Daimler's (NasdaqOTH: DDAIF.PK) car sharing subsidiary, car2go, established roots in Austin, Texas, and proved with its Smart fortwo cars that perhaps not everything's bigger in the Lone Star State. Then again, Austinites pride themselves on keeping the capital city a little weird, so perhaps the timing and audience was just right for these nifty little three-cylinder Smart cars.
In part two (see part 1 here) of our conversation with the company's CEO, Nicholas Cole, we ask what markets are next on the radar for car2go. After a couple of years, the service has gained traction in all types of American cities, including an electric car fleet in San Diego and its fastest-growing operation in Washington, DC. Meanwhile, European cities like Amsterdam are embracing the concept as well.
We asked Nick to outline the details of the company's ambitions and the upfront investments required to develop a brand-new business model. He also provides his thoughts on the competitive landscape, including the industry-leader Zipcar
For further insight, a transcript of the second half of our conversation follows, with light editing for clarity:
TMF: DC's launch is underway. Do you plan to extend into different cities?
Nick Cole: Currently we are all across DC. In Vancouver, we'll continue to expand as needed. In Austin, we've done one expansion. It's very easy for us to expand. Our Chief Operations Officer can redraw the home boundary fence in no time to fit the demand from our clients. We do a lot of surveys and gather feedback, and we learn where demand is highest and in what areas. We noticed that members would walk blocks to access our cars, so after a quick scan of our customer base we decided to expand to appeal to our market.
TMF: Do you see yourself as a global force?
Nick: Yes. We are talking to a number of cities. Besides, DC and Portland, I expect a few announcements more in the coming months. I can only speak to the North American market currently, but we are also expanding in Europe concurrently. We see great opportunity and great interest from cities.
TMF: Currently, car2go is in its growth stage, but can you speak to its profitability?
Nick: Right now it's in an investment stage. Daimler's investing in car2go to get started. We need to continue to find that sweet spot. We need to put more cars in. We have 40,000 members right now in North America. We have 20,000 in Austin, believe it or not, 6,500 in San Diego, and over 10,000 in Vancouver. Up to 80,000 globally right now.
TMF: Do you see yourself as a threat to Zipcar?
Nick: I think we're a different model. People tend to put car sharing all in one category. I think with our point-to-point approach, we're different. I can see people joining both. We have seen that to be the case with Vancouver. You're not going to take a Smart fortwo to Ikea to buy a new couch, and the same with a group of people travelling to a game at the University of Texas for a weekend. If it's four people, you're going to need a different vehicle. The model's different. What we've found in Vancouver is that the awareness of car sharing played to our advantage.
TMF: Do you a have sense of how large this market could be?
Nick: I think there's a lot of opportunity. I really do. I think New York, Chicago, and other untapped markets are so large, there's a lot of opportunity across the board. We haven't dabbled in the smaller, university-type locations. Maybe that's something of the future.
TMF: Is there any thought of capturing the commuting market?
Nick: In the DC area, that's an interesting question. We have the ability to take advantage of satellite markets. Our technology would allow that, but we need to make sure we have agreements with all of the cities involved. This would be a great market to try that.
TMF: What factors would you say you look at when you choose to expand into a city?
Nick: We like the more dense cities. We want a city that's interested in having car2go be a part of the community. I think there's opportunity across the board in a lot of our cities here.
TMF: Are there changes that you continue to make to improve the service? How has the consumer experience been so far?
Nick: Our surveys show that the Smart car is meeting the needs of our customers. People love the point-to-point. They enjoy being able to end the rental or hold onto the keys, or book something for later in the day as needed. They like the flexibility, and these strengths are really playing to our favor.
Since it's Daimler's technology, we can see in the coming years integrating more "apps" into the cars. We're not there yet, but maybe in the future, you have your plan for the day incorporated into the car itself and you can run your errands in a streamline manner. I'd love to see the ability to have music downloaded from the cloud into the car before I use it. We're also adding dedicated parking. In some respects, that has been a marketing move, but we've teamed up with Whole Foods
TMF: It seems as though smartphones are a huge part of this platform.
Nick: Sure, people want to be able to access the car, find it, and go. We allow reservations for people who want a car within 15 minutes. Our system coordinates the reservations and makes sure one is available in the area that you need it when you need it. It also makes sure the cars in that area are maximized as much as possible while ensuring that the car you need is available 15 minutes prior to your reservation time. Part of it is having enough cars in the network.
TMF: Operationally, what kind of staff do you have city to city?
Nick: We have in each city a location office, and in general we have a location manager, a marketing person in charge of promotions, customer service, and then a national call center to address issues. What we see in communities is that people want to talk to someone who is local that they can reach out to. We have that in place. We also have a fleet team, and then we use a third party for cleaning and maintenance and refueling. We give members a twenty-minute credit if they need to refuel the car while in use.
TMF: For service and maintenance of the cars, do you rely on the dealership?
Nick: Absolutely. The cars are relatively new, though, so they don't need as much right now. Small things like wipers and glass repairs we can handle fairly quickly. The cars are holding up really well. They're running great, and we don't have a lot of issues with them.
TMF: Do you have an idea of the life expectancy of these cars?
Nick: We have no intention of turning these cars every 6 to 12 months. We want to maintain them, keep them in good condition. We'd like to see 4 to 5 years out of these vehicles.
TMF: Right now you purchase them from the dealerships. Do you see that as always being part of the model?
Nick: A lot of that's based on franchise model in the U.S. So, we have to purchase from a dealer in most states even though we're part of the manufacturer. A lot of states would prohibit us from bringing cars in from Europe. I was on the commercial vehicle side, and I dealt with a lot of dealers, and I get that. You don't want a manufacturer putting their cars in your backyard and saying, "Guess what, you get to fix them."
TMF: Is there a difference in driving the electric version of the Smart car?
Nick: It's quieter, no noise on the interior. It's a single direct-drive, but it's very similar. It gets up to 64-65 mph, so you can take it on the highway as needed. With the EVs, however, everything affects the performance, including the A/C and other components. Right now, the infrastructure is not in place in a lot of cities, however.
TMF: For now, DC’s one of those cities, so we’ll have to wait for our electric fortwos. In the meantime, do you mind if we hop in one of these gas-powered Smart cars for a spin around the block?
Nick: Go for it. You’ll be the first test drivers in DC.
That's it for our interview with car2go’s chief executive (check out part 1 here). We plan to keep in touch with Nick, however, and provide updates on our experience with the service. Stay tuned as car2go attempts to reinvent our approach to transportation, explores new revenue streams through mobile technology, and accelerates the shift to electric vehicles. To ensure you keep getting up-to-date news and analysis on Daimler, or any of the companies mentioned above, click below to place them on your watchlist:
Isaac Pino owns shares of Zipcar. Lyons George owns no shares in the companies mentioned, but he loves wearing Bonobos chinos and frequenting Ben's Chili Bowl (as long as chili doesn't get on his chinos). The Motley Fool owns shares of Whole Foods Market and Zipcar. Motley Fool newsletter services have recommended buying shares of Zipcar and Whole Foods Market. The Motley Fool has a disclosure policy.