Carsharing in Germany

It's a great honour to have been invited as an author for the quality blog Asif Khan. This entry is an English translation of an entry that I wrote a while ago, about a niche of the car industry and my vision of its future.

Mr. Asif Khan was my classmate and teammate during our Finance course work at Stanford Venture Lab (now Stanford Online), 2012/2013. Asif was a great team player during the course and contributed with his knowledge, diligence and warm support to me (I was the team leader at that time). The performance of our team ranked 18th out of 800+ teams from all over the world. Thank you very much Asif, I'll always dearly recall the time when our team worked together, and I'm very glad that you offered me a chance to share my thoughts and vision at your highly active and quality blog!

 Here we go.

(More information about the finance professional Mr. Asif Kahn is available at his website)

Many are familiar with the car renting business. Car renting companies such as Sixt, Avis, Hertz are operating all around the world. In recent years, in Europe, especially Germany, a more flexible and efficient business model of car renting, namely carsharing, has emerged and flourished.

Around year 2000, some carsharing companies started their business in metropols in Germany: Cars to share are available in some designated "resource pools", which are usually some reserved slots in public parkings. From there, users can pick up and return the cars. People need to subscribe to a service plan to use shared cars. A subscriber will get an IC card, which can be used to open the doors of cars and account the mileage/rent time. Before using a car, you must do the reservation via service provider's call centre or website. The carsharing business soon spread to many cities in Germany. Sometimes, there might not be enough cars in a certain resource pool. Such cases occur more often in small cities or villages. In big cities, cars and resource pools are ample, availability of the service is usually not a problem.

A typical carsharing service plan usually requires an account opening fee and then monthly fee. Actual renting cost is calculated on mileage and rent time, it will be mailed to the users, in addition to the monthly base fee. The billing mode is quite similar to a mobile phone service plan. In year 2007, my family moved to a small city in northern Germany, and used a carsharing service for a while. At that time, if I don't remember wrong, monthly fee for a single subscriber is 6 Euros, family 9 (all direct family members with drive licenses are qualified to use the service in a family plan). Each minute in use cost additional 0.27 Euro (the exact figure might be wrong, but the magnitude should be right). If the mileage exceeds certain upper bound, such as 500km, in one rent, additional fee per kilometer will also occur. So if you want to use the car for not a short while or for very long distance, carsharing can be very expensive. Renting a car for one or several days from operators such as Sixt will be more cost-efficient. The fee-structure of the carsharing business encourages short-time-span, short-distance car renting, implicitly increases the usage of the cars (less parking time) and diversifies the users of a car (more people are served by a single car). I would say, this is also a good case of social engineering, in which new business model helps the optimization of a variety of resources. 

In year 2008, Daimler launched her "car2go" business, an upgraded version of carsharing. "Upgraded" in the following senses:
  • The picking-up and returning places of car2go cars are no longer restricted in designated resource pools. You can park a car in any public parking places and close a rent. Next user can use the car right from where you leave it.
  • Privileged parking slots in big public places, for example airports or supermarkets. Yes Daimler has closed deals with such business entities to push the car2go business. It does provide convenience to the car2go users.
  • Reservation is possible, but no longer necessary. You can use an available car nearest to you without any reservation.
  • No monthly fee required. You pay only for what you use.

(photo source: greenmotorblog )
According to Wikipedia, as of February 2014, car2go operates over 10,000 vehicles, which serve eight countries and 25 cities worldwide with over 600,000 customers. As what I heard in October 2013, the car2go business in 3 of the 25 cities were already making profit. Car models in operation varies in different cities. In deepest ploughed markets such as Hamburg, Berlin, Düsseldorf, etc., both traditional gas cars and all-electric cars are in operation. In Stuttgart, where Daimler's headquarter resides, the car2go business was introduced a bit later but with the latest generation of her all-electric Smart cars only. All car2go cars in Stuttgart are equipped with on board navigators, air conditioners and radios (Some background: the technical configuration of typical German family cars is still very conservative compared to the rest of the world. When you buy a new non-highend car in Germany, features such as air conditioner, radio, electric windows, etc., usually have to be required explicitly). At the beginning, 300 e-Smarts were in service in Stuttgart, the figure has exceeded 500 by now. Charging stations are very easy to find. The business operator monitors real time status data of the cars. If the power level of a not-in-use car is running low, a staff will drive it to the nearest charging station to ensure its employbility. How do they keep the cleaness of the cars? Well, before you can start the car, you have to rate the cleaness and tidiness of the car. If the previous renter has bad manners, the service operator will know and maybe extra fee for car maintenance will occur.

Car2go mobile apps are available on all major app stores. This app, can help user to locate available car2go cars nearby, display each car's information such as remaining power level, technical configuration, etc. You can also reserve a car with this app. The current fee schema is like this: 0.29 Euro per minute, 0.19 Euro per minute for parking between drives. 14.90 Euro per hour, or 59 Euros per day. Mileage exceeding certain upper bound must be paid extra. Insurance included. Obviously, this schema still highly encourages short-time-span and short-distance drives.

In Germany, other players also provide services similar to car2go. BMW's DriveNow is one of the choices. Friends from Düsseldorf told me, in his city, DriveNow is running Mini Coopers, which is an attraction to many style-aware people. BMW's all-electric models are in the DriveNow game too. It is said that Daimler and BMW have closed a deal: without any administrative ado, a registered Car2Go member can use DriveNow's service and vice versa.

Mathematicians must be able to construct a model to optimize the number of shared cars in a city, such that people's logistic needs are met and at the same time, minimal cars are idle. Theoretically, such optimized carsharing model will offer many benefits to places where population is dense. For individuals, they get the freedom and convenience of driving at low cost - the fixed and variable cost of owning a car is very high; For the society of a whole, more people are able to enjoy the freedom and convenience of driving while less cars must be produced, which is positive to our environment and reduces the need for parking places. However, the other side of the coin is less and less demand for private cars. I don't think every party want to see this, at least in the imminent future. The car industry is creating huge number of jobs in many places. In Germany it is a mainstay industry. In China, emotion for owning cars is still being created by mass media, plants for building more cars are still being constructed. I have a mixed feeling for this. Business models such as carsharing offer better economical/environmental sustainability to the society. If we look towards a further horizon, we could be braver and bolder to prepare ourselves for the structural change of the job market in the future. I may well be very wrong, but personally I do not see an extremely bright future of privately owned cars. Innovation is calling. Get ready.    

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