Rebuilding Place in the Urban Space

"A community’s physical form, rather than its land uses, is its most intrinsic and enduring characteristic." [Katz, EPA] This blog focuses on place and placemaking and all that makes it work--historic preservation, urban design, transportation, asset-based community development, arts & cultural development, commercial district revitalization, tourism & destination development, and quality of life advocacy--along with doses of civic engagement and good governance watchdogging.

Wednesday, December 18, 2019

Car2Go dying: further effects from the rise of ride hailing and damage to the sustainable mobility platform/mobility as a service paradigm

I have written about what I call the sustainable mobility platform and its various components.

An element of the SMP is the concept of "mobility as a service" and I have suggested that DC is a world leader in the implementation of MaaS.

One way car share is a key element in the Sustainable Mobility Platform.

Business mergers often result in failure.  There are many many stories in business about failed mergers, because the dominant player in the merger lacked the finesse to deal with the acquired company, maybe it was really a different line of business, e.g., consumer focused instead of business focused, like Flip camera bought by Cisco ("Why Cisco killed the Flip mini camcorder," CNET).

Or it was in the same line of business and the purchaser thought they knew everything and they didn't.  Like how Safeway destroyed companies it bought in Chicago ("Dominick's owner Safeway exiting Chicago market," Crain's Chicago Business) and Philadelphia, and significantly "impaired" companies it bought in Texas.

GM's purchase of Saab.  Ford's purchase of Jaguar, Land Rover, Volvo...

Etc.

What motivated the merger of Daimler and BMW's smart mobility ventures?  I wonder if it was desperation not expertise that was going on when Daimler and BMW merged their "smart mobility" assets into one business? ("BMW Group and Daimler AG combine mobility services," Daimler press release) in 2018.

Maybe it wasn't about expertise, but about two companies not knowing what to do and figuring they should join and muddle through together, but without much of a strategy on how to move forward?

This comes up because of how the merger has handled the car sharing operations of the two companies, DriveNow and Car2Go, the latter now called ShareNow, have been or are being killed off, not unlike what happened with Safeway's supermarkets in Philadelphia and Chicago.

In July BMW's DriveNow operation was shut down, after it was put in a division different from Car2Go ("BMW ReachNow car-sharing service shuts down in Seattle," GeekWire).

In September, Car2Go shut down a number of operations in the US ("Sustainable mobility platform in view of Car2Go's dialing back of one-way car sharing in the US").

Now, they've announced they are shutting down all North American operations effective in February 2020 (plus a few in Europe), to focus on Europe ("Share Now, formerly Car2Go, is leaving North America," The Verge). From the article:
Share Now, the car-sharing service formerly known as Car2Go, is leaving North America. Daimler and BMW, the two global automakers that share ownership of Share Now, said it would cease service on February 29th, 2020. Share Now currently operates in New York City, Montreal, Seattle, Washington, DC, and Vancouver.

The decision was based on “two complicated realities,” Daimler and BMW said in a joint statement: the “volatile state of the global mobility industry” and rising infrastructure costs associated with operating a car-sharing service in North America.

While we had remained hopeful that we would be able to come to a solution — especially these last few months — we are ultimately not in a position to commit to the level of investment necessary to make the North American market successful both in the near and long term,” the companies said.
Awhile back, commenter charlie made the succinct point that probably it has been ride hailing that's had the most significant negative impact on car sharing.  I think that's true, because many people would rather be driven than drive themselves, even if driving yourself is cheaper.

That's true, sure.  Ultimately though, there are too many companies operating in this space, ride hailing will always drive "taxi service" in a race to the bottom, because even as income drops there will always be desperate people willing to drive.

And if they have to make a choice, a European company is less likely to remain committed to the US market.

Venture capital effects.  Of course, the other element of "ride hailing killing car share" is venture capital ("Is there too much venture capital?," Brookings).

Venture capital subsidization of ride hailing trips below cost not only impacts transit ("New research on how ride-hailing impact travel behavior," UC Davis) but car sharing too.

Being listed on stock exchanges, having to be more concerned about the cost of capital and the rate of return, for profit companies owning car share companies can't afford the same level of subsidy compared to ride hailing companies like Uber and Lyft ("Uber fares are cheap, thanks to venture capital. But is that free ride ending?," Los Angeles Times).

Free2Move/Peugeot.  Note that a couple years ago, Peugeot created a one way car sharing company, called Free2Move ("Peugeot owner chooses DC for Free2Move car sharing launch," WTOP-radio).  First it was an app integrating the various services into one interface.

Then it added an actual car sharing service, which at this time it only operates in DC.  Now it will be the only "major" operator of one way car share in the US. 

I wonder if they will seek to expand to some of the markets that Car2Go is abandoning?
A Smart Car in DC!, 500 block Pennsylvania Avenue, SE
The difference between Free2Move and Car2Go is the use of extremely small vehicles.  In places where parking supply is extremely tight, the smaller car is a "killer app."  Free2Move uses Chevrolet Equinox and Chevrolet Cruze vehicles, which are comparatively larger.


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24 Comments:

At 8:40 AM, Anonymous charlie said...

Again I'll use my macro voice here -- it isn't really a venture capital issue but PRIVATE capital. And yes it flooding the system and killing competition (Car2go) and also real business (super shuttle).

Reduce the cost of capital to nothing and private space flight looks like a good idea. Or having an army of unemployed people deliver food. Or, free email service.

On a more granular level, SMART was a project of Dr. Z and as soon as he left Daimler wanted out. And once it wasn't part of daimler, the entire point of car2go (move CAFE friendly cars to the US to balance out sales of s-class sedans and raise Daimler's CAFE) evaporated.

Real shame, as a car in the city person, because they are pretty much perfect city cars. We just had a conversation last night that the demise of car2go may require us to buy a second car.


 
At 9:47 AM, Blogger Richard Layman said...

I never tried free2move. You should give it a go.

And yes, you are right to hone in more on the cost of money more than venture capital per se.

Although some people mistake that almost zero interest rate makes doing some sorts of businesses viable.

E.g., food delivery. Groceries are sold on minimal overall margin. Adding picking and delivery, even with a lot of technology makes it unviable. The best thing supermarkets have going for them is that customers pick and deliver their purchase.

Software/IT/telephony does make some kinds of businesses viable than before.

But it doesn't make them great vehicles for growth, the next Google or Microsoft.

That doesn't mean they can't be decent businesses, but no business can really succeed with that scale of disconnect between what is possible and what people expect as ROI.

Obviously, that's the case with scooters and similar kinds of micromobility.

Like with food delivery, having to create an infrastructure to maintain and charge and redistribute the vehicles makes it likely to be unviable as a business.

Sure you can add such devices to dock based sharing systems, with bike share at its base, but it's likely to be a nonprofit venture, subsidized because of transportation demand management goals.

Etc.

=====
speaking of nonprofits, capital, the market, etc. Yes, the SmartCar is a city car. And speaking of differentiated practice, cities vs. suburbs (an element of my next post), big car companies aren't incentivized to produce such a vehicle.

It would be great if cities could band together and create a venture to make vehicles like the SmartCar.

It wouldn't be "hard" to keep up with the present vehicle, using Magna or firms like it to build them. (Do you remember when Ed Cole got involved with Checker Motors?, then he died.)

It's too entrepreneurial and business like for cities to do.

But there needs to be a citycar built and marketed and rightsized for cities.

DK if you could make it work by linking it with car share.

Bolloré's attempt with Autolib could be something to learn from.

https://en.wikipedia.org/wiki/Autolib%27

But it would take tons of capital and cities would be pilloried for doing something like this.

But it would be a lot cheaper to take on than California HSR.

But requiring to start off the bat being electric would make it too difficult and complex to pull off.

A SmartCar vehicle, micro in size and getting great gas mileage, should be seen as a great vehicle compared to typical combustion engine powered vehicles.

 
At 9:53 AM, Blogger Richard Layman said...

The problem with "city cars" though as failed Bolloré ventures elsewhere show. a few cities really have the conditions to make city cars/car sharing work at scale.

DC, Boston, NYC, Seattle (the biggest market for Car2Go), etc.

Sprawl cities like Indianapolis or Salt Lake. Not really.

It's a limited market. Again, important. But not a business likely to reap extranormal returns.

 
At 10:05 AM, Anonymous charlie said...

in the US, yes, city car very very limited market. Also why Fiat is withdrawing the 500.

And profit margin very low.

Robin Wiggleworth has been going off on "private capital" in the FT for a while, and the best way to think of the macroeconomic noise for the past year in the REAL economy is doing ok -- but the private capital economy is collapsing at the current price of money.


 
At 10:29 AM, Blogger Richard Layman said...

Didn't know about the 500 being withdrawn. Design-wise its never appealed to me.

Anyway, this is an example of how the business conditions "of the market" work against producing certain types of products, even though there is a market for those products (but probably not with multiple competitors).

That being said the problem too with the city car is that when people buy only one vehicle they are likely to buy a vehicle that maximizes their ability to meet multiple trip needs. In other works, a hybrid SUV instead of a city car that only works for trips under a 15 mile radius.

 
At 10:30 AM, Blogger Richard Layman said...

... out here in the sticks I no longer have access to the FT. I do think you provided a URL for one of those articles.

Obviously, WeWork is another example of people doing stupid things because they are desperately searching for high returns.

 
At 10:46 AM, Anonymous charlie said...

https://on.ft.com/2CQCDmA


https://on.ft.com/38X7Frq

https://on.ft.com/2Md8YJ9

https://on.ft.com/34EvqRT

 
At 12:16 PM, Anonymous Anonymous said...

"It would be great if cities could band together and create a venture to make vehicles like the SmartCar."

The chinese already make SmartCar knock-offs. Just buy them. Or there are multiple electric glorified golf cars. Automobile manufacturing is not a proper function of city government.

 
At 12:19 PM, Blogger Richard Layman said...

Wow. Thanks.

https://on.ft.com/2CQCDmA

“Given higher liquidity risks, pension funds will probably have to set aside more of their liquid assets to cover potential outflows during and after periods of stress, especially if market funding becomes more expensive,” the IMF said in its Global Financial Stability Report. “This would make it more difficult for them to buy assets traded at distressed price levels, limiting their ability to invest counter cyclically and thus play a stabilising role during periods of market stress.”

=====
this point was made in both the first and second URL:

The trend has several drivers, but the biggest is that investor expectations for returns in mainstream public markets have ebbed. Quantitative investment group AQR reckons the classic 60-40 balanced equity-bond fund could over the next decade return as little as 2.9 per cent on average a year after inflation, compared with an average of 5 per cent since 1900. Investment firm GMO reckons real returns could even be negative over the next seven years

======
From the second URL
https://on.ft.com/38X7Frq


For long-term institutional investors like pension funds, insurers, endowments and sovereign wealth funds, accepting the illiquidity of private markets in exchange for the promise of higher returns therefore makes sense. Indeed, with many struggling to hit return targets — typically 8-9 per cent a year — pouring more money into private markets seems the only option. As a result, the money has rolled in. Private capital funds of various stripes have raised nearly $5tn just since 2012, according to Preqin. In fact, the strength of fundraising is so extreme that many funds are struggling to find enough attractive investments. Preqin estimates that the amount of committed but uninvested “dry powder” in private capital funds topped $2tn last year.

+ the points about illiquidity, liquidity and the now illiquidity premium. And in times of crisis, it's the easiest to sell assets that will be sold to raise cash.

4th piece:

https://on.ft.com/34EvqRT

This is another example of how IT has enabled the creation of a business/disruption that would have been so much harder pre-e-commerce/WWW.

There is definitely a need, a market for it. But probably that so many actors are going for it makes it less stable.

E.g., I read an article about how Square I think (maybe others) is doing business loans, not unlike factors, and how because of bigger data and mining relationships, existing sales revenue streams, they can make loans to their business customers with less risk.

I can't remember the name of it, but in the 90s-2000s there was some firm that would lend money to restaurants. They would sell "discount cards" to restaurant-goers. The meal costs were charged to the lender at 50% of the sales price as a way to pay back the loan.

Pretty onerous, but if you can't get money from traditional sources, you take what you can get.

I am sure this wasn't the article, because this isn't a publication I have access to:

https://www.americanbanker.com/news/how-square-turns-unconventional-credit-data-into-loans-for-tiny-businesses

(It's nominally blocked but you can access it via www.printfriendly.com)

 
At 12:24 PM, Blogger Richard Layman said...

city cars, cities etc. the justification is transportation demand management.

I can see creating an NGO "vehicle" as a way to do it. Basically, a CDC, that operates across markets.

Just like bike share.

Theoretically, TRF, The Reinvestment Fund could do it.

But yes, I hesitate in recommending a business venture run by people who run cities (e.g., Muriel Bowser, Rahm Emanuel, Catherine Pugh, Bill DeBlasio, etc.).

Am not familiar with what's available in the Chinese market. If such vehicles are being produced, there's your manufacturing partner.

The other way to think of it is how companies like Siemens, CAF, Hyundai Rotel and others create manufacturing plants to build transit vehicles in the US.

The problem with nonprofit car share is that they have less access to finance and a big bill 5-7 years later to replace the fleet. (Not unlike the problem with bike share, although the useful life may be longer, closer to 10 years.)

But it's an important parking inventory management technique, extends the willingness of households to not buy cars, because they have access to cars on a fractional basis in a pretty simplified manner, etc.

 
At 10:46 AM, Anonymous charlie said...

https://on.ft.com/373iQNF

A bit late.

 
At 8:57 PM, Blogger Richard Layman said...

Thank you! Great article. And it indirectly makes the point you made about what happened once Dr. Z left the company.

The point made in the article:

“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.”

is the same one I made in my pieces on the Sustainable Mobility Platform and DC as a MaaS leader.

Most cities don't have the right level of density in population and the built environment to make these kinds of services practical and appealing.

Or as you once said about transit, "its killer app is speed and cost" (when it is efficient and less expensive than alternatives).

DC, Seattle, Boston, SF, NYC have those positive conditions. Most other cities, even though they may be committed to the policy of sustainable mobility, are sprawled and car-dependent despite the best of intentions.

E.g., SLC (but really its the Utah Transit Authority, which operates in multiple counties around the state) gets a lot of press for its transit system of light rail, bus, and commuter rail (one line, connecting Provo, SLC and Ogden), the downtown free fare zone, etc.

They deserve publicity, they do a decent job. Separately, SLC has paid UTA for service expansion and they are all happy about getting "massive" ridership increases of 40% on some lines.

But that's from 1500 riders to 2100 riders!!!!!

======
I've written about this already, but I am tired of the blog entries in GGW and op eds in the Post about what the DC area can learn from the Pulse or similar services in Richmond and elsewhere.

DC's buslines get much more ridership as it is.

The issue is better marketing and branding, pricing, etc., sure, but basically the trunkline services do well because they are "killer apps" and the rest don't.

As long as people get cheap parking at work, residential street parking is underpriced, gas is cheap, transit is more expensive with each additional rider rather than the marginal cost of additional riders in a car is equal to zero, and trip demands make transit less appealing, people will drive.

When I talk with Suzanne about these issues, I put both hands behind my back and stand on one foot, and say that's the kind of "level playing field" faced by transit in the planning and development paradigm for transportation and land use.

 
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