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Towards the tipping point for car-sharing

02 Jan 2018
Consumers simply haven’t embraced car sharing platforms on a large scale. The question is: what is holding them back?

Did you know that cars are stationary approximately 95 percent of the time? The 5-percent utilization ratio is a reason to rethink car ownership, as it indicates that the investment might not be worth the return. But remarkably, parties offering pay-for- use options – such as Greenwheels and Car2Go – have not gained the popularity one might expect, even though they have been around for a while and their concepts bear true potential. After all, they don’t require a high investment or maintenance costs. Nevertheless, initiatives such as subscription and ‘rental’ services (resembling an AirBnB for cars) can only count on a select group of users. Consumers simply haven’t embraced car sharing platforms on a large scale. The question is: what is holding them back?

Why should we care?

There are a few reasons why this issue is worth a closer look. First of all, a car is usually the biggest or second biggest consumer investment, depending on home ownership. With such a low utilization rate, it is merely sensible consumer behavior to examine the economic value of alternatives. The enormous inefficiency isn’t something we should ignore. Moreover, it is important to realize that any car sharing platform will become cheaper over time: the more people use it, the more inexpensive it will get to provide and maintain it. So for consumers, authorities, and society as a whole, car-sharing represents real value.

Second, most major cities increasingly struggle with mobility-related problems. If you’ve ever tried to find a parking spot in any big city, you’ll know that all the stationary cars – which are part of the 95 percent – take up a lot of space. Consequently, shifting away from mass car ownership could eliminate this issue, if we could only improve the alternatives – for example, by turning car sharing and other ‘metered access to shared cars’ (MASC) into a mass market phenomenon.

Finally, a neglected car’s wear and tear is largely caused by its lack of movement. Corrosion, for instance, results from its enduring stationary position. In short, not using your vehicle can be a more costly endeavor than you think.

Tipping point for successful car-sharing

Whereas many analyses focus on validating business models in emerging markets, we believe that pay-for- use models bear true potential in developed markets as well. As it is paramount to figure out the requirements for reaching the tipping point for a successful car-sharing economy, we have listed some interesting questions that we should be asking from a consumer’s point of view:

  • Is the economic advantage substantial enough, and are consumers aware of it?
  • Do consumers rely on the availability of a ‘car at-their- disposal’ to such an extent that they refrain from ownership?
  • Should providers meet certain user density requirements to be successful?
  • Are consumers ready for a more efficient yet new solution?

In other words, at what point in inner city network density would affordability and ease of use outweigh access disadvantages, and which conditions should be met to this end?

Who is taking the lead?

To answer this question, it is important to broaden our view: rather than merely focusing on car sharing, we should consider the overall mobility issue and take multiple stakeholders into account. How are they positioned and how can they collaborate to bend car ownership in such a way that car-sharing becomes the preferred option? To demonstrate the complexity of this issue, we’ve listed four potential game changers, arguing whether or not each of them could have interest in pushing car-sharing towards the tipping point for success.

  • Car manufacturers – like Volvo, Daimler, and BMW – currently offer their traditional services, but are more likely to follow the trend instead of taking the lead, because the concept of car-sharing will affect sales. They surely can’t ignore a trend like that!
  • Car-sharing start-ups like Car2Go and Greenwheels deal with the chicken-and- egg paradox. Ideally, the concept contributes to solving the congestion problem, but as long as consumers are not willing to abandon car ownership at a large scale, they are only contributing to it – which results in a lack of room for start-up cars in the big cities.
  • Public transportation has a clear interest in participating actively. On-demand access to bikes (the ‘OV-fiets’) could be a leading example for access to cars: car-sharing may become a supplement to their current services. However, this would require a huge investment, and eventually, public transportation will face the same hurdles as the aforementioned start-up companies.
  • City authorities have a huge interest in presenting alternatives that reduce congestion and pollution.

It seems that the different parties need to join forces and be actively involved to make car-sharing more attractive to users. This requires a funding platform for private and public investors to gain confidence in the concept of car-sharing and its potential in terms of sustainable growth.

Finally, it’s interesting to briefly shed light on a service subscription introduced by a car manufacturer in September 2017: Care by Volvo. With this product, Volvo Cars enables consumers to purchase a subscription aimed at providing full service: they can use the right car at the right time, thus reaping the benefits and reducing expenses. This might just be a significant step in the right direction!

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