The car-sharing market, although still relatively small, has been growing by 30% annually worldwide, and manufacturers and rental companies have been encouraged to invest significant amounts into this new industry. Saad Ahmed investigates these developments and the implications for lessors
In recent years, some sectors of the economy and society have begun to shift away from the traditional single-ownership model. What is known as the ‘sharing economy’ has gained ground, fuelled by app-based technology, and collaborative consumption may challenge the notion of ownership.
The advent of car-sharing services in the urban environment shows that this model is poised to alter the landscape, with significant implications for lessors and private car sales.
Car-sharing services operate in two main ways, targeting either individual or corporate users. Within the individual model, there is a division between peer-to-peer (P2P) services, and business-to-consumer (B2C) models.
In the P2P case, individuals offer cars for occasional use by others, in exchange for payment, using a business as a platform. In contrast, B2C involves a fleet of cars owned by a company which then offers these to consumers on a shared basis.
In all cases, the drive towards shared car services has been prompted by new realities in demand.
The boom in car sharing has resulted from a convergence of interests between consumers who want convenience and lower costs, corporates seeking to lower expenditure, and local authorities and governments seeking to advance environmental and traffic-management policy agendas.
According to consultancy Frost & Sullivan, the global car-sharing market has experienced 30% growth annually since 2014. Original equipment manufacturers (OEMs) such as BMW, as well as traditional car lending operators, have invested heavily in an attempt to capitalise on this.
“OEM strategy is changing,” explains Swetha Surender, senior consultant at Frost & Sullivan.
“They are looking to explore ways in which they can monetise the service itself.”
BMW, Ford and Daimler are among the OEMs that have entered the car-sharing market strongly. In the case of Sixt and BMW, OEMs have even partnered with traditional car rental services to enter the new market.
“We are seeing a lot of investment by leasing companies and car rental companies; it is organic growth,” Surender adds.
“They are investing in or acquiring existing operations. That is driving market growth in a big way.”
Convenience and lower costs
The rapidly increasing demand among individuals for car sharing is a result of a number of factors. In London, the car-sharing market is expected to reach 800,000 users by 2020, according to internet-based statistics company Statista.
The flexibility of car sharing is a major attraction, with 68% of respondents joining car-sharing services to fulfil their short-term travel needs. Individuals can, in most cases, simply open an app and reserve a car mere minutes away from them at the touch of a button. Some car-sharing services allow for many drop-off points, increasing flexibility for users once they no longer require the vehicle.
There are two car-sharing models: The first, known as the ‘back to base’ model, requires pickup from point A and return to point A once the user is finished. The other allows pickup from point A and dropoff at point B, which may be flexible.
Though one of these is more convenient, both are more flexible than car ownership. The ability to enjoy the convenience of car ownership without its obligations is a central draw.
“[Our customers] tend to be people who could afford a car, contrary to what some people think,” says Jonathan Hampson, head of locations at Zipcar International.
However, almost a fifth of respondents told Statista that their reason for using a car-sharing service was to reduce the amount spent on travel.
Car sharing frees the user from bearing the full financial cost of constant car ownership. In the majority of cases, service fees cover insurance, road tax, congestion charges and even fuel. A car owner would bear these costs even when not using the vehicle.
For individuals who either do not require a car constantly, car sharing is convenient for occasional or short-term use. For those for who do not have access to traditional leasing or financing options, car sharing offers a cheaper and accessible alternative.
Corporates are aware of these trends, and have informed the decision to shift away from traditional company car fleets towards the car-sharing model.
The changing needs of corporate clients
Corporate car-sharing clients seek lower costs and greater flexibility, and these aims often align with those of their employees.
The conventional company car may not be suitable for all companies and employees who require occasional mobility.
“We thought that a company car is a nice perk, but as a mobility solution it does not respond to the needs and requirements of all employees,” says Rob Custers, fleet manager at Siemens Belgium.
In 2012, Siemens Belgium began to offer a range of transport services for its employees, which included public transport, short-term vehicles, and car sharing.
Partnering with Ubeeqo, the company implemented a fully automated process with a cloud-based reservation service. Cars can be unlocked and entered with the employee badge.
A major reason for the implementation of car sharing was to better meet the individual needs of employees.
“Once in a while, an employee may need a car to go to an event or training. In that occasion, the employee can book a car in advance from the car-sharing platform,” adds Custers.
“We acknowledged that for each employee there needs to be a customised solution and this can change throughout their career.”
Car-sharing services have proven significantly more cost-effective than other staff mobility options.
In the case of Croydon Council, a south London local authority which partnered with Zipcar, employee business miles per year fell 42%, and travel costs by £500,000.
The services also reduce costs through better utilisation of fleets. This allows a more efficient use of fewer cars, which could result in the same number of employees being served at much lower operating costs.
“It is logical, especially if we know a car is standing still on the parking lot more than actually being driven,” Custers continues, explaining that the fixed costs of owning a large fleet of company cars stay the same, regardless of how frequently they are used.
“By allowing more drivers to use the same vehicle and thanks to the advanced reservation and booking tool, we can optimise the operation usage of each car.”
The evolving demographic makeup of the work environment may be another factor in driving car sharing. Generation Y, widely considered to be those born between 1980 and 2000, became the largest share of the US workplace in 2015, according to Pew Research Centre. This age group is projected to form 50% of the global workforce by 2020, according to PricewaterhouseCoopers.
Younger adults seem to be shifting away from car ownership, which may for a variety of reasons.
“The average buying age of a car owner is moving towards the mid-thirties and early forties,” says Surender.
“Generation Y feel less attached to ownership, and they are more into usership,” adds Jaime Requeijo, senior vice-president of business development at LeasePlan International.
“Companies also see an opportunity to address them with an offer that suits their needs.”
Car-sharing options in corporate environments will seek to mirror this trend among individuals. As individual buyers move away from car ownership in their private lives, corporates can shift away from the traditional company car structure.
The rise of car sharing in the corporate space has resulted from this melding of interests. The growing acceptability of car sharing in the public sphere and an increasing preference for usership among a younger demographic have provided an opportunity. Corporates can cut costs and increase efficiency while meeting employees’ individual travel needs in line with their own preferences.
“We are seeing a change in attitude. A few years ago car sharing was considered a nice businesses model, but slowly it is being integrated into the more mainstream of the mobility landscape,” says Surender.
The role of government
The rise of car-sharing services would not be possible without the cooperation, and in some cases direct involvement, of local and national governments.
The example of Croydon Council shows how government agencies can act as corporate clients. In most cases, however, local authorities and governments become involved in car sharing as facilitators.
“The schemes rely on getting specific car permits for parking or charging stations,” says Requeijo.
Car-sharing service DriveNow was able to strike a deal with the authorities of four neighbouring London boroughs, enabling the company to provide customer coverage over the entire Islington and Hackney areas.
DriveNow is a strong example of how local government involvement is crucial for the success of car sharers. The joint venture between BMW and car rental company Sixt failed in San Francisco in 2012, due to its inability to reach an agreement with the city government over parking. BMW launched the similar ReachNow in April 2016, and it has since gone onto success in Seattle.
The changing attitudes of local authorities towards car-sharing services are allowing the sector to advance. Local authorities encourage and support the expansion of car sharing services in two ways. In the more practical case, local and regional governments have partnered with car-sharing companies to promote their services.
The Essex Car Share Scheme follows the P2P model of car sharing, and was established by Essex County Council and Liftshare to encourage local government employees to share lifts.
Governments seek a reduction in pollution, better utilisation of dwindling space in urban environments, and an answer to road use and congestion concerns. Car sharing provides ways for these policy agendas to be implemented.
In London, the city government formed the Car Club Coalition in 2014, bringing together a consortium of public transport providers, car-sharing operators and traditional car rental firms in a bid to expand car sharing to 1m members by the year 2025.
“They are quite aggressive about their plans for the city,” says Surender.
“There are a number of reasons why they are making this shift. Certainly air quality is influencing them, but also a different perspective that they are taking towards allocation.”
As detailed in the 2015 Transport for London (TfL) report A car club strategy for growth, there is a concerted effort to dramatically reduce the number of cars on the road and parked on London’s streets.
“The overarching vision for this strategy is for car clubs to grow as a means of reducing car ownership, to help address population growth, congestion and environmental issues,” the report reads.
The environmental benefits of car sharing are the main reason for rising government support. As a corporate client of Zipcar, Croydon Council saw employee CO2 emissions fall by over 100 tonnes. Governments may seek to promote this to the wider population to drive falls in pollution on a much larger scale.
Efficient allocation of both road and land use is another major driving philosophy behind car sharing.
The TfL report found that the average driver in London uses their car for only 4.6 hours a week, leaving the vehicles idle 97% of the time.
Zipcar claims that one Zipcar takes 17 privately owned vehicles off the road, thereby reducing congestion.
In many cases, problems of allocation sit side by side with environmental concerns. The TfL report shows the desire of London’s government to repurpose parking spaces to environmentally friendly ends.
Proposed uses include parking spaces for bicycles, areas for outdoor physical activity, and charging points for electric vehicles.
Governments and authorities cooperate with car-sharing companies to pursue policy in regards to the environment, public health, and the utilisation of public space.
A receptive government is therefore crucial for the continued growth of car sharing.
Implications for lessors
Though car sharing is still a relatively small market, with annual rises of 30% it is already beginning to impact lessors.
Much lower operating costs are a draw for companies to seek out car sharing as an alternative to buying large fleets of company cars that are not required around the clock.
Many fleet lessors have joined this burgeoning industry, seeing the benefits that car sharing may bring
Car-sharing service Swopcar is a division of LeasePlan International. It operates in 12 countries, and anticipates spreading to a further eight within the next year.
“It is a corporate car-sharing scheme…addressing the concerns of corporates,” says Requeijo.
Lessors will need to adapt their services to the new realities of the market, and by doing so they may expand their corporate client base.
“We are expanding the pipe of the potential users of corporate cars,” Requeijo continues.
“There is a big population still [among] our clients that need mobility, but only on a part-time basis. If we can provide a solution for those then we will be expanding our opportunities to actually sell services to those companies.”
Fleet lessors see the need to enter the market relatively early, changing the way they do business so as not to be adversely affected in future.
Though this may produce short-term losses in volume, gaining a foothold in the new market, and spreading smaller services to a greater number of companies, may lower future financial losses due to competition.
“Imagine that we are supplying cars for 200 sales people. Now, instead of 200 cars, [we supply] 20 cars. That seems counter-intuitive,” says Requeijo.
“We believe that for a lessor it is always more opportunities to actually sell our services.”
Car sharing is rising by 30% annually, driven by growing popularity among corporate users. Manufacturers such as BMW with its DriveNow and ReachNow services, and Daimler with car2go, see the potential for future profits.
“By 2025, potentially between £6bn and £9bn could be car-sharing earnings,” says Surender.
As car sharing increases, private car sales may decline. OEMs will enter this market as a means to mitigate for the negative effects that declining ownership will have on their bottom lines, while also providing an emerging revenue source. OEMs may also see potential for future private car sales arising from car sharing, due to brand loyalty.
“When people move out of the city, or when they have kids, they feel the need to get a car,” Hampson explains.
“When they consider buying a car we think they are more likely to buy a car they have used as a Zipcar member than any other.”
BMW’s partnership with Sixt for DriveNow, and Daimler’s involvement in car2go are an attempt to benefit from this. Providing vehicles for car sharing increases their likely usership, and may create future customers for the brand.
Larger corporate clients may downsize company car fleets to better utilise a smaller stock through car sharing. The other side of the car-sharing increase is that smaller companies which were unwilling to shoulder the expense of a standing fleet of company cars may sign up to corporate car-sharing schemes, providing an opportunity for an expansion of clients.
Lessors must be flexible in their approach, and shift to fit the changing needs of corporates, or risk losing significant business as car sharing continues to grow in popularity. <