Join the club?

As car clubs begin to gain traction in the UK’s metropolitan
areas, Jo Tacon asks what the implications of the clubs’ growth
could be for motor financiers and fleets alike
 
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 Strange parking spots have been quietly appearing in
central London over the past few years – with ever-increasing
frequency. Marked as “For car club use only”, or similar, on quiet
residential streets, along busy thoroughfares, or tucked away in
corners of car parks, they are an outward sign of the car clubs
which have begun to colonise London, and which are steadily growing
their network across the UK.

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 Carplus, a charity which promotes alternative forms of
transport to private motor vehicles, predicts that by 2015, there
will be 1m car club members in the UK. It seems a tall order, when
the combined member numbers of the four largest operators come to
just over 40,000.

 However, there are signs that a tipping point is, if not
imminent, then perhaps on the horizon. As oil prices rise and green
concerns rocket up the public agenda, it seems more and more people
are questioning the wisdom of owning a car – and are considering
dispensing with one altogether. The implications for motor finance
houses and even company car providers could be enormous.

 Car club WhizzGo recently published the results of a
survey it had carried out asking over 2,200 drivers about their
attitudes to car ownership. “Nearly half (46 percent) of British
drivers believe that owning a car is becoming increasingly
unaffordable as a result of the rocketing cost of tax, fuel,
insurance and general maintenance,” WhizzGo found. In fact, the
company reported that one in five British drivers is theoretically
prepared to forego car ownership altogether in 2008 if a “cheap,
practical and convenient” alternative can be found.

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But the privately-owned vehicle is far from extinct. The heads
of the UK car clubs all broadly agree that for a car club to be
worthwhile, certain criteria have to be met. Reliable, integrated
public transport is vital, along with a dense urban population, and
strong support from local authorities when it comes to providing
parking spaces. In fact, restricted parking for private drivers
aids car club recruitment, as drivers get fed up with wardens,
tickets and draconian penalties.

 The UK city which best meets these requirements is London,
and there is a dense network of car club vehicles across the city
and its environs. And while City Car Club, Streetcar and WhizzGo
all have locations in other UK cities (see table), the majority of
these are still on a small scale.

 Yet as MD of WhizzGo, Charlotte Morton points out,
sometimes London’s supposed strengths can work against it. “In
London sometimes it is inconceivable to take a car. At my former
company [Morton left a job at a City law firm to set up WhizzGo] we
would not use a club car for corporate business due to road
congestion – we would take public transport or a taxi instead.”

Paul McLoughlin, general manager of Zipcar notes that 85 per
cent of Londoners take public transport to work, compared with 25
per cent of people in Birmingham, and quotes an AA survey which
found that the average Londoner spends £556 annually on car
ownership but uses a car for just five hours a month. “Car clubs
are never going to replace car ownership completely,” he adds, “as
if you drive more than 7,000 miles per year the costs of club
membership do not stack up financially. But when 70 per cent of
Londoners drive fewer than 7,000 miles per year you can see the
potential for the car club concept.”

Brett Akker, joint MD of Streetcar says that estimates for the
number of cars taken off the road for every car club car range from
20 (Transport for London’s figure) to around 28 (based on
Streetcar’s own research). “Once people join, they drive far less
too – on average two-thirds less,” he says. With, as a
“conservative estimate”, 250,000 potential car club users in
London, Akker says, clubs could take many thousands of cars off the
capital’s busy roads.

James Finlayson, CEO of City Car Club, meanwhile, says that his
company’s short-term strategy is to focus on larger cities rather
than smaller ones, and to build a network across the UK – although
he predicts that car clubs will “go mainstream” one day.

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A rate of knots

All four car clubs reported strong growth in member numbers over
the last twelve months. City Car Club grew its membership base by
112 per cent in 2007; Streetcar doubled in size; WhizzGo’s growth
was “exponential”, says Morton; and Zipcar has grown by 100 per
cent annually for four years in a row.

While the numbers involved are still relatively small, if the
current rates of growth are sustained – and all four car clubs
surveyed are optimistic about future expansion potential – at some
point a critical mass of members will be reached. And while not
everyone who joins a car club gives up their former car, there is
strong evidence that becoming a member encourages drivers to sell
their vehicles, or at the very least defer the purchase of a car.
In the case of those who did not own a car previous to joining,
membership of a car club is used as an alternative to taxi rides
and hiring cars for occasional trips, thanks to the ease and speed
of booking and driving a club car. “People don’t tend to see car
ownership as an expense – they internalise the cost of ownership,”
McLoughlin says. “But as time goes on the costs associated with
running a car will become more and more of an issue.”

 As well as saving money for those members whose car usage
patterns are suited to the clubs’ offering (“it’s not really aimed
at commuters who need to drive to work,” Morton notes), all the
clubs are keen to crow about their green credentials. Hybrids are
increasingly making their way into club car fleets. Finlayson of
City Car Club, which has more hybrids on its books than any other
club, says that adoption of hybrids will only take off on a large
scale among clubs when manufacturers bring out more models. “At the
moment the two hybrids on the market – the Honda Civic and the
Toyota Prius – are a little too large for city driving. We’re
looking forward to the launch of five-door hatchback hybrids,” he
says. “Not everyone wants to drive a medium-to-large car.”

Model choice is key, Akker notes: “The vast majority of
Streetcar’s fleet is VW Golfs, as they are cars that people want to
drive. They are big enough for a trip to the DIY store, small
enough to nip round London in, and smart enough to take to a
business meeting.”

Pool’s closed

It is not just private car ownership levels that could be eaten
away by the expansion of car clubs: corporate arrangements between
businesses and car clubs are already providing a viable alternative
to pool cars or ‘grey fleet’ vehicles, and could one day make
serious inroads into the company car market, several club managers
predict.

 14 per cent of Zipcar’s business is in the B2B arena.
McLoughlin says that innovative schemes – such as employers giving
their employees a travel pass and 100 hours of club driving time
for private use, rather than a cash-for-car allowance or even a
company car – are beginning to take off. WhizzGo, meanwhile,
partners with Virgin Trains to provide club cars at train stations,
so business users can travel by train and get work done, then
easily pick up a car for the last leg of a journey.
Streetcar’s Akker says that business relationships (currently 30
per cent of Streetcar’s operations, a figure which Akker expects
“to even out [to 50 per cent] over the course of 2008”) says local
residents benefit as well as businesses. “We will put one or more
cars at a company’s site, block-booked between 8am-6pm on weekdays,
meaning the vehicles are free for local residents’ use at evenings
and weekends.”

 Finlayson of City Car Club also identifies B2B as a “very
big area” for the club, with 18 per cent of members coming through
companies. In addition, around a third of business users also sign
up for private use, with a discount offered for dual corporate and
private membership. “Having a car club on-site allows employers to
save money, and ticks all the green boxes too,” he explains. “It
also takes away the duty of care issues around pool cars, which may
not be well-maintained, and of course grey fleet cars.”

But there is still a “long way to go on [replacing] company
cars,” Finlayson believes, although he predicts that the tax
benefits to businesses of using club rather than company cars will
only grow. “In these relatively early stages we are targeting pool
cars,” he says. Akker concurs: “We’re unlikely to replace a
salesman’s car which is driven all day, every day, but it makes
perfect sense to replace a pool car with a club car.”

The snowball effect

Akker says that at the moment, there is “plenty of room” in the
market for competitors, and that the marketing done by one company
in fact aids them all as the public gradually becomes aware of the
existence of car clubs. “We hand out around 250,000 leaflets per
month,” he says. Morton adds: “When we started, people couldn’t
quite handle the concept – they thought it was too good to be true,
to pay just £5 an hour for the use of a car. It took a lot of
convincing, but now I believe that we are seeing a snowball
effect.”

 Word of mouth is still essential, all club operators
agree, with up to half of new members joining because of a personal
recommendation. University campuses are also being targeted by
clubs, as are property developers who are able to build more
residences on plots of land by dispensing with parking spaces for
every household, and providing a club car or two instead. “Working
with developers is a win-win all round,” Finlayson explains, “as
building properties with a lower parking to dwelling ratio means
they are more likely to win planning permission, while having a
club car on-site acts as a sales tool. Occupiers are offered a
discount, which gives the club new customers and new
locations.”

 Some people, however, will never be convinced. “Jeremy
Clarkson is probably a lost cause,” Morton laughs. “He’s a
dinosaur.” Whether or not the majority of UK car-owners will ever
convert is open to question, but the club trend is one that motor
and fleet financiers should eye warily.

Funding methods

City Car Club: “We have opted for the contract
hire route, going through contract hire companies and dealerships,
although we do a limited amount of purchasing. However, this is
under review. We have a deal in place with General Motors and a
contract hire provider to get better rates through manufacturer
volume discounts. The cars are operated over 18 months to two
years, with a guideline mileage. Maintenance in carried out
in-house.” – James Finlayson

Streetcar: “Streetcar owns its cars, which are
funded through banks via a lease purchase arrangement. We are
currently in negotiations with more funders at the moment to help
us with our expansion plans a couple of years down the line. Cars
are run for 9-12 months, with the average car age around five to
six months. We work closely with VW and remarketing is done using
the auction route or through retailers.” – Brett Akker

WhizzGo: “Our cars are operated on a contract
hire basis using a number of suppliers, with HSBC Vehicle Solutions
one of the main suppliers. Vehicles are typically kept for three
years and taken on by the funder at the end of term so WhizzGo does
not take on any residual risk. Maintenance is done in-house.” –
Charlotte Morton

Zipcar: “We have a worldwide leasing
arrangement with GE Capital Solutions for finance leases, with
vehicles kept for between six months and three years, depending on
customer demand. All maintenance is done at our own bodyshops and
by our own cleaning teams, with the whole process managed
internally. We take on residual risk, as it gives us the
flexibility to ‘flip’ cars as and when we feel appropriate. The
types of cars we operate [e.g. in London, BMW 1 and 3 Series,
Toyota Prius, MINIs] tend to keep their residual values extremely
well. GE handles disposal, mainly through auctions, as we feel it’s
our job to operate the cars rather than to make a profit at the end
of the lease. GE finances over 5,000 cars for us worldwide so we
have a very strong relationship.” – Paul McLoughlin

Club member case study: Paul, 32, London

“I’ve been a car club member for two years – it’s pretty good
for me. If I weren’t in a car club I would definitely consider
buying a car, although I think I might buy a Porsche in the future
to have as a toy! Before I joined I had use of a family car which
now isn’t driven much at all.

“I use a club car once a month or less often and usually it’s
fine but there is the odd occasion where all cars are booked up –
especially around Christmas when the cars near me were all booked
up over a month in advance. It’s good for organised people,
although at less busy times of year there is usually a car free. If
I wanted to have the use of a car for a week I would hire one,
however, as it would probably work out cheaper.”