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Don’t buy cars, park them!

At Stuttgart Möhringen, Untertürkheim, Böblingen, Gernsbach, and Berlin-Ludwigsfelde; vehicles were being charged with some 220,000 (218,542,47) kWh of electricity somewhere around 2015 itself. With charge@work, employees at Daimler were as bothered about getting a car ready as they were about getting a coffee to go. They had to simply park the car, without the need for an authentication because of a vehicle’s self-authorisation, connect it and charge it with electricity as they took care of the usual work through the day.

Somewhere in Seattle, China, California and New York, some other denizens of autoville are also tinkering with unusual concepts like car-sharing, new rental models and drive-and-park offerings. We are not even talking about the new-found frenzy with autonomous vehicles yet.

So is this really happening?

The big showrooms with glitzy cars and smarmy salesmen are now making room for something as easy and inexpensive as picking a car for just a few hours, and not forever. A car with all the upholstery but without all that baggage of insurance, financials, maintenance, garage space etc. that accompanied it! Phew!

Turns out that this is indeed the drift that the world of cars is taking. People may have leaned heavily on to the idea of hailing a cab but that does not mean that all of them do not want to drive a car. They may just not want the headache of a car-ownership that comes along.

So car-makers are paying heed to this muffled sound that was stuck inside the bonnet of the industry so far. They are ready to give you the joy of driving a car, and then leave it at a reserved spot or let someone else take over while you get inside your office or an airport. The big marquee sign is now eager to be your valet 24/7 and anywhere you please to summon it.

Think Car2go, ReachNow, Maven and a host of similar offerings; and you know we are not joking.

Because believe it or not, almost every big name is in the fray.

Charge@Work

There is Daimler out with a car-sharing service with a fleet of Smart cars that users can locate, reserve and open with a mobile app.

There is BMW’s ReachNow with some upmarket cars on the move. There is GM’s Maven with classic models, long rental windows and new parking spaces. Some of these are models that complement the transit system and fix loose ends of the modern mobility where people want to commute hassle-free and strapped-away-from-pollution. Some models allow users to reserve a car ahead of time, and have it delivered a place and time they want. Some services like ReachNow are wedged as a premium ride services with chocolates, pre-set temperature options and bottles of water on the table along with upscale models and Minicoopers available for driving. Some models have wooed users with long-terms rental plans too in case they want to enjoy the wheel a bit longer.

This may not be the knell of demise of car manufacturing per se, even if that was being harped about since the on-demand services, and ride-hailing apps like Uber and Lyft picked up. But this is certainly the rise of a new hood under which troubled and bewildered auto-makers can take shelter till the figure out how the future is to be spackled.

On the face of it, these models gurgle with a lot of pros:

  1. Reduced traffic
  2. Nailing the last-mile problem of public/shared transportation.
  3. Curbing pollution with less car owners. Consider a study by the University of California Berkeley’s Transportation Sustainability Research Center (TSRC) and we can see that Daimler car2go’s flexible one-way carsharing model can complement existing mass transit options, reduces the overall number of vehicles on the road, and has shown that 74 % of the vehicles reported sold by car2go members were at least ten years old (hence wiping away thousands of vehicles with outdated emission systems from urban roads).
  4. Allowing one-way ride options that erstwhile round-trip models from other sharing apps were lacking conspicuously on.
  5. Creating a new revenue stream and survival port for a frazzled auto-industry. GM has turned a new lane with subscription formats instead of conventional life-long ownership sales.
  6. Accelerating the world better towards AVs, environmental-friendly vehicles and the ecosystems they need. Look at how Daimler has not only offered electric vehicles in this model but has also invested in its wind turbine supplies renewably generated electricity for all smart-for-two electric on German roads with zero emissions. The innovation ignition is also trying to fix the speed problem that has always gripped EVs. Daimler claims that e-smart vehicles can dash from 0 to 60 km/h in 4.8 seconds, at a maximum output of 55 kW and torque of 130 Nm and a range of 145 kilometres.

But despite their future-proofing advantage, how do these car-sharing labels (or do they at all) help the nameplates of conventional car-companies?

Are you my Frenemy?

In 2016, when BCG researched the potential growth of the car-sharing market, it estimated its impact on new-car sales in 2021. It so appears that although car sharing will expand relatively quickly and widely, the impact on new-car sales would be only minimal. This can be due to the part that most drivers will not forgo car ownership entirely. Also, some share of lost car sales might find some respite by sales that car-sharing fleets will trigger in large urban areas.

This number of fleet sales will equal to about one-third of forgone car sales, BCG sussed out. As to specific regions, we could be looking at figures like 96,000 fleet sales and 278,000 forgone private sales in Europe, 44,000 fleet sales and 52,000 forgone private sales in North America, and 106,000 fleet sales and 462,000 forgone private sales in Asia-Pacific.

As to how happy would this twist be for OEMs, they may still go on to serve as manufacturers and distributors of personally owned vehicles, but it would not hurt if they start experimenting with mobility services and new business models that correspond to this shift.

The report reasons that manufacturers can set up units to provide vehicles to consumers on an as-needed basis, and they can easily substitute a stream of fee income for sales revenues. Not only that, they may also get access to potential customers who might buy a car at some point in the future.

Still, car sharing can cost OEMs approximately 550,000 units in worldwide vehicle sales or €7.4 billion in net lost revenues, once we factor in the impact of forgone purchases, increased car sharing, and car-sharing fleet sales. But then, in any case, autonomous vehicles are on their way and in a long-term number-crunching, they could make a deeper dent on new-car sales than what car sharing can.

Also, when one thinks of revenues, the very mathematics could be changing by a full swing. Start thinking of the number of minutes booked per month, the maximum utilization rate, and the frequency of vehicle replacement. In some scenarios, some 35 million users might book some 1.5 billion minutes of driving time each month by 2021, with each car chugging a utilization rate of 15%.

If we consider cars being replaced every 12 months, the numbers could be anywhere around  246,000 in 2021 for sales into global car fleets and as many as 89,000 in Europe, 98,000 in Asia-Pacific, and 41,000 in North America.

A deep-lacerating change would of course be the way cars are viewed and emotionally-perceived – not as status symbols or personality extensions but simply as commodities and fungible ones at that. Yet, the BCG research underlines that while a growing number of drivers will stop owning cars, their conversion will proceed at a manageable pace. “New-car sales will take a modest hit, but accelerated car sharing and expanded car-sharing fleets, as well as vehicle replacement, will create an opportunity for OEMs” the highlights distill a not-so-dismal future for cars.

All in all, Car sharing is slated to usher changes in urban driving, driver behavior, and the business models of OEMs and new entrants as it continues to expose new revenue pools and become increasingly relevant to a cohort of mostly younger drivers. The BCG report cautions well that we should not be jumping guns and expect disruptions or redirection of a stream of revenues or any widespread change in consumption.  At least not until AVs arrive on the market in force circa 2027, and in that time window, the car-sharing market will get a lot of time and room to evolve and players can prepare for a period of accelerating change, it adds.

So what would the players need to prep up for?

Nose-punch for taxi-apps?

For starters, ride-sharing services like Uber and Lyft would be an immediate threat to confront as both the models are vying for pretty much the same crop of users and the same needs of flexibility and convenience.

Interestingly, BMW’s Seattle experiment is exploring long-term car rentals and GM’s car-sharing business Maven is moving for renting GM-branded vehicles for a month at a time. GM has also experimented with monthly fees for Maven members to reserve a new GM vehicle for 28 days (that is inclusive of parking at one of Maven’s designated car-sharing spots, insurance, and $100 worth of gas). The range of vehicles is also going to be a wow-factor – the Chevrolet Tahoe, plug-in hybrid Chevrolet Volt and all-electric Chevrolet Bolt – to name some. GM has also taken Cadillac into a subscription service letting people pay a flat monthly fee and drive whatever vehicle they want, changing vehicles each month as per their needs.

If a partner can get rid of the baggage of ownership, insurance, maintenance, long-term lock-in,  and get a choice of vehicle-versatility on top of it, wouldn’t that be a strong magnet against waiting for someone swiping an app? Unless the lease is less expensive. Ditto for those who use that app.

Look at how Maven Gig’s official partner roster already reads of names like GrubHub, Instacart, Roadie, Uber and Lyft. (Note, GM has also invested $500 million into the ride-hailing company Lyft recently).

India and Car-sharing

As to Asia-Pacific, the per capita incomes are generally lower than the U.S. and Europe and to add to that – the transportation infrastructure is less developed, so here, car-sharing may be economically viable in cities with populations of 5 million or more, as what jumps out from the  BCG report. Asia-Pacific can be the largest market in absolute terms, because of its large and growing population. If the North American urban population can hit 50 million by 2021; 31 million people will be licensed drivers, of whom 6 million will be registered users of a car-sharing service with 600,000 people as heavy users. Now when we look at Asia-Pacific’s urban population, that is supposed to grow to 253 million, and there will be 75 million licensed drivers, with some 15 million registered with sharing services, and 1.5 million using them for multiple monthly trips.

In other words, think of car-sharing services coughing up an easy global revenue mark of €4.7 billion in 2021, with the bulk of revenues—€3.2 billion—coming from light users who need a car only for occasional trips. And even if Europe will be the biggest revenue-generating region, throwing off €2.1 billion, it will be strongly followed by Asia-Pacific, which will account for €1.5 billion, and North America, with €1.1 billion.

Body-Roll Problems?

Car-sharing may have good potential and an encouraging market-scaffolding, but there is a lot of unexpected woodwork that they may leave behind.

They have to be really-well-equipped for the densely populated cities that they are entering and the congestion and parking problems that flank these cities.

Car-sharing cannot not only rumble up more congestion but also make parking a bigger nightmare than it already is. Usually, these cars can be seen huddled together in high-use areas making access and reach all the more cumbersome. That problem would need more resources to be planted for re-distribution by the car-makers. In fact, some BMW ReachNow vehicles were seen getting stuck on Washington State Ferries as a built-in security feature kicked in whenever the car was moving but the engine and doors were shut.

Then there is the ecosystem-readiness question to pay attention to as well.

That explains huge investments like the Stuttgart’s dense network of public charging stations with Germany’s largest purely electric car sharing fleet with 500 smart fortwo electric drives.  Apart from Daimler, in Seattle too, BMW is aiming for the same pothole with its collaboration with the city government in installing 20 electric vehicle charging stations. It’s nice to see Daimler putting the best foot forward here with 8-foot-10-inch long Smart cars, instead of compacts and sedans that other rivals have brought in.

Companies are just dipping their toes and doing what they can do at this stage. It is working out okay-ish for now. Not to forget, the pressure that sharing-apps have mounted already on many auto-zillas.

Car-sharing is going to be just the right salvage dose for companies reeling under the shake-down that apps have brought in. But that will not work its magic unless systemic issues and infrastructure gaps are sorted out well. It is fascinating to see that the future will not be about ‘vs.’ between ride-sharing and car-sharing or between cars and AVs. Like the BCG report also indicated, car-sharing services will gain a powerful new enabler thanks to AVs’ low operating costs, maneuverability, and ability to be exactly where users need them exactly when they want to drive.

So yes, someday soon, ride sharing and car sharing could actually converge. When AVs’ pour in, there can be lower operating costs, better coverage, an uptick in registered users, and yes- an influx of car-sharing fleets into smaller cities, with increasing forgone car sales.

It’s time for the taxi apps to gear up for the next move then. For this seemingly helpless Zugzwang could actually be an auto-maker’s Zwischenzug very soon.

…..

Ref:

https://www.bcgperspectives.com/content/articles/automotive-whats-ahead-car-sharing-new-mobility-its-impact-vehicle-sales/#chapter1

https://www.theverge.com/2016/4/8/11394296/car2go-shades-bmw-reachnow

https://www.geekwire.com/2017/bmws-reachnow-investigating-cases-cars-getting-stuck-washington-state-ferries/

https://reachnow.com/en/

http://media.daimler.com/marsMediaSite/en/instance/ko.xhtml?oid=9920016&ls=L2VuL2luc3RhbmNlL2tvLnhodG1sP29pZD05MjY3NDQ0JnJlbElkPTYwODI5JmZyb21PaWQ9OTI2NzQ0NCZib3JkZXJzPXRydWUmcmVzdWx0SW5mb1R5cGVJZD00MDYyNiZ2aWV3VHlwZT1saXN0JnNvcnREZWZpbml0aW9uPVBVQkxJU0hFRF9BVC0yJnRodW1iU2NhbGVJbmRleD0wJnJvd0NvdW50c0luZGV4PTU!&rs=0

http://fortune.com/2016/06/07/daimler-car2go-china/

https://www.geekwire.com/2017/bmws-reachnow-car-sharing-service-hits-40k-members-as-it-eyes-self-driving-car-technology/

https://www.car2go.com/media/data/usa/microsite-press/files/071916ucberkeley_car2go_press_release.pdf

http://money.cnn.com/2017/05/24/technology/bmw-seattle-reachnow/index.html

 

Author: PRATIMA H

1 Comment

1 Comment

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