Here’s Why Toyota Motors Is Partnering With Uber

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Recently, Toyota Motors (NYSE:TM) announced a partnership with Uber to explore collaboration in the world of ride sharing.  As a part of this partnership, the company’s financing units, Toyota Financial Services and Mirai Creation Investment, will make strategic investments in Uber. However, Toyota Motors did not disclose the investment amount. This move comes in the wake of both General Motors’ investment in ride sharing company Lyft and Ford Motors’ teaming with Pivotal to create an automotive and mobility platform. As car usage trends evolve, mobility services are gaining importance with the younger generation, many of whom prefer ride sharing to car ownership. This is prompting traditional automakers to strategically expand into the mobility solutions market to hedge themselves against the declining demand for owned vehicles in the long term. A strategic partnership with Uber provides Toyota with a platform to start its mobility services and take advantage of Uber’s wide geographical network. Toyota’s huge cash reserves allow the company to make large strategic investments and choosing Uber to be its ride sharing partner appears to be the right choice for the company.

See our complete analysis for Toyota Motors here

Transformation Into Mobility Solutions Provider Essential For Survival In The Long Term

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Consumer automotive behavior is changing with the advent of technology, as ride sharing apps make it easier to share cars, especially in urban areas, where car ownership is lower to begin with.  This trend can lead to a potential decline in car ownership, especially in the developed countries, as it appears that the younger generation is not as interested in purchasing cars.  This is according to study by the AAA Foundation for Traffic Study, which reported that from 2007 to 2011, the number of cars purchased by people aged 18 to 34 fell by almost 30%.. This shift is prompting traditional car makers to transform themselves into mobility solutions providers and reduce the dependence on traditional auto businesses. While Ford and General Motors are already ahead in this game, Toyota’s partnership with Uber will give it a strong foot holding in the ride sharing market

As a part of their partnership, Toyota and Uber will create new leasing options in which car purchasers can lease their vehicles from Toyota Financial Services and cover their payments through earnings generated as Uber drivers. This initiative builds on Uber’s existing vehicle solutions program and the leasing period will be flexible depending on the driver’s needs. In the future, the companies plan to explore collaboration in a variety of other areas such as developing in car apps for Uber drivers and establishing a special fleet program to sell Toyota and Lexus vehicles to Uber drivers.

Uber’s dominance in the ride sharing market is visible from its market coverage. The company operates in 300 cities in 60 countries. In comparison, Lyft (where General Motors holds a stake) operates only in 60 cities in the U.S. and does not have an international presence. Uber’s significantly higher revenues and growth potential make it a much more valuable ride sharing company compared to its competitors. While Toyota Motors did not disclose the amount of investment made for the partnership, the company’s high cash reserves allow it to make huge strategic investments. With Uber’s presence in several markets across the globe and Toyota’s dominance in the global auto market, this partnership will benefit both companies in the long term, in our view.

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