German automakers do U-turn on car-sharing push
Fading spectre of ‘peak car’ diminishes appeal of investing in vehicle-sharing and ride-hailing apps
Ten years ago, a lone cowboy mounted on a large brown Longhorn strolled through the streets of downtown Austin. But what really turned heads was the small white Smart car driving slowly alongside — a publicity parade by German carmaker Daimler.
The Mercedes-Benz owner had come to the Texan capital to launch its car-sharing brand Car2Go: an app-based, by-the-minute rental service, which it told investors would usher in “a new form of urban mobility” in burgeoning cities across the globe.
Just over a decade later, the company — now running the service in a joint venture with rival BMW — quietly reversed out of the Lone Star state, saying it had “underestimated the investment and resources” required to make Car2Go profitable. Soon after, it announced it would withdraw from North America entirely.
The business was part of a wider gamble by traditional automakers and German manufacturers in particular: to plough money into so-called “mobility services” such as vehicle-sharing schemes, ride-hailing apps and technologies including self-driving taxis.
They were spurred on by the spectre of “peak car” — the idea that as people flocked to densely-populated cities, the expense and hassle of owning a vehicle would outweigh the benefits and the traditional mass-market car would be threatened with extinction.
“The message back then was that the customer of the future would not be interested in owning a car, but rather in using one,” said Ferdinand Dudenhöffer, of the CAR Center for Automotive Research at Universität Duisburg-Essen.
But 10 years later, many of these projects are in retreat, foiled by underuse in medium-sized cities, the emergence of rivals such as Uber, Lyft and China’s Didi Chuxing, the competing pressure to invest heavily in electric vehicles and a miscalculation over the enduring lure of the personal car.
A few weeks before DriveNow, BMW’s joint-owned car-sharing service, announced it would withdraw from London, its chief executive made a point of talking down the earning potential of such projects, in which the carmaker, alongside Daimler, had pledged to invest more than €1bn just 10 months ago.
“Not every trend is relevant for the BMW Group,” Oliver Zipse said in Munich, stressing that the company would focus instead on its core competency: manufacturing premium cars.
Meanwhile, in November, German auto supplier Bosch announced it was shutting down Coup — a three-year-old scooter-sharing service in Berlin, Paris and Madrid — and said it was getting out of the so-called “mobility” business altogether.
In 2014, when it launched its DriveNow car-sharing service alongside BMW in London, the German rental firm Sixt said its aim was to “make mobility so cheap that only the rich will buy cars”. Since then, DriveNow, now a part of ShareNow, has quit cities including Seattle, San Francisco and Stockholm to concentrate on a handful of European locations.
The volte face is indicative of a “welcome outbreak of sanity” in the industry over the past few months, said Bernstein auto analyst Max Warburton. “Many of the so-called ‘legacy’ manufacturers — urged on by consultants, media and yes, equity analysts — got sucked into spending on this stuff.”
Building large software-based services, Mr Warburton added, does not play to carmakers’ strengths, “in much the same way as it’s not the role of Airbus and Boeing to run airlines”.
While BMW and Daimler’s joint ventures say they have 90m users in more than 1,300 cities, they have struggled to attract the levels of repeat business required to balance the books. The average registered driver of a car-sharing app uses the service for just 12 hours a year, according to Mr Dudenhöffer.
Meanwhile, car ownership in Germany has risen sharply over the past decade, from roughly 500 cars per 1,000 inhabitants to 567, rather than declining as feared. Other mature markets have seen a similar increase.
As a result, both companies have been forced to writedown the book value of their mobility services by approximately €300m, and leaders at BMW and Daimler have signalled a rethink.
“There are potentially ‘disrupting’ business models that rely on car usage rather than car ownership,” Mr Zipse said in a speech to analysts. “But they are focused on very specific areas with high population densities to ensure high utilisation rates.”
“In our three main markets — Europe, China and USA — only a small fraction of people and of our customers live in these super-urban areas,” he continued. “For those who do, in the premium segment, owning a car remains a matter of convenience and privacy. This is our target group.”
Daimler’s CEO Ola Kallenius told investors that carmakers’ “basic business model” for the next decade was individual ownership.
In a marked departure from their predecessors’ pledges, both bosses have refused to continue spending on car-sharing services, according to people familiar with the matter, despite operations in some cities moving closer to profitability.
As recently as February, spooked by the meteoric rise of well-funded upstarts such as Uber, BMW and Daimler had teamed up to create five joint ventures in car-sharing, parking, electric vehicle charging, ride-hailing and city-mapping services.
At a launch event in a neon-lit bunker in Berlin, BMW’s former chief executive Harald Krüger joined Daimler’s former head Dieter Zetsche, in promising to “invest consistently” into the partnership, and even consider buying stakes in smaller firms. The executives said they would launch services in nearly 90 cities in 2019, and expand “tenfold” in the following years.
Months later, however, Messers Krüger and Zetsche have moved on, and faced with the vast expense of converting their companies into electric vehicle manufacturers, their boardroom successors have proved less enthusiastic about such plans.
A restructuring of BMW and Daimler’s joint ventures was announced in December, to “pave the way for profitable growth” and further cutbacks are expected.
“No one has yet worked out how to make mobility services profitable,” said Rainer Mehl, a director at Capgemini, who has spent 20 years advising German carmakers.
“It’s not a level playing field. The Californian companies can deliver huge losses, the German manufacturers have to deliver every quarter.”
Traditional US manufacturers have struck a similar tone. Two-and-a-half years after spending tens of millions of dollars acquiring the shuttle service Chariot, Ford announced it was closing the business, as it was no longer a “sustainable solution”, while GM was forced to scale-back its car-sharing initiative, Maven.
To make matters worse, chief executives have been forced to admit that self-driving cars, once touted as the route to profitability for mobility services, are years away from being road-ready.
Last month Mr Kallenius warned investors: “There’s been perhaps a little bit of a reality check setting in here.”
At a separate event, Mr Zipse appeared to agree. “Regarding automated driving, fully autonomous vehicles are far more off in the future than expected by many forecasts,” he said.
But with 70 per cent of the world’s population expected to live in urban areas by 2050, and estimates from the likes of McKinsey of a $2tn “mobility services” economy by 2030, German car companies have been reluctant to abandon the sector entirely.
Instead, they are taking a more modest approach — keeping a small foothold in the industry while gathering data on the way people move around cities.
Volkswagen, which had previously eschewed mobility services, launched its WeShare platform last year and is expanding its Moia shuttle-hailing servicefrom Hamburg and Hannover to London’s borough of Ealing.
Daimler and Geely, the Chinese carmaker that is also its biggest shareholder, are launching the new limousine StarRides service in Hangzhou this month, despite a decline in the use of ride-hailing apps in China.
Even as it announced its retreat from US cities, Car2Go was defiant. “The industry has been disrupted and the bubble will eventually burst,” it said in a statement.
A raft of restrictions on the use of private cars in big cities has also revived “peak car” prophecies, and the promise of novel, lucrative modes of metropolitan transportation.
“The bigger, quite stable trend is that we will have less car ownership in the next 10 to 20 years,” said Stefan Bratzel, of the Center of Automotive Management. The next few years will usher in a decade of consolidation in the mobility industry, he added, in which the “winners will take all”.
This time round, the German automakers are unlikely to be among them.