July 20th, 2015
by Shah Gilani, Money Morning
Uber, the ride-sharing service valued at $50 billion, is at the forefront of disrupting the taxi industry.
Consider this small but very telling fact...
A New York taxi medallion, the license that allows you to drive a cab in the city, cost $1.3 million in 2013. But today, you can pick one up for a (relative) song at $840,000.
The price has been plummeting since 2013 - the first time that's ever happened.
And you'd better believe the hospitality industry is taking seriously the threat presented by Airbnb, which puts temporary renters and guests together.
The sharing economy companies are basically telegraphing hostile intentions against "traditional" industries.
But instead of fighting this trend outright, one old-line stalwart is making a very savvy end run around the new competition. That's who we're "backing" today.
There's a lot of money at stake in this fight, and it's moving in waves from company to company, industry to industry.
You see, in the sharing economy, instead of buying goods from a corporation, consumers "borrow" - really, rent - assets from other individuals. And companies like Uber, Lyft, and Airbnb are the "conduits" that put those individuals together - for a big slice of the profits.
Many members of Generation Y and Z, especially ones who live in cities, are forgoing the once-ubiquitous ritual of buying a first car. Rather, they're depending on ride-sharing outlets like Uber, Lyft, and Zipcar.
And that's making auto manufacturers nervous. The industry-wide reaction has been mixed. Some companies are ignoring the threat posed by sharing; others are fighting it.
But Ford Motor Co. (NYSE: F) made an unorthodox investment in a new kind of "assembly line" to join the competition...
The San Francisco Experiment
In an experiment that runs through November, Ford is marketing the "Getaround" ride-sharing app to 14,000 Ford owners in the San Francisco area. Getaround is a peer-to-peer (P2P) platform that lets people rent all kinds of cars, for as little as $5 an hour.
Why would Ford, which sells cars, want its owners to rent their cars when Ford might be able to sell more cars to rental companies?
Well, as I just showed you, the sharing economy is so potentially disruptive that just about every business needs to figure out how to opt into this new paradigm. If they don't, they'll get ousted, just like the taxi industry is now.
Ford knows that Getaround, a San Francisco-based ride-sharing startup, rents all kinds of cars, from Fords to Ferraris (though good luck finding a Ferrari owner willing to rent to you on an hourly basis).
However, this deal is not about renting the cars - it's about customers buying them.
Here's Ford's thought process: If the renters like the Fords they rent, there's a much better chance they'll eventually buy a Ford than if they had never tried one.
After all, even Millennials will one day grow up, have kids, and move to the suburbs.
The Dearborn, Mich.-based automaker is only offering the marketing help and access to Getaround to Ford owners who financed their purchases - through Ford Motor Credit, of course.
And that's another reason Ford is taking part in this program. If an owner rents their car, they're generating revenue. That revenue can augment monthly payments. And if a car is rented enough, rental revenue can easily cover months of payments.
According to Padden Murphy, Getaround's head of business development, regular renters are averaging close to $600 a month in revenue in big cities served by Getaround.
If you follow the logic, it's easy to see that Ford can sell more cars if they help buyers make payments.
Helping to generate revenue from sold cars helps credit-impaired buyers and also buyers who wouldn't otherwise be able to afford a new car meet financing requirements. It also makes more expensive, higher-profit-margin cars more affordable.
It's a smart move by Ford and is no doubt going to be copied by other carmakers and car-loan finance companies.
This Could Disrupt the Disruptors Soon
Plenty of analysts, market watchers, and thought leaders are excited about the sharing economy.
However, not everyone is.
After all, not everyone wants to share.
I'm talking about the entrenched industries the "sharers" are going up against - and their supporters in city halls, state legislatures, and Congress.
Just take a look at what's playing out in the courtrooms concerning Uber.
Most of the company's drivers consider themselves akin to freelance contractors - and Uber thinks likewise.
That simple relationship is about to change.
Barbara Ann Berwick, a contractor for Uber in California, sued the company after calculating that she was clearing less than minimum wage.
Berwick sued Uber, claiming she was an employee. Under California law, as an employee, Berwick would be entitled to reimbursement of the $4,152 in expenses she laid out.
She won. The California Labor Commissioner's Office effectively labeled Uber an employer.
Uber also is being sued by taxicab companies across the country for operating without proper licensing and insurance.
In order to continue amassing venture capital at its current prolific rate - in order to survive - Uber likely has to win most of these lawsuits.
And Airbnb also is coming under litigious pressure from hotel and apartment owners. What if Airbnb must consider the folks who rent out their spaces as employees, or if those spaces are subject to the same safety requirements as, say, the hotel rooms at any Marriott?
The results of such litigation will have a massive impact on the entire sharing economy income model.
How to Play Ford with the All the Disruptions
If the sharing economy is going to move ahead, it's going to have to address the same issues typical businesses face. I'm talking about issues like workers' compensation, labor laws, healthcare plans, anti-discrimination laws... and taxes.
If it can't, its time in the sun may be nearing twilight.
From users' perspective, questions abound as well. Who will monitor how services are rendered? How will they be regulated? How will users be protected from bad contract actors? How will service issues be resolved, and by whom?
These are just a few questions that will have to be answered appropriately if the sharing economy is going to continue to spread globally.
That's why I think Ford's move here is really smart.
It's the very essence of an "entrenched industry."
As such, it has oodles of cash and lawyers and so can navigate the regulatory maze better than the young startups that compose most of the sharing economy.
And for investors like you, Ford's partnership with Getaround means that it is going to catch the profit wave of a rapidly growing sector.
Your Smart Move
So far, Ford has had a lackluster year. It's down 4.7% in the last month and 6.3% in 2015. It currently hovers near $14.50.
However, thanks to low oil prices and rising consumer confidence, Ford is on track for a great year.
And that makes its stock very attractive down here. The stock's dividend yield is 4.20%.
I like accumulating a position in this old-line but forward-thinking auto manufacturer.