Profitability in car sharing and how sharing technology can impact it

The car sharing industry, despite being established for over three decades, struggles with profitability, which is crucial for scaling and expanding mobility options.

The Business of Mobility is a series of articles featuring business leaders in sustainable mobility.  

Q&A with Bharath Devanathan (CBO at INVERS) and Ross Douglas (Founder at Autonomy)  

The business of car sharing has been around for more than 30 years , but operators are still finding it hard to make it profitable. What is the industry missing out on by not being profitable? 

That’s right, profitability is still a key challenge for many car sharing operators. Achieving profitability would allow them to scale successfully and provide mobility options to even more people in more regions of the world. That’s why it is so important for them.

The concept of car sharing implies that assets – cars in this case – are shared among many users. Shared assets naturally prompt the question of ownership. In this context, none of the users can claim ownership. So, where does that leave us?

Here it may be useful to look at the evolution of another industry that deals with shared assets: Airbnb. Airbnb users rent their homes out to various strangers over the course of a year. In the early days, there were instances of homes being damaged, vandalized, left dirty etc. Subsequently, however, Airbnb has done remarkably well in creating a shared sense of ownership of these assets amongst its users. 

They did so by using a variety of different tools like customer education, public relations, customer ratings, host ratings and various technology elements, like for example easier check-in/checkout or amenity listing. When Airbnb customers check out, they want to make sure they don’t leave the house dirty – they take out the garbage, clean the sink, put dishes in the dishwasher, tidy up the place before they leave. The same users don’t do this when they check out of a hotel. It took time, but by carrot or by stick, Airbnb has created the habit of wanting to leave their places tidy.

Carsharing’s case is different from Airbnb’s, where the assets are immovable. Cars move, and therefore creating this joint sense of ownership is more difficult. Thus, I expect this journey to take longer – and as the journey progresses the path to profitability becomes clearer. Technology plays a big role in this carrot and stick approach, but it can pave the way for a profitable car sharing operation.

So when can we expect car sharing to be profitable and which key factors influence profitability in car sharing? 

Examples show that profitability is already possible today. In Germany, for example, the car sharing association bcs has pointed out that many German car sharing services are economically viable. Six of the ten largest car sharing providers report reasonable profits in their published balance sheets. However, there are differences between business models. While station-based businesses are profitable more frequently, operators of free-floating car sharing find it more difficult. Obviously, their product requires high investments, especially in the initial phase. At the same time, their impact on urban mobility is high: In Germany today, free-floating car sharing providers account for roughly half of the car sharing vehicles offered and they are active in eight metropolitan areas.

Profitability has only two drivers – revenues and costs. So, for an operator the key questions are how to increase revenue and how to reduce costs and keep them in check. Increasing revenues can be done by increasing utilization, increasing prices, growing demand or getting more customers. Technology and telematics play a role here: customers are more likely to use the service again if operators deliver a good user experience, ensuring that everything works flawlessly, .  The main drivers for cost are vehicle downtime, vehicle lifecycle management and other variable costs such as fuel.

What is vehicle downtime and how does it impact profitability?

Vehicle downtime is when the vehicle is unavailable for customers for use. It has a double impact on the P&L – revenue loss and cost. Because the vehicle is not available to customers, there is an opportunity loss. A customer would look for alternatives if they wanted to use a vehicle but were unable to. Downtime also leads to increased costs. Usually, vehicle downtime requires attention from staff to fix it. This means that manpower costs rise if there is significant downtime. 

What are the causes of downtime?

In some cases, the reported GPS location of the vehicle is not accurate. Operators find this out after customers report that they cannot find a vehicle at the specified location. As mentioned above, this leads to a revenue opportunity loss and increased cost to fix it. In this case, someone has to physically look for the vehicle and fix the issue that is causing the GPS inaccuracy.

In other cases, the vehicle is unable to report its position and communicate with the central server. When this happens often, the operator is uncertain about the status and location of the vehicle, so they take the vehicle out of service momentarily, making it unavailable to the customer. Again, as stated above, this leads to a revenue opportunity loss and increased costs to fix the issue.

In both the scenarios described above, downtime leads to increased manpower costs and loss of revenue. A good telematics solution drastically reduces the occurrence of these cases, thereby increasing revenue and reducing manpower costs for the shared mobility operator. 

How else can telematics solutions prevent downtime, thus reducing costs and increasing revenue?

Take for example refueling or charging. Here, it is important to always get the most accurate fuel or charge level from the vehicle. This allows operators to plan their operations efficiently, e.g., to give discounts on vehicles that have low fuel or to incentivize customers to refuel vehicles themselves. Receiving real-time, accurate data from your telematics solution here is critical.

Another aspect is operations manpower and staff. A reliable telematics solution is always connected and online, delivers accurate GPS locations and allows for reliable communication to unlock and lock the vehicle. This elimimates the need for an operations person to physically inspect the vehicle, so you reduce the need for operational manpower.

How does vehicle lifecycle management impact profitability?

Vehicle lifecycle management involves buying, operating, and selling cars and includes selecting the right vehicles, negotiating favorable purchase terms, ensuring efficient maintenance, and timing the market perfectly for resale. Each step contributes significantly to the bottom line and, thus, the profitability of the sharing business.

What are crucial areas in vehicle lifecycle management when it comes to profitability in car sharing?

First and foremost, car sharing operators want to keep their assets in good condition, not only for customer satisfaction, but also to achieve an optimal resale price. Thus, keeping the cars in good condition and managing their mileage is essential. So are regular maintenance and timely repairs, including regular servicing, and prompt resolution of wear and tear issues. Proactive maintenance helps to identify potential problems early, reducing the likelihood of major breakdowns and ensuring the vehicles’ longevity.

In addition, operators state that damages impact profitability very directly. For example, in their report of results for 2022, Mobility Switzerland pointed out that much of their profitability decrease was due to vehicle damages. 

Improving car sharing operating costs involves more than routine maintenance and damage detection. Incorporating features like smoke detection helps safeguard vehicle condition, as smoking can significantly degrade interiors. A vehicle free from damage or smoke smells encourages frequent and repeat use and contributes to a higher resale value, benefiting the service provider.

How can carsharing technology support operators with vehicle lifecycle management?

Dedicated car sharing telematics solutions that include damage detection can identify damages when they occur and report them back to the operator. The operator is then able to take the necessary steps to repair the vehicle, not expose customers to damaged vehicles, and to also attribute the damage to the customer who caused it. All of this helps in reducing the cost of operating a shared mobility fleet. Operators report that they lose up to twenty percent of their revenue due to damages that are not reported and cannot be attributed to the person responsible.

You mention customer care as a third factor that influences profitability. How can telematics solutions improve processes here?

If the telematics works reliably, it reduces the number of calls per trip to the support team, and therefore reduces customer care costs. For example, if the telematics can use Bluetooth to lock and unlock the vehicle even when there is no cell connectivity, then the operator’s call center will avoid a call from a frustrated customer who can’t start or end their trip. Accurate information on fuel levels is also critical here. Customers do not want to be charged for fuel they did not use. If they feel they have been overcharged, they will call the call center. A good telematics solution prevents this situation.

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