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Common Car Sharing Pitfalls – Part 1: Fleet Management

Concannon Business ConsultingCar Sharing Common Car Sharing Pitfalls – Part 1: Fleet Management

Common Car Sharing Pitfalls – Part 1: Fleet Management

In this multi-part series, we will explore the most common challenges that companies face when planning, starting, and running car sharing programs, and the things they can do today to avoid problems down the road. This post examines the fleet management side of car sharing and the unique challenges that come from operating an urban vehicle fleet in which every car might be used by multiple drivers in a single day. In this environment, it is imperative that companies considering or already running car sharing programs plan well ahead. Let’s take a look at the top 4 fleet management challenges in car sharing.

1. Fleet Selection

Before purchasing or allocating a single vehicle for a car sharing program, companies first need to determine exactly what their fleet needs to look like. While it might seem simple, this task is actually quite challenging due to constraints that often conflict:

  • Customers want multiple options in car sharing programs to cover all of their possible use cases. This means a combination of sedans, SUVs, and cargo vans is required to satisfy everyone. Pickup trucks are the lowest utilized vehicles in car share fleets.  They tend to incur more damage and are prone to reservation cancellation because of bad weather.
  • Car sharing organizations benefit from advertising the rate plan that best represents the majority of the fleet. Having a mix of vehicles, including lower-end vehicles, enables advertising at a lower rate.
  • Acquisition, setup, and maintenance costs are lower with a smaller number of vehicle models in a fleet.
  • Customers often prefer to drive vehicles they are familiar with rather than an entirely different model every time they need a car.
  • Resale value or lease close out value should be considered in choosing vehicles for the fleet.  If managed properly, vehicles should be a source of revenue when they are cycled out of the fleet.

Balancing these constraints and selecting a robust fleet composition that is both wide enough to appeal to customers and narrow enough to be manageable and familiar is a significant challenge. We recommend that companies pursuing car sharing programs perform comprehensive due diligence before making binding decisions about fleet selection.

2. Fleet Distribution

Customers of car sharing programs increasingly want the ability to pick up a car at one location and drop it off at a different location. For example, pick up a vehicle around the block from your home and leave it at a metro station as part of the morning commute. Additionally, car sharing requests often have peaks and troughs throughout the day rather than constant usage. The combination of these two factors means that car sharing programs need to actively manage the distribution of vehicles throughout urban areas and also need to find ways to appeal to a mix of users (ex. Commuters with staggered work start times, students with off-hours classes, etc…). Several options exist for mitigating fleet distribution issues:

  • Employ runners to relocate vehicles to optimal locations on a regular basis.
  • Incentivize users to return vehicles to optimal locations rather than leave them wherever it is convenient.
  • Attract off-peak users with more favorable rates in order to maintain vehicle usage throughout the day.

The optimal solution will depend on the specifics of the urban environment in which car sharing companies operate and the expectations of their users. Pilot testing combined with thorough analysis of usage patterns are key to finding the right mix of techniques to maintain ideal fleet distribution.

3. Fleet Maintenance

A key ongoing concern for every fleet is maintaining vehicles effectively, and car sharing fleets are no different. Fleet selection plays a large role in determining ongoing maintenance costs for car sharing fleets since the more vehicle models there are, the more difficult it is to utilize economies of scale to lower parts and maintenance costs. At the same time, however, car sharing companies need to keep in mind the potential impacts of vehicle recalls on the overall fleet. If a fleet is entirely homogeneous, a single critical recall (like the recent Takata airbag issue) could take the entire fleet out of commission for days or weeks. Ignoring these inevitable recalls is not an option, either, since car sharing companies might be held liable if injuries result from not keeping fleet vehicles updated with recall needs (http://www.dailynews.com/article/ZZ/20100627/NEWS/100629700). Car sharing companies should strongly consider several factors when planning for fleet maintenance:

  • The fleet balance of vehicles, especially if all are from the same manufacturer, can lead to issues when large-scale recalls occur if not planned correctly.
  • Maintaining too many different vehicle models can quickly grow costly, requiring sourcing multiple vendors to service the fleet, instead of a few trusted reliable vendors.
  • If maintenance requirements necessitate taking a large number of vehicles out of rotation, backup plans are mandatory to prevent significant revenue and customer loss.
  • Resist the urge to populate the fleet with one type of vehicle with one specific color for the entire fleet.  This will make it nearly impossible to re-market the vehicle at the end of its usage cycle.  Most likely, some of the vehicles will need to be shipped to auctions outside the local market.

Developing a strong plan for fleet maintenance ahead of time, and having processes in place for handling foreseeable issues like large recalls goes a long way toward ensuring the long-term success of car sharing operations.

4. Fleet Cycling

Just like with rental and lease fleets, car sharing fleets face the requirement of cycling out old vehicles and replacing them with newer models on a regular basis in order to meet customer expectations. This means that car sharing companies need to plan well in advance for how to most effectively cycle their fleet vehicles so that they don’t get forced into low resale values. There are several items to consider related to fleet cycling:

  • Timing of fleet vehicle sales is critical. Between October and March, wholesale prices for fleet vehicles tend to be low. Cycling vehicles in the summer can mean much better revenue.
  • Purchase prices for vehicles also tend to fluctuate, though not necessarily in step with wholesale sale prices. A revenue-optimizing strategy needs to account for a potential gap in ideal prices between purchase and sale.

Planning ahead for fleet cycling can be tricky due to the nature of vehicle values and upkeep requirements as they age. Companies pursuing car sharing should develop robust models for vehicle value over time as well as ideal sale and purchase timing in order to put in place revenue maximizing and cost minimizing processes for fleet cycling.

At Concannon Business Consulting, our experience working with auto manufacturers and building, launching, and optimizing car sharing programs has given us unique insight into developing effective strategies to mitigate fleet management challenges. Click here to learn more about how we can help you plan, launch, maintain, and grow your car sharing program.

Elaine Hsu