A decade ago, the concept of car sharing was barely on the radar in America, and most of the services were built around non-profit, community-oriented organizations in major cities. Over time, however, an idea built on collaborative consumption evolved into a potentially disruptive (and promising) industry.
In 2007, an upstart company out of Cambridge, Mass., known as Zipcar (Nasdaq: ZIP) took steps to become the most dominant player by acquiring the west coast's leading company, Flexcar. By expanding operations into dozens of cities and 230 college campuses, Zipcar grew its membership base to over 700,000 worldwide. Spurring that growth along was the fact that, for all intents and purposes, it was the only game in town.
Not anymore.
Suddenly, original equipment manufacturers and rental car companies alike are recognizing car sharing as a powerful force in transportation. Ford (NYSE: F) seized the opportunity last year to provide vehicles to Zipcar in hopes of connecting with a younger audience. The rental giants Hertz (NYSE: HTZ), Avis (Nasdaq: CAR), and Enterprise are currently leveraging their existing fleets to offer more nimble car sharing services. And meanwhile, over in Germany, the folks behind the legendary Mercedes-Benz came up with a concept all of their own.
Utilizing fleets of its Smart fortwo vehicles, Daimler (NasdaqOTH: DDAIF.PK) launched a subsidiary built around the pursuit of pure point-to-point transportation. As the business picked up speed, people began to take notice -- including fellow Fool Jeremy Bowman, who profiled the company in April. He wondered whether point-to-point car sharing, which allows users to take one-way trips, could pose a threat to Zipcar's throne. Right now, Zipcar's well ahead of the pack when it comes to members and vehicles, but car2go's growth since launching in Austin, Texas, in 2009 has been nothing short of impressive. A recent exchange with car2go's corporate communications manager, Katie Stafford, revealed the following statistics:
- 2,000,000: The number of car2go rentals worldwide
- 100,000: The number of car2go members worldwide
- 4,000: The number of smart fortwo vehicles in the car2go worldwide network
- 11: The number of car2go cities worldwide
- 8: On average, a car2go vehicle is rented every eight seconds
One of the 11 cities noted above is Washington, DC, the fastest-growing car sharing market to date for car2go. After five months, car2go's attracted 8,500 members and plans to add 50% more vehicles to its current fleet of 200. Just before the DC launch, fellow Fool Lyons George and I had a chance to sit down with car2go's CEO, Nicholas Cole, at the National Press Club to talk about car2go's unique concept, competitive advantages, and the future of car sharing. The following is a transcript of part one of our conversation (lightly edited for clarity):
TMF: Nick, can you describe car2go's approach entering the car-sharing market?
Nick Cole: When you look at what we're doing, we're going to target cities all across North America, and we're doing the same thing in Europe. We're going to fill a need for residents of communities, help solve congestion issues in cities, and address greenhouse gas emissions. I think we start to be part of a solution, tying in with public transit, to address people's broad transportation needs. People can now move into the city and not necessarily have to own one or two cars.
We launched in Austin, expecting students to be the only early adopters, and we've found the demographic is really everybody. From students and young professionals, to folks who are retiring and moving back into the city but don't want to have two cars. So, we're seeing that car2go is for drivers of all ages.
TMF: What differentiates your service from the competition?
Nick: Point-to-point. When we entered the Vancouver market, Zipcar was there along with a non-profit named Modo. It was our first time going head-to-head with the competition. The fact that there was competition actually resulted in the rising tide lifting all boats. Now there were three options for car-sharing customers and great public transit. I think that the point-to-point model is attractive especially with the on-demand nature of car2go. We think it has to be a lifestyle solution to transportation. We want car2go to provide that extension of your individual life. That folks are going to feel comfortable walking outside and there's going to be a car available for them to use.
TMF: Here in DC, Isaac and I can attest to having good nights ruined due to parking issues. So, with car2go, it seems to be an attractive option that you can park anywhere when finished with your reservation.
Nick: You can park it at meters or residential parking. If you look at our model, you see our cars have a natural gravitation. You'll see the vehicles downtown during the day, maybe near the financial districts. Then, in the evening, they tend to move toward the residential areas where people live. One question we get asked is whether you have to do a lot of reshuffling of the cars? We really don't. Once the program gets going and we have members join, cars are moving on their own all day long.
TMF: So it's like an invisible hand controlling all of these cars.
Nick: In the rare occasion, if we saw a car sitting at the corner of the operating area, we might move it to a more attractive location to drive better utilization and ensure members always have access to the cars.
TMF: While we're on the topic of utilization, is there a sweet spot in terms of hours/day or miles/day that you aim for to maximize use of the car?
Nick: It's utilization based, but it's a combination of things. We charge by the minute, the hour, and the day. So it's $0.38/minute, $13.99/hour, and $72.99/day, which includes fuel, insurance, maintenance, and parking. We want the cars utilized as much as possible. Since we're still growing, we'll have to gauge how quickly we ramp-up in each city and determine where that sweet spot will be in terms of utilization. During the height of the music festival, South-by-Southwest in Austin, we had 6,000 rentals per week based on our fleet of 300 cars. That's a nice-sized city, but you look at a city like Vancouver or DC, as the number of cars go up, the number of rentals will go up due to increased access to vehicles. Then it's a matter of trip lengths. We see a lot of trips in Austin around 35 minutes. San Diego, the trips are a little bit shorter, part of that could be due to anxiety in the drivers because the cars are electric and there's question to how long the batteries will last.
TMF: Do you see electric cars playing an important part in car sharing?
Nick: Zero-emissions electric vehicles, in our opinion, could be the future. In San Diego we launched all-electric, but we're looking to use the infrastructure we will have in place in other markets, like DC and Vancouver, to eventually launch a "hybrid" solution with both combustion engine vehicles (33 mpg city and 41 mpg highway) and electric cars. We'll be able to introduce electric car sharing as cities grow infrastructure.
When you look at car-sharing, it's obviously collaborative consumption, but it's also about the impact on congestion and on emissions.
TMF: Can you talk about the solar panel capabilities within your cars?
Nick: We have 200 cars in Austin that have solar panels installed, and we're just starting to collect data on those. We're always trying to connect with our cars through GPS, so we rely on those solar panels for trickle charging more than anything for our application. The other thing that interests us is keeping the car cool to an ambient temperature through the solar panel. The other nice thing about Daimler is that we can start to test some of these technologies and bring these to consumers to see how they work. On top of that, the Smart Cars we use introduce the EV concept to the market, get the idea out there in people's minds. These are really good cars, they're not expensive, but it shows the capabilities in the market.
TMF: Do you see yourself as doing ambassador work for Smart Cars, for electric vehicles?
Nick: We really aren't the car sales guys, we are treated as a wholly owned subsidiary with our own mission of providing car-sharing. We like the fortwo, and it fits our model of providing city-center transportation. You can take the car outside of our operating area, but you can't end the rental outside of our home area.
TMF: So far, we haven't seen other original equipment manufacturers like Ford and GM enter the car-sharing space in such a direct fashion. In some respects, car sharing presents a double-edged sword since their goal is to sell more cars, but car sharing has been shown to actually reduce the number of cars on the road.
Nick: I think all the OEMs, Daimler specifically, if you look to the future, you can't put many more cars in the cities, and everybody understands that. It will probably be difficult to live downtown and own three cars or two cars. Maybe you're down to one family car and car-sharing service. We obviously build cars, but we also provide transportation solutions, so what's the next step? I don't think anybody here would say that cars are going to go away, especially in America, where people love their cars.
TMF: Has that been a challenge at all, launching in Austin where a strong car culture and even a truck culture is in place?
Nick: I was on the commercial vehicle side before I came over. Before I was involved there was an initial discussion with Smart because they had a dealership in Austin. The city was aware that Daimler was interested in this. The city was very in-tune with transportation options due to their rapid growth in population. Austin is very-forward thinking in this respect.
TMF: Do you plan for cooperation to that extent with local governments to be a part of your expansion into other cities?
Nick: That was truly a pilot where every city was using the cars. If DC came to us and said they needed access to vehicles to supplement their fleet, we would definitely work with them. We do a lot of company partnerships in Austin.
I don't think we would necessarily work in an operating pilot with another city. With Austin we structured an agreement to allow for customers to park at metered parking without having to pay the meter and park in residential parking without obtaining a permit. Now, we find that every city calls Austin to talk through the process and understand how the pilot works. Austin communicates their experience in working with car2go along the way.
TMF: Gas prices have crept as high as $4/gallon in the last year. Do you see car2go as providing a solution to offset this cost to consumers?
Nick: We talk a lot about collaborative consumption, and everyone is concerned about fuel prices. The big thing with car sharing, it's almost like an iTunes mentality. So, in that vein, people are accustomed to paying for exactly what they are going to use. Car sharing allows for people to pay for the time that they use a car, when they need it, and the parking associated with it. People want to pay for what they use and want to feel as though they're getting value for it. I think fuel prices are a driving factor in a lot of people's minds.
That's it for part one of our interview with Nick Cole. In part two, we look at car2go's global ambitions and how technology can drive additional revenue streams for car sharing companies. And to make sure you keep getting up-to-date news and analysis on any of the companies mentioned above, click below to place them on your watchlist:
