Making car clubs work
Winners will adapt to local needs, hone operations to suit niches and market nimbly
Remember how the Sharing economy was going to revolutionise urban car ownership? Car clubs like BMW’s DriveNow are still enjoying the tail end of that hype, but converting the buzz into bucks is proving far from straightforward. It’s clear that there are real opportunities out there for car clubs, but it’s up to each operator to find their niche.
As Uber continues its march, the urban mobility marketplace is evolving fast. The car sharing schemes that succeed will be the ones that adapt to very specific local needs, hone their operations to suit niches within increasingly diverse mobility ecosystems, and then market their service in creative, compelling and nimble ways.
DriveNow recently integrated itself with Copenhagen’s public transport services by leveraging the car’s built-in inter-modal routing system.
Revving up
The modern era of commercial car sharing began in the early noughties with pioneers like Zipcar making use of dot-com era technologies. After a decade of slow growth the services got a kick-start from the smartphone and app economy boom. Another boost has been the direct and indirect support of city authorities. Many cities actively encourage car sharing – by, for example making parking spaces available – while discouraging private car use.
Car clubs are now part of a growing jigsaw of mobility services that complement public transport, such as bike hire, ride hailing and ride sharing (see urban mobility map). These alternatives to private car ownership shine a light on its cost and hassle – especially in urban areas, where cars are used less. It seems car sharing is an idea whose time has come.
Trouble getting out of first gear
Yet despite the zeitgeisty goodwill, there are signs that the prospects of turning a profit in car sharing are not so rosy. A recent survey suggests that membership of car clubs is now falling in the USA. Zipcar, the market leader, managed to turn a 3 percent profit in 2013/14. In 2014, car2go’s ‘free floating’ service pulled out of the UK and the joint venture between BMW Group and Sixt recently announced that it was withdrawing its DriveNow service from San Francisco. So why are two of the most sophisticated car sharing providers finding it impossible to get established in two of the world’s most progressive and tech-savvy cities? The reality of car sharing is a bumpier road than first appearances seem to suggest.
Speed bumps
Each city is unique
The most obvious challenge to rolling out a global car sharing service is that cities have different mobility profiles. For example, both London and San Francisco have relatively good public transport systems, leaving car sharing schemes to fight over a small slice of the mobility market – and a small number of expensive parking spaces. Other cities like Berlin are more fertile ground, thanks to an abundance of space and a large population of young, cash-strapped drivers.
Enduring desire to own cars
Rationally, the numbers stack up against owning a car in the city. Yet many urbanites continue to covet a car of their own – including Gen Y, who some (see ‘Millennials don’t want cars’: Debunked) claim have fallen out of love with cars. On the contrary: a recent survey showed that 75 percent of Gen Y drivers in developed markets (79 percent in developing markets) believe that they are likely to be using their own, personal car in five years’ time. Despite the demonisation of cars by policy wonks and pressure groups, for most the automobile remains a powerful symbol of personal freedom and individuality. In other words, buying a car is not an entirely rational act.
Translating intention into action
While plenty of people are aware of car sharing and think it sounds relevant to them, getting them to try car clubs out – let alone engrain them into their lives – is an uphill battle. For example, 8 percent of Londoners who signed up for car clubs in 2014, for one reason or another, never actually rented a car. This presents operators with a classic marketing challenge: how to convert interest into action?
The challenge of keeping busy
Car sharing enthusiasts love to quote statistics about how most private cars spend the vast majority of the time unused – typically they are only used 5 percent. However, they tend to gloss over the fact that car club vehicles also spend a sizeable chunk of time unused (and not earning) during the troughs in demand for mobility. Zipcar quotes utilisation rates of 30-40 percent. Sweating these assets effectively is critical to the commercial viability of car clubs, and it’s a real challenge.
One car, many motivations for use
In the popular imagination a car club user is a young, environmentally-aware hipster who spontaneously decides to nip down to the new artisanal coffee shop. In reality, driver profiles and use cases vary widely over time and location within a city – for example, few customers are explicitly driven by sustainability concerns. This diverse set of customers and motivations makes targeted service development and marketing challenging.
Marketing material for car clubs often focuses on young, stylish, environmentally-aware urbanites. But in reality, driver profiles and use cases vary widely, which makes service development and marketing challenging.
Parking battles
Both DriveNow and car2go cited parking access as a major factor behind their withdrawals from San Francisco and London respectively. ‘Super permits’ that let drivers drop their cars off in any public parking space within a defined zone are central to DriveNow’s model, and San Francisco city authorities did not play ball. car2go negotiated a similar deal with two London boroughs, but the permits were expensive and annoyed local residents who not only have to jostle with each other for scarce spaces, but increasingly with car club and bike rental bays too. Car clubs operating in San Francisco have also faced similar challenges from residents.
Wrestling with local politics
Which brings us to the thorny area of dealing with local authorities. Negotiating officialdom is a key car sharing competence: operators must be both canny and patient if they want to access parking bays and permits, congestion zone waivers, signage for parking bays and charging stations for electric cars. In many cases, they also need deep pockets. However fostering positive relationships can result in highly advantageous partnerships, such as Autolib’ in Paris and DriveNow in Copenhagen.
Daimler’s Car2Go service withdrew from the UK in May 2014 citing the UK’s strong culture and tradition of private vehicle ownership, and co-ordinating multiple individual boroughs across the city.
Go big or go home
It’s hard to dabble in car sharing. To reach a reasonable level of awareness and convenience, cars need to be close to where users might want them. This requires a considerable commitment in terms of fleet size, as well as careful consideration of where cars are located and how they are priced, to maximise car utilisation. DriveNow has managed this in London by focusing its free-floating fleet across four adjacent boroughs in the north-east of the city.
Rhetoric vs reality
While many users like the idea of the sharing economy, providers would be wise not to test this enthusiasm too far. For example, drivers definitely don’t like coming across traces of others users, such as someone else’s food wrappers – never mind a slight odour. They want the car to feel like their own while they’re in it. Another factor is that, car sharing is just not that convenient for many drivers and use cases.
Competing claims
The promise to cities is often that car clubs will reduce congestion and emissions. However, the jury is still out on such assertions. There’s a lack of credible supporting evidence, as so many of the studies are funded by car sharing suppliers and pressure groups. So while some users do seem to be giving up their own cars, it is also plausible that car sharing may generate more road journeys overall. For example, 75 percent of German car sharing members surveyed saw joining as a way to add an additional car to their households. Perhaps San Francisco’s Municipal Transportation Agency sums up the problem: ‘While promising in many respects, the potential benefits and effects of the [free-floating] model are still insufficiently documented and understood at this time.’
Conclusion
The car sharing business is hard. Now 15 years old, it’s in an energetic and adolescent phase of development as new entrants experiment with different models to strike the right balance between cost and convenience for the right customers. The winners will be those that get beyond ideologically-driven behaviour change agendas, and adapt to the highly diverse transport needs of different cities, users and use cases. Despite the grand claims of some operators, the potential for car sharing is limited to finding its niche within a blooming range of options for urbanites (see urban mobility map). In the short term, car clubs must fend off the aggressive advances of Uber – the new sharing economy hero or villain – which runs customers door-to-door without any fretting about parking or insurance waivers. In the longer run, car sharing schemes and Uber drivers alike may find themselves run off the road by shared autonomous vehicles – but that’s another story, and one that we (or our future driverless equivalents) will be updating you on in future editions of ‘Perspective’.