TCO to become TCM as car ownership model declines
07 July 2017
07 July 2017 Autovista Group advocates Total Cost of Ownership (TCO) as the ultimate model for fleets, dealers and OEMs to measure the total costs of owning vehicles over their lifetime, factoring in purchase cost, running costs and residual value when it comes to selling the vehicles on. However, with the rise of ridesharing services, such as car sharing and ride hailing, many people in cities in particular are predicted to increasingly choose to use these services rather than own a car. Hence for such vehicle users, the Total Cost of â€²Ownership’ model no longer applies. In the future world of mobility services, Volkswagen is now looking into a new model for these mobility-rather-than-ownership digital natives â€“ Total Cost of Mobility (TCM). Speaking to Fleet Europe, Volkswagen Financial Services’ head of international fleet Jochen Schmitz said: â€²Going from TCO to TCM will be a reality and we’re aiming to be the first, or one of the first, to bring it to our customers.’ As the traditional car ownership model diverges into a more diverse picture of mobility services, OEMs plan to become broader â€²mobility companies’ in order to tap into new growth areas, such as Daimler is doing in car sharing with Car2Go, and Volkswagen is developing with its new dynamic mobility solution through its new 13th brand MOIA. It is expected that as private vehicle ownership declines, OEMs will be selling more vehicles to ridesharing providers and gaining additional recurring revenues through providing mobility and connected services. Schmitz aims for his division to revamp the international fleet business marketplace with a new corporate solution that guarantees fully integrated mobility management â€“ no longer basing total financial costs on an assumption of vehicle ownership and adopting a much more flexible approach. He says that this rollout will begin next year with the launch of an integrated â€²Mobility Management’ platform â€“ which will allow for employees’ complete travel management â€“ going beyond even the OEMs’ business to hotel bookings, flight reservations, car rental services and parking. This will give customers the ultimate picture on the costs of their mobility (travel). In 2014-16, Schmitz was head of CarMobility, the fleet management division of Volkswagen Leasing in Germany. Schmitz said: â€²We are rolling out CarMobility to other countries to increase our fleet portfolio with fleet management services. â€³Â¦My division will be the contact point [for these new customers] outside Germany.’ He adds that Volkswagen’s fleet business is crucial to the Group’s growth prospects, with â€²retail and private businessâ€³Â¦ stable, if not slightly decreasing.’ The enormous continuing growth potential expected from mobility services over the coming years, with consultancy McKinsey predicting that 70% of the ridesharing market in the US remains untapped, is also expected to reduce the pulling power of brands in driving OEM revenue unless current ridesharing practices change, meaning that OEMs will have to adopt a much more diversified business model and multi-brand approach. With its vast brand portfolio, Volkswagen is well-suited to this approach, and has recognised it with its MOIA brand. Schmitz says that expanding its multi-brand offering is one of his key objectives over the next few years. He adds: â€²There are customers that prefer working with multi-brand suppliers, and others that want to partner with an OEM captive. We deliver the best of both.’ Volkswagen Financial Services’ core strategy, he says, is to â€²develop our offering with new mobility services as we have in the past.’ These are in addition to its acquisition of parking company PayByPhone, based in Vancouver, at the end of 2016, and its purchase of a controlling share in LogPay at the beginning of 2017, which specialises in fuel and toll management. Slowly but surely, Volkswagen is increasing its capability in wider mobility services as it aims to become a mobility company serving all the vehicular travel needs of its clients.