Car Sharing: Good for Nature, Bad for Revenue?
Every morning you get out of your house parking tickets pile up on this one car you have seen sit in the same few spots in your street every day. What is going on? Well, car sharing. So a couple of your neighbors seem to enjoy the lack of commitment required to own a vehicle in the city. Well, this sounds great for them: no insurance coverage, no parking permits, maintenance and fuel cost for the days they take the subway or bus to work or to meet friends at a café.
There is a downside to this model though. In European metropolitan areas your average parking ticket runs about 30 Euros and the party on the hook for this idling is the car sharing company. Providers like Car2go, a Daimler subsidiary, or DriveNow, a joint venture of BMW and Sixt rent-a-car are now looking on how to mitigate the exposure of seemingly permanently parked vehicles.
Not sure what happened along the way but a University of Berkeley Study from 2009 outlined a stark contradiction to this latest news in European media. The research indicated that in most countries free and reduced fee spots are available to support the environmental benefits of this business model.
This dated study seems to rely on a pre-2008 meltdown where healthier budgets allowed for the Zipcar parking model and certain reserved parking spaces are exclusively available to such firms. In a post 2008 world, the rapid growth in subscribers of sometimes over 200,000 a month in Germany alone will force municipalities to look at alternative models.
While these growth numbers look amazing at first, the average usage of such vehicles hovers around two times per day in cities like Munich. Even if some of these firms claim it often is up to eight times per day, each usage often lasts only 30 minutes. Nobody can really verify these claims but the market is growing by leaps and bounds. In the US, subscriber growth is close to 25% over 5 years and driven by the increasingly challenging economics of millenials. They drive less and delay or even forgo vehicle ownership.
A study commissioned by the city of Munich even concluded that infrequent users, aka “free floaters”, where drivers just pick up a car somewhere and drop it somewhere else after use, often don’t move their owned vehicle as they fought hard to secure a parking spot close to their apartment.
Car sharing firms are now lobbying legislatures on a city and state level to get preferential treatment over regular vehicles. This could include reserved free parking areas, immunity from parking infractions, etc. as they solve the congestion problem for a city. The problem though is that the cities will not have it due to the apparent loss of revenue and increasing concerns of local residents around available spots. Some firms have caved and integrated sensors to alert city IT infrastructure if a car sharing vehicle has been parked in excess of a grace period near a digital meter to automatically ticket for the excess time.
In a last ditch effort, firms are also hiring staff to move their vehicles to avoid tickets…well, at least it creates jobs 😉
The latest attempt to solve the externalities of this innovation is to settle with individual cities on flat fees for traffic violations for a given timer period. Here we are talking somewhere between 700 and 900 Euros annually per car.
If you think this is a Germany or European challenge, think again, Car2Go is available in 13 North American cities and China.
So one wonders, can this business model generate a profit? Let’s do the math: Revenue of EUR15 hr (EUR12 for 30 minutes if billed by the minute) and this is the price before any EUR10-20 off promotions you can find on Retailmenot or Couponfollow. This would be EUR120 per day (EUR85 if you chose a daily rate). The usage would end up being about four hours every day so the remaining idle hours (depending on local parking rules) could be between six and ten. This could end up resulting in at least a single fine of EUR30 assuming you will not get ticketed every hour. This would be 25-35% of your revenue being absorbed by fines. I would call this a margin killer. Settling with a city for a EUR2.50 daily flat rate instead of the EUR30 is great for the ride sharing providers. At a 1% annual interest rate, the company would end up paying close to EUR32 (basically a EUR2 finance charge) for the privilege to park everywhere. This is neither a bad deal for the company, nor for the city, especially if it is prepaid.
Now, how does the city or company know where this deal makes sense and at what prepaid level for what vehicle type?
The company has the advantage as it knows the drivers’ parking locations, usage, revenue stream, maintenance cost and the cities’ short term parking zones and limits.
If you master this data in form of customers/prospects’ locations, accounts, vehicle idle locations, links this with the idle times and overlays this with the parking zones, your model could generate the optimum fine prepay price point. A data lake for this data could send promotional offers to past users so they move the car and generate little profit but avoid the firm a parking ticket. As the meter time approaches the violation limit, these offers could get increasingly more attractive for the driver.
To make this even more interesting and tie in the concept of autonomous vehicles, this whole issue may just go away overnight as vehicles could automatically move around based on available parking spaces. As Uber is kicking off a driverless vehicle test in Pittsburgh shortly, they should look into this use case as well. The cars could steer themselves based on what their own sensors detect on the side of the road in terms of open, legal spaces or what near-real time images highlight from satellite imagery (a bit of overkill potentially).
Most drivers don’t realize this yet but autonomous vehicles will make many of these externalities disappear as the most volatile safety and economic factor is removed – the human.
In my next post, I will discuss why autonomous vehicles need to be truly autonomous, i.e. no steering wheel, to really make sense from a safety point-of-view.
Have you ever tried one of these car sharing services? Did you ever find a vehicle with a parking ticket? Did you call it in or just throw it away?