Lessons Learned from the History of Car Sharing

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A Quick History Lesson on Car Sharing

Car sharing is an alternative to car ownership and car rental, in which local users are able to access a network of vehicles in a city and rent the vehicles by the minute, hour, day, or purchase a monthly or annual-access membership plan.  Car sharing is intended to provide a solution to transportation and environmental issues.   Car sharing is not a new concept.  In fact, car sharing began in 1948 with a cooperative in Zurich, Switzerland known as “Sefage” (Selbstfahrergemeinschaft).  The idea was simple: if you can’t afford to purchase a car, share one.  Many other shared car experiments were attempted but were unable to grow large enough to sustain.  These later efforts include: “Procotip” (France, 1971 to 1973), “Witkar” (Amsterdam, 1974 to 1988), “Green Cars” (Britain, 1977 to 1984), and Sweden’s “Bilpoolen” (Lund, 1976 to 1979), “Vivallabil” (Orebro, 1983 to 1998), and a “bilkooperativ” (Gothenburg, 1985 to 1990).  Procotip used in-vehicle “meters” fed by tokens to enable members to pay for usage by distance.  Witkar used electric vehicles and limited its users to the city center.

The first wave of car sharing programs all survived for only a short period of time.   Their failures were observed to be the result of poor financial management and planning, inadequate marketing, lack of support from local governments and the small scale of the projects.  The car sharing model succeeds when both customer convenience and high vehicle utilization is achieved.

The second wave of car sharing emerged in the late 1980s and early 1990s.  In 1987, two car sharing cooperatives, ATG Auto Teilet Genossenschaft and ShareCom, were founded in Switzerland and would later merge in 1997 to form Mobility Carsharing Switzerland.  ATG began as an informal car sharing system that was motivated by the idea of satisfying the need for a car without actually having to own one.  In contrast, ShareCom expanded its offerings to not only share cars, but also share homes, tools and other goods.  ShareCom aimed to establish a communal system with its members.  Around the same time, in 1988, StattAuto Berlin was started as part of a university research to demonstrate the potential of car sharing as a transportation alternative in Germany.  In the first few years after its founding, StattAuto experienced 50 percent YOY growth, but this growth did not sustain when Berlin citizens began to expand beyond the city into areas where public transit was limited and realized the infrequency of their use of the program.  Others cancelled their membership because they found it more convenient to own a car than continuously reserve a shared car.  As a result, declining memberships and the high costs of maintaining the program led to an unprofitable business.  The reasons that caused the declining growth of car sharing for StattAuto were the same reasons for the many other failed car sharing programs that would follow.

It wasn’t until the 1980s that car sharing was introduced in the U.S.  Car sharing began in the U.S. with two experiments: Mobility Enterprise (1983 to 1986) and the Short-Term Auto Rental Service (STAR) (1983 to 1985).  The Mobility Enterprise program was run by Purdue University researches and was aimed to encourage the use of smaller, fuel-efficient cars and to reduce the need for additional vehicles.  STAR was established as a demonstration project by a private firm in San Francisco that served residents of a large apartment complex near San Francisco State University (Doherty, Sparrow & Sinha, 1987).

Carsharing Portland also began as an informal car sharing system, involving one car and a few neighbors.  It is recognized as the first official car sharing operation in the United States. Shortly after Carsharing Portland’s founding in 1998, Flexcar and Zipcar were started.  These programs were all station-based, in which vehicles are located at a designated location for users to pick-up and drop-off the cars.  In 2001, Flexcar acquired Carsharing Portland and in 2007, Flexcar and Zipcar merged.  And most recently, Zipcar was acquired by Avis for about $500 million at $12.25 a share, a 32% discount to Zipcar’s $18 IPO price.  Zipcar hadn’t turned an annual profit since its founding and as of September 2012, only had two month’s operating cash on hand.  The high fixed costs of fleet operations, including lease expense, depreciation, parking cost, fuel costs, insurance, gain or loss on disposal of vehicles, accidents, repairs and maintenance as well as employee-related costs, squeeze the margins of the business.  PhillyCarShare, acquired by Enterprise Holdings in 2011, also found itself in financial trouble with a debt of approximately $2.7 million.  Additionally, the need for rapid expansion to gain first-mover advantage and grow the customer base requires significant investments in vehicles and parking.  And especially in densely populated cities where membership growth is most promising, parking is scarce and expensive.

To be profitable, station-based car sharing companies will need to achieve economies of scale in a highly competitive environment, but the low barriers to entry in this business, which puts downward pressure on prices, and the required investments to grow the business make it challenging for these companies to achieve profitability.  Between 1997 and 2009, there were 34 car sharing programs launched and 15 program closures in the United States, yielding almost a 50 percent closure rate.

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Lessons Learned and the Future of Car Sharing

Fortunately for car sharing, history won’t repeat itself.  Today, there are more than 2 million members worldwide in car sharing programs and membership is expected to reach over 12 million by 2020.  A large part of this growth can be attributed to the changing attitudes and lifestyles of individuals, but even more influential are the technology and infrastructures that have made car sharing more convenient and available to individuals.

In the past, many car sharing programs were founded through university research, subsidized by the government or started as a small, private company.  As previously mentioned, these car sharing programs struggled to survive independently.  Today, through acquisitions by large rental car companies, many car sharing programs are able to continue to operate and expand its business despite the challenging margins by leveraging the infrastructure and resources of its parent company.  For example, Avis’ acquisition of Zipcar has helped Zipcar create a presence at airports and will allow it to break into the international car sharing market.  Rental car companies are also able to create a new revenue stream and grow their customer base to include short-distance or short-term rentals through the car sharing programs.  Many car manufacturers have also been successful in launching their own car sharing programs such as Daimler’s car2go and BMW’s DriveNow.  As of May 2013, Car2go operates over 7,300 vehicles, which serve seven countries and 20 cities worldwide with over 375,000 customers.  This March, Ford also started its own Ford2Go in Germany.

Technology is transforming the car sharing system by helping decrease some of the fixed costs per vehicle and attracting more customers to the concept.  The traditional station-based car sharing system has been reinvented to the one-way or free-floating car sharing system.  One-way rentals allow users to drive the vehicles anywhere within the operating zone and leave the vehicle in any legal public parking space rather than having to return the vehicle to the original location of rental.  Additionally, users pick up cars parked nearest to them by finding an available vehicle with the internet or smartphone app.  These technology solutions are attractive because they rid the high parking costs and inconvenience of having to pick-up and drop-off cars at a specific location.

New technologies, a growing interest and improved operational efficiencies suggest the future of car sharing is promising.  As of January 1, 2013, there were 46 active car sharing programs in North America with 1,033,564 members sharing 15,603 vehicles.

Share with me your thoughts on car sharing @tiffanydstone or comment below!

Sources: http://www.carsharing.net/library/North-American-Carsharing.pdfhttp://www.economist.com/blogs/babbage/2013/05/car-sharing-serviceshttp://tsrc.berkeley.edu/sites/tsrc.berkeley.edu/files/A%20Short%20History%20of%20Carsharing%20in%20the%2090s.pdfhttp://www.portlandoregon.gov/transportation/article/370287http://www.nytimes.com/2013/06/26/business/global/one-way-car-sharing-gains-momentum.html?pagewanted=all&_r=0http://onlinepubs.trb.org/onlinepubs/tcrp/tcrp_rpt_108.pdfhttp://carsharingus.blogspot.com/http://en.wikipedia.org/wiki/Car2Go

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