Despite its small size, the car-sharing market has received investment from manufacturers and rental companies. Sotiris Kanaris investigates why it is a force to be reckoned with.
The way people are moving around big urban areas is changing, as a result of the rise of what Harvard Business School defines as the “access economy”.
The evolution of technology, mainly due to the development of apps, has resulted in the emergence of modes of transport such as car hailing and car sharing, which enable city dwellers to have access to cars and taxis at the touch of a button.
As a result, the urban transport ‘ecosystem’ has changed, forcing car manufacturers to reshape their strategy to accommodate these mobility services.
The global car sharing market has been growing at a fast rate, with consultancy Frost & Sullivan estimating a 30% year-on-year growth since 2014.
Senior consultant at Frost & Sullivan Shwetha Surender says: “The European car-sharing market is around 3 million users, while the global market stands somewhere in the range of 6-7 million.”
There are two car sharing models: one-way and two-way. The two-way model is a station-based one, with the user picking up a car in one location and dropping it in the same place. On the other hand, through one-way car sharing the user can pick up the car at point A and drop it at point B, with sometimes point B being flexible.
The recent expansion of the car sharing market can be attributed to both demand and supply factors.
Over the past five years there has been a significant increase in the number of players operating in this market. “We are seeing a lot of investment, which is driving growth,” says Surender.
BMW, Ford and Daimler are some of the OEMs which have launched car sharing services, alongside, and sometimes in partnership with, car rental companies such as Sixt and Avis Budget Group.
Surender says: “We have seen OEMs looking into the space in order to diversify and take a long-term perspective.
“OEM strategy is changing; they are not solely focused on selling a product, but they are also looking at ways to monetise the service itself,” she explains.
“We are also seeing a lot of investment by leasing and car rental companies; it is almost organic growth for them.”
Apart from the increased availability of car sharing platforms, a number of factors have triggered a boost in demand for this service.
According to Michelle Bowden-Roche, project lead for GoDrive – part of Ford Smart Mobility – the cost of owning a car makes car sharing more attractive. She says that for some people in urban areas it is not cost-effective to run their own vehicles, because they may only occasionally need to use a car for their journeys.
Jonathan Hampson, head of locations at Zipcar International, says that car sharing has become more popular as a result of the development of technology and changing consumer behaviour.
“The development of technology means people get used to this concept of having access to whatever they want whenever they need it. The phone has really unlocked this potential, which really wasn’t there before, of access over ownership,” Hampson explains.
Technological enhancement of the car sharing service has made it more convenient for customers compared to when it was first launched, and this has positively impacted demand.
MD of DriveNow UK Joseph Seal-Driver, says: “Ten years ago you had to go to a website, book a car in advance, go to that car, take it for a number of hours and return it by a certain period of time. Now you just open your app, find the nearest one, jump in, drive and drop it anywhere.”
The role of local authorities
Some city authorities around the world have shown their support to this mode of transport, and have made agreements with car sharing companies to facilitate their operations.
Zipcar’s Hampson says: “City authorities recognise how car sharing could be part of a solution to them coping with the rising population. We work them also to help their residents understand how car sharing might work for them. Transport for London has started to move beyond the grounds of just looking at public transport; they are also looking at a wider mobility space and how they can encourage a more sustainable transport mode, of which, we are one.”
The support of local authorities is important for the growth of the sector, especially for the one-way car sharing model. DriveNow UK’s aim is to offer customers the ability to park anywhere in London rather than at dedicated parking lots, but in order to do that it needs to have the consent of local authorities.
“To be successful as a car sharing operator you do need to provide a sense of scalability, otherwise it’s not going to work,” says Surender.
DriveNow currently has the support of four North and East London boroughs, including Islington, which has also allowed GoDrive clients to park anywhere within its area of jurisdiction.
Commenting on DriveNow’s increased coverage, Surender says: “They negotiated with four neighbouring boroughs to ensure they provide customers full coverage of those areas; that way they will actually see utilisation go up.
“If you operate in a single borough, it is unlikely that people are just going to be driving within it. In such cases there might be scope for two-way car sharing, but not one-way car sharing,” she adds.
On the negative side, reaching agreements with individual London boroughs can be timely and pose a challenge to car sharing companies.
“The only way to get that parking space is to negotiate with the boroughs, and that is where things are not always very clear-cut, because boroughs need to have their policies in place themselves and have to be willing to make parking allocation to the car share operators. This has certainly been a challenge in the past and I think it will take some time to ramp up,” Surender comments.
Impact on private car sales
The industry experts Motor Finance interviewed say that the vast majority of car-sharing users are aged between 25 and 45, although they have identified a widening of the user base’s demographic over time. Bowden-Roche says that at GoDrive the user base is predominantly male.
“Slightly contrary to what some people think, car sharing users tend to be individuals who could afford a car. They have made a conscious decision that owning a car is not the right decision for them,” says Hampson talking about Zipcar’s customers.
Through customer interviews, GoDrive found that car sharing was a factor behind some people not buying a new car.
“During one round of interviews, people said that if it wasn’t for schemes like GoDrive they would have bought a second car. Others said to us that they won’t replace their car because they have access to such schemes,” explains Bowden-Roche.
Surender says that car sharing has the potential to affect private car sales, but that the scale remains a question.
Talking about Frost & Sullivan’s preliminary analysis on the topic, she says: “If we take a rough estimate that one car share vehicle has the potential to remove anywhere from 10 to 15 private ones off the road, by 2025 there could be anywhere between 3.5 million and 5 million private cars removed globally. It’s not a big number given that annual automotive sales will easily reach 100 million by then, but it is still a considerable impact to the market.”
Why do OEMs invest?
Despite the ability to negatively affect private car sales, car sharing offers a range of opportunities for OEMs.
Bowden-Roche says that this mode of transport provides an opportunity to OEMs for wholesale deals of vehicles to car fleets. In addition, she says that through car sharing people can have an overview of the brand’s full product range.
Apart from that, OEMs seem to invest in this space with a long-term plan to attract more customers. In some of its early focus groups, Zipcar found that when its customers decide to buy a car, they are more likely to buy one they have already used with the company.
“Today we are seeing the average buying age of a car owner moving towards the mid-thirties to early-forties. So when they do make the decision, as with any other purchase, you are most likely to opt for a brand you are familiar with. It helps OEMs hook the customer much earlier,” says Surender.
Another reason behind the entry of OEMs in this market is that as it grows it can become a considerable revenue stream.
Seal-Driver says: “Apart from influencing future purchase decisions, there is also a hard business element to it as well; DriveNow makes money.”
Frost & Sullivan forecasts that one-way car sharing will be the part of the market that will record the highest growth in the future.
Surender says: “We have seen faster growth in the one-way model over the past few years, and we expect it to form a larger portion of the market by 2020 or 2025. It offers more convenience to customers.”
Zipcar has already started offering this model in some cities in North America, and it will start offering this service in Brussels later this year.
The route to market could change in the near future if more OEMs follow Ford Germany’s example to incorporate dealerships in the process.
In Germany the manufacturer launched Ford Carsharing in collaboration with fellow operator Flinkster.
“The dealers are responsible for the car and also for the organisation of where to park the cars. They can use their local contacts to get the parking lots in areas where it makes real sense, for example near stations or big bus stations. The booking platform is a shared platform with Flinkster,” a Ford Germany spokesperson tells Motor Finance.
The car sharing market can be affected by peer-to-peer car sharing services, with Surender saying that traditional car sharing operators are opening up their platforms for P2P services to their customers.
“The reason why they are trying to do this, again, is to tap into different customer segments and try to figure out where demand is going to come from, what kind of need exists in the market, and fill that gap,” she explains.
OEMs are also looking at the P2P space, in a way that it could be a substitute to car sharing.
Peter Schwarzenbauer, member of the board of management at BMW AG, responsible for Mini, Rolls-Royce, BMW Motorrad and aftersales says: “In a further step, Mini will also enable a new form of vehicle lending [P2P car sharing] for a defined circle of family and friends.”
P2P platforms can be seen as competition to the car share operators, but Hampson says that they have not been so popular in the UK.
Hampson says: “Yes, I think it could be a potential competitor. It’s another extension of the service. I wouldn’t say that I have seen it getting huge traction so far, but it is another option that the consumers have.
“It will be interesting to see whether that really does take off or not.”