the time--remember I was from Michigan and pretty familiar with the industry--I was pretty impressed.  Now, I think it's more complex.  GM did think of itself as a transportation company.

They manufactured long distance trucks, small trucks, transit buses (the independent Nova Bus Corporation is the successor company), construction equipment (Terex, sold off a long time ago, and Euclid before that), locomotives (EMD, now owned by Caterpillar), and a diesel engine manufacturing company (Detroit Diesel).  (They also manufactured appliances.)

The financial company that started out providing financing to dealerships and later directly to car buyers also became a huge provider of mortgages and other financial instruments.

Later they invested a lot in information technology and engineering.

In the early 1980s, they bought Electronic Data Systems (the company started by Ross Perot) and Hughes Aircraft, the defense contractor that also created DirecTV.  GM used both companies to create the technology now used in GM's Onstar live in-vehicle information and diagnostic telecommunications system.

Other than making small trucks and Onstar, these businesses are no longer part of GM, nor are most of the automobile component manufacturing companies.

GM's problem at the time that Levitt was writing wasn't that they weren't in the transportation business, or even that they were too production focused and less marketing focused. It was that they were unprepared for exogenous shocks to the way that they did business, their business model, especially in their biggest line of business, manufacturing and selling mass market automobiles.

First, the company was heavily bureaucratic and slow (see the book On A Clear Day You Can See General Motors, by John DeLorean, which is a great book and an important influence on my thinking concerning organizations, 2005 blog entry).

Second, they needed to rethink how they conceptualized the car market, from the standpoint of positioning, design, and quality, and in terms of how the market could change,.

Third, in the face of the potential for change, they needed to rethink their labor and production systems, and the provision of health care and pensions--newer companies weren't stuck with the same set of legacy costs, and European companies, with national health systems, didn't have to pay for employee health care.

The market changed in terms of style and design preferences and the because of the rise of the cost of gasoline, and because of competition, business and labor relationships developed in the 1930s-1960s were no longer economically viable nor sustainable.  Increasingly, the company made money only on big cars, and trucks, not small cars.

Cars lined up in Brooklyn to buy gas during the 1973 gas crisis, when there was limited availability of gasoline.  Photographer unknown. 

In terms of design, what happened is that design style preferences shifted in favor of what we might call a European sensibility--BMW and Mercedes but also Lexus, a Japanese make, vs. Cadillac, Oldsmobile, Buick, Chevrolet.

In terms of "the type of car people wanted," when gasoline became expensive, people's preferences for types of cars shifted, and because European and Japanese companies were already building cars based on the paradigm of expensive gasoline, the market shifted their way.

1980s BWM ad.

With a loss in market share, both because of more competition as well as a production model built for cheap gas and no competition, the company was increasingly vulnerable, until it finally entered bankruptcy after the 2008 recession.

Current responses to changes in the automobile market.  These days the company is moving on electric car production--the introduction of the Chevy Bolt could change the automobile and oil production and retailing industries far more than Tesla ("Pressure on the pump," Financial Times), driverless car technology, invested in Lyft, a ride hailing company, and created its own car sharing operation including providing loans on purchases vehicles for ride hailing operators ("GM launches Maven brand, car-sharing in Ann Arbor," Detroit News).

Ford Motor Company.

Back in the day Ford was a transportation company too, making tractors and farm equipment, heavy trucks and small trucks, airplanes(!), and even for a brief time, rail transit vehicles.

The company also was a big producer of its raw materials, ranging from rubber to steel, and automobile parts, and for a few decades owned Philco Electronics, producing products like television sets and car radios, for the consumer and business markets, as well as for military applications.

The company was a leader in real estate development in Detroit after the 1967 riots, aiming to support the city's rebirth.

Ford has had their issues remaining relevant in the face of competition from Asian and European car manufacturers too.

When they were flush, they bought a bunch of other car makes, such as Jaguar, Mini/Land Rover, and Volvo (GM did some of that too, e.g., Saab), and in the US, moved their headquarters for the newly created "Premier Automobile Group" to Irvine, California, to be closer to its customer base compared to Detroit ("Ford to Move Luxury Lines Offices to Irvine," Los Angeles Times, 2000).
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After selling off or closing all of those operations, Ford sticks to manufacturing cars and light trucks.

Unlike GM and Chrysler they still own their financing unit, because by anticipating the crash and doing a huge refinancing, they managed to stave off bankruptcy.

More recently, Ford created a technology and innovation unit in the Silicon Valley, partly to focus on driverless car technology, but also to spur innovation more generally (Ford tries to disrupt itself in Silicon Valley," MarketWatch, "Ford invests $182 million in Silicon Valley tech firm, USA Today, and "Ford doubling Silicon Valley workforce in push toward self-driving cars," CNBC) in responses to changes in how the industry is organized and how people will be using cars, but buying fewer of them, in the future.

Besides developing driverless car technologies, the company is developing telecommunications- enabled services like the FordPass app, which unlike Onstar, while car-focused, accommodates other mobility use, as well as parking, and has created a separate business unit, Ford Smart Mobility LLC, to coordinate investments beyond traditional ways of car manufacturing.

Friday's announcements.  Ford is buying Chariot, a company like Bridg (see the past blog entry "Intra-neighborhood (tertiary) transit revisited because of new San Diego service") that does small scale van and bus based transit (Ford has long made chassis and/or vehicles for this market) unlike services like Uber or Lyft, which for the most part are focused on moving one person at a time.

-- Ford press release

From the Motley Fool article "Why Ford Is Investing In High-Tech Buses and Bike Sharing":

Chariot currently operates about 100 shuttle buses in the San Francisco Bay Area that follow routes that are crowdsourced based on passenger demand. The idea is that the shuttles fill a gap between taxi services and traditional bus lines. Significantly, they also provide a lower-cost alternative to ride-hailing services like Uber Technologies.

Ford Motor Company and bikes?   Ford also signed up to be the title sponsor of the San Francisco Bay bike sharing system, putting in enough money to expand the system to 7,000 bikes (coincidentally manufactured in Detroit), which will make it the second largest bike sharing system in  North America ("Ford backs massive bike share expansion in the San Francisco Bay Area," TechCrunch).  Who would have guessed.

 From the article:

Ford’s sponsorship will see the Bay Area’s supply of shareable bikes expand from 700 to 7,000 by 2018, with 1,350 bikes going to the East Bay, and hundreds of new bike-share stations established to distribute the bikes.

The locations of the bike stations are still being determined, but these will be in and around Berkeley, Oakland and San Jose, not just in San Francisco.

They will also be integrating bike share information into their FordPass app.

In terms of the bike share decision, my sense this is more about the company and its branding and positioning in the Bay Area technology ecosystem specifically, as a way to market the company as innovative and a great place to work in a community with a great deal of competition for skilled talent, and less about taking on broader "transportation company" positioning.

The commuter shuttle service.  The van thing isn't a new idea.  Note that Chrysler too "was a transportation company" for a long time, and besides boat engines, they created VPSI, Van Pooling Service Inc., now called vRide, the original van pooling organization, which happens to be big in the DC area, where distantly located employees of federal agencies often use the service to commute in to their jobs in Downtown Washington and the Pentagon.

After separating from Chrysler, eventually the company was acquired by Enterprise Car Rental ("Enterprise Holdings acquires vRide vanpooling business," press release).

What's happened is that cloud computing and wireless communications systems make providing this kind of service a bit cheaper and easier, including easier to "recruit" riders, called "ride matching," just as these technologies have enabled car sharing systems like Zipcar and Car2Go.

It won't change the world but it is an important element of transportation demand management, and Chariot will have access to more capital which will speed expansion of the service, perhaps beyond the capabilities and financing possessed by Bridg.  And they'll be able to count on some additional sales of vans and bus chassis.