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  • Maximilian Mayer

Beyond the carmakers

Why smaller car share operators thrive where deep-pocketed auto manufacturers sometimes do not


Early this year the American automaker GM announced it would be shutting down its carsharing service, Maven, after just four years of operation. Citing difficulties in gaining a foothold in the market, this was just the latest in a long line of car sharing services that have been halted.


This has led to skepticism among some key players in the auto industry. Mini global boss Bernd Körber claimed that “it’s hard to see the future,” of such mobility services, while Porsche boss Oliver Blume stated that “nobody knows where you can make good margin”.


Yet, a diverse group of car share operators ranging from big to small, is showing that with a favourable regulatory environment and a good control over costs, carsharing can be a sustainable business; however deep your pockets are.


What do we mean by carsharing?

When we talk of carsharing we specifically mean the free-floating kind. This means vehicles being picked up in one location and then left at the destination (rather than at a station). This excludes ridehailing, which requires a driver, and rental cars which are typically rented over longer periods of time and are normally round-trips. The free-floating sort is one-way and run primarily using an app on your phone.

An expensive business

Carsharing is a difficult business mainly because the overheads are so high. Operational costs aside, cars are not cheap. Say a car share vehicle costs $20,000, with an average trip time of 20 minutes at $0.30 per minute (total = $6), each vehicle would need to be driven over 3000 times just to pay off the investment of the car itself. That would be around three rides a day for three years. Of course their longevity is a bonus, and vehicles can be resold, albeit having depreciated in value, but when we look at it this way, reaching long-term profitability appears a difficult task.


If we compare this to e-scooters which have similar, slightly cheaper price points, the difference in hardware costs is enormous. With scooters as cheap as €500, the risk on each unit is significantly lower.


Focus on OEMS

For this reason it has been tempting to focus on OEMs who, while unable to turn a profit from their services alone, would be able to profit from the secondary benefits, such as brand recognition and as a sales tool, allowing future customers to try out their cars. And as they control the manufacture of vehicles, there is also an inherent cost advantage when it comes to deploying fleets of cars. The success of the likes of ShareNow (BMW & Daimler) and Free2Move (PSA) attests to this.


Nevertheless, OEMs are far from the only gig in town. Broadly speaking there are three other types of operators: the utility companies, car rentals and independent players.

Source: Ubiq

Utilities

For utilities such as Innogy, a German-based energy provider, electric carsharing represents an opportunity for them to leverage their position in the market as a provider of charging infrastructure. This gives them an inherent advantage when it comes to electric mobility.


And while not all utility companies will offer services themselves, they do play a key role in the carsharing ecosystem. Innogy is a forerunner in this regard, but expect more energy companies to move into the space over the coming years.


Car rental companies

Unlike utilities or OEMs, the car rental companies’ move into on-demand / free floating carsharing cannot be seen in terms of secondary business opportunities as they make their money through rentals themselves.


For car rental companies, one-way trips are a natural extension of their existing services, Zipcar of Avis Budget Group being an obvious example. With vast experience in renting out vehicles, and the acquisition and management of fleets, they are well placed to take on car sharing. With Gig, Zipcar and Evo, among others, this expansion of traditional car rental companies could well see them moving more and more away from station based mobility.


The coronavirus dealt a severe blow to car rental companies who are reliant on holidaymakers. With the continued risk of reduced travel, focusing on urban travel could well turn out to be a safer bet.


Independent players

The independent carsharing companies are very much the David to the OEM’s Goliath in the carsharing world. Established to address urban mobility deficiencies, often more local in character, companies such as GreenGo in Hungary, MILES Mobility in Germany, Poppy in Belgium and Communauto in Canada have shown that even smaller, independent players can play the car share game.


With the high costs of running a car share business, it is impressive that smaller players have managed to compete. A number of factors have made them competitive. First, a clear sense of place and a good understanding of the local context has helped them to establish themselves in their home cities, for example GreenGo’s mission of being the “first e-carsharing provider in Budapest”.


Second, they have also been able to carve out niches which set them apart. Poppy’s cars being part of a wider multimodal offering including scooters and mopeds, being a good example. That independent players and car rental companies are able to establish viable car share businesses is probably the biggest validation of the long-term viability of the industry.


Something they all have in common - fleet efficiency

What becomes clear is that no matter what your business goals are, fleet efficiency is crucial to long-term sustainability. In an industry where costs can quickly sky rocket, optimizing the utilization of every vehicle is vital.


Generally speaking, a utilization rate of 30 to 40 percent is considered the holy grail (remember, a private car is only in use 5% of the time on average). The closer you get to this point, the closer your service is to becoming profitable in the long term. And while marketing and pricing goes some way to getting bums on seats, ensuring that vehicles are available in the right place and in good condition to be used, is a major factor in pushing that utilization rate up. Operators that have focused on this have done better, whether big or small.


A diverse playing field

In a growing market that is still finding its feet, the next few years will be fascinating. The different types of companies engaged in car sharing shows there is no single way to approach it. But, car rental and independent car share operators have shown that free-floating carsharing can be a viable business in itself and not simply a component of a wider sales strategy.


Because of this, it is important not to see carsharing space as one dominated simply by OEMs, even if they will continue to be leading players. What all carsharing companies have in common, though, is a need to manage costs. This is imperative in an industry where costs can quickly spiral out of control. If smaller independent operators can thrive so can larger companies. Taking one city at a time and focusing on fleet efficiency, there is no reason why car sharing cannot be a profitable enterprise.


Maximilian Mayer is Head of Sales at Ubiq, a Vienna-based company providing data-driven operational services for shared mobility. To find out more about the role AI can play in enabling mobility services to become more efficient, request Ubiq's product sheet here.


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