Creating a Sustainable Model for Peer-to-Peer Car Sharing

Oct 07, 2015

The weight of urbanization is exerting mounting pressure on policy makers on a global scale. The trend is not a recent phenomenon. Cities did not undergo massive growth overnight. In spite of numerous indications depicting the boom in urban population, policy makers today are ill prepared to tackle various challenges. The rise in city density is outpacing the deployment of infrastructure, making existing capacity obsolete. When this happens, a city becomes less appealing and competitive than before.

Global population is forecast to see unprecedented growth by 2025. Frost & Sullivan predicts that over 60% of the world’s population will be residing in cities by that time. Policy makers will have their hands full dealing with a plethora of issues like housing, sanitation, and crime.

An overarching top-down approach will help monitor various developments simultaneously.

Frost & Sullivan has identified 8 Smart City concepts on which cities are built. Solutions and technologies that lead to the adoption of at least 5 parameters are needed before an initiative fulfils the definition of a Smart City.

While the concept offers a long-term perspective coupled with sustainability, it can be problematic in emerging countries where delivery and follow through are weak. It is not uncommon for policy makers to face budget constraints and the pressure to achieve quick wins. Under such circumstances, it makes sense for policy makers to prioritize resources toward addressing recurring issues in a pragmatic manner. While the 8 areas are prioritized by level of development, a common problem across all cities is the issue of managing traffic congestion. It is one of the toughest issue confronting policy makers today in mature and emerging cities. For instance, in end 2013, a study by the Transport of London found that traffic congestion has cost £4 billion (approximately $6.2 billion) per
annum. Clean Air in London, a not-for-profit organization, added that London has the worst air quality of any capital city in Western Europe. In response to these concerns, bicycle lanes will be added on the roads linking east and west London. The change has been met with widespread support from the general public and corporations.

Hong Kong’s Mass Transport Railway is touted to be among the best and the most efficient on a global scale, but traffic congestion remains a daily concern to commuters on the road. A survey by the Hong Kong Transport Advisory Committee in 2014 found that 82.3% of the respondents suffer from moderate-to-heavy congestion while 70% of them responded that private cars should not be given priority on the road.

While the conventional approach advocates the use of public transport whenever possible, the growth of urbanization has put a strain on existing infrastructure. An increase in investment may not justify the cost in view that it will increase excess capacity during off-peak hours. Hence, public transport alone is no longer sufficient to address traffic conditions. Moreover, it may not extend its reach to the last mile as mega cities keep expanding outwards.

In China, the government has several measures in place to reduce the number of cars on the road, including a quota on new car license plate and a restriction on car circulation. Traffic congestion in key cities are severe, and the situation is not expected to show significant improvement, as the current congestion is caused by less than 10% of the Chinese population that owns cars. With growing affluence among the middle income class, it is only a matter of time before more households view car ownership as affordable.

Various ideas have been raised to tackle traffic congestion. Historical trends may not offer the best indication. Given that any upcoming investment should be future-proof and sustainable, a clue can be found in the behaviour and characteristics of the millennial generation. The popularity of Facebook and other social media platforms is backed by their ability to share. While this is not indicative of a new business paradigm, the millennial generation is already shifting the trend in how commuting will be done. The biggest driver is that Generation Y does not see a need to own private cars. Industry experts in the automotive sector pointed out that the segment has been holding back on purchasing a car.

The proliferation of ICT technology is another major driver that is contributing to the change in mobility trends. Ubiquitous connectivity offers tracking, location-based and other real-time data. The switch from feature phones to smartphones is facilitates by an integrated mobile platform that supports applications for billing, booking, navigation, location-based route planning and cost comparison.

These trends point to more than one possible solutions. However, the most obvious yet challenging one is car sharing. The concept is not new. It started in Europe over thirty years ago in rural areas not adequately served by the public transport network. It was a system based on trust and referrals rather than two-way real-time information. The concept never had the opportunity to take off until recent years. To the baby boomers, the idea of car sharing was seen largely as being intrusive into personal property and was never used as a regular mode of transport, but it will be accepted wholeheartedly by the millennium generation due to the profound impact of social sharing.

Of late, car sharing is increasingly popular in London; car sharing membership reached 140,000 in early 2015. Large corporations are fast to enter the market to stay relevant. For instance, BMW entered into a joint venture with a car hire company, Sixt that offers premium vehicles for rental. With access to over 200 cars, Drive Now claims that members can book online up to 15 minutes prior to usage.

The growth of the car sharing model warrants new regulations. Car sharing clubs like Sixt work under proper controls which fit into the regulatory framework that policy makers want. However, the price points remain prohibitively high for daily usage, and such schemes are better for one-off trips.

On the other hand, the proliferation of C2C or peer-to-peer car sharing models is more promising and just a question of time. The widespread adoption of smartphones, mobile connectivity and social media will bring about sharing in an unorganized and spontaneous manner. Policy makers should proactively leverage on it as an effective tool that will address congestion in a sustainable manner.

There are a number of questions that remain unaddressed. For instance, is the money generated from car-sharing subjected to income tax? How can car owners be prevented from overcharging? How can users ensure that there are no hidden hazards in a car?

It is not sufficient for policy makers to allow peer-to-peer car sharing business to develop. Car owners and users are both exposed to risk in everyday transactions.

The current system is based on trust, with blacklisting as the penalty. Moving forward, car sharing companies for peer-to-peer arrangements can be expected to evolve and manage these concerns. These companies will mitigate commercial and social risks between car owners and users by putting in place a system around payment, damage, security, insurance and theft.

Part of running the operations includes maintaining a sizeable pool of cars through a subscription-based model for various parties. Ideally, the cost of membership and usage would be cheaper than the existing car rental companies, with growing economies of scale. Rather than charging by the number of days or months, new charging models are likely to evolve on the basis of distance travelled or by the hours, with a secure payment platform in place to facilitate the transaction process.

To monitor the location and distance travelled, car owners may be required to install their cars with connectivity, telematics and tracking devices. Hence, existing car owners may inevitably need to incur upfront cost to support the arrangement. In time, cars from major brands will come equipped with such necessary features.

On the regulatory side, policy makers could do more to address various concerns through a regulatory and governance framework to address concerns about insurance, legal liability, violations, income tax, malpractice and security.

Policy makers are generally taking a hands-off approach. There are a few possible reasons behind this. There are no tangible economic gains from a government’s perspective. People are not likely to declare any revenue generated from car sharing,
rental or pooling. It reduces the reliance on public transport over the long term. Automotive makers will suffer, and numerous jobs and downstream industries will be affected by the decline in revenue. Taxi drivers risk going out of business.

However, we can be absolutely sure that peer-to-peer car sharing will gain traction regardless of government intervention. Without early planning, policy makers will be left to deal with unprecedented issues around malpractice, vehicle theft and insurance disputes. A proper ecosystem cannot be established unless stakeholders, like insurance companies, are convinced about the government’s commitment to encouraging peer-to-peer car sharing.

A starting point is to develop a regulatory body and framework for the responsibility of various parties. The initial phase can be confined to a neighbourhood that a governing body could monitor. The burden of a blueprint need not be undertaken solely by the government. The initiative offers a good opportunity for policy makers to foster a more inclusive society through citizen engagement where a system is built together with the people. Accessibility has always been a contentious issue involving multiple stakeholders. The millennium generation has shown to be vocal through social media platform, and hence, involving them in developing an operational framework for peer-to-peer platform offers feedback in a constructive manner.

Industry experts have proposed numerous solutions for smart transportation, many of which are ambitious and long term in nature. However, they are not necessarily effective in resolving the problems at hand. Traffic congestion is becoming a daily hazard for commuters. As policy makers grapple with heavy-weight issues, transport matters tend to be neglected. The rise of social media, however, has brought the strain of urbanization into the limelight. Hence, policy makers are now forced to take a stand on such long-standing issues.

Although policy makers consider smart city initiatives as long-term solutions, some depend primarily on technology to solve their problems. Technology seems to be in place. It is about time policies catch up.

Serene Chan


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