Car2Go is an exceptional business which is well-positioned for strong profits and growth looking forward. The external business environment and the immediate ride-sharing industry is highly attractive due to several key social and economic factors. Increasing focus on social responsibility and sustainability in society is a critical macro-economic trend driving the industry’s value proposition. Ride sharing services will be favorably supported by government policy-makers and citizens at large due to industry alignment with sustainable development and an eco-friendly lifestyle. Populations are moving from rural areas to denser urban areas, where ride-sharing is most popular and successful. Continuous innovation in technology has made the transportation industry at large more efficient, while lowering manufacturing costs. These global trends will be catalysts for an attractive, actively growing target market for the ride sharing industry. Internal rates of return are impressive. With a cash investment of $20,000 per vehicle, a ride sharing service can achieve an IRR of 39% or an even more profitable 81% return by utilizing leverage.
For Car2Go, there are several industry-specific risks which must be accounted for. The bargaining power of the consumer is relatively high, since there are multiple alternative modes of transportation. Consumers will simply purchase a personal vehicle themselves if their needs are not adequately serviced. Competition in the industry is quite low. With a maximum of 4 competitors in Toronto, many large Canadian cities do not have significant ride-sharing services yet. However, the threat of new entrants into the market is high, Car rental firms, such as Avis, are looking to expand into the business and entry costs are low. Political risks can greatly affect the success of the industry. Municipal officials possess substantive power in approving or declining applications for specific parking zones. However, current trends indicate that policies will be favorable and could provide the industry with considerable tax advantages for emission reductions in the future. There are several key success factors in the industry. Firms must be able to penetrate the market through effective advertising and build a returning client base. The service must be affordable and convenient, as modern consumers have busy schedules and multiple alternative transportation choices.
Car2Go has clearly considered the risks and key success factors. It has a demonstrated advantage in low cost but effective marketing. Car2Go has shown the ability to enter and capture significant market share in Vancouver, Calgary, and Toronto. Vehicle utilization, which accounts for 85% of revenues, has been high for Car2Go and parking arrangements have been successfully acquired. In addition to continued success and growth in current markets, Car2Go should expand into Ottawa. Both Ottawa and Montreal have excellent demographics for success. However, Ottawa has scarce competition comparatively and incomes are higher. The population is slightly smaller than Edmonton. However, the higher urban density and smaller area combined with a relatively affluent socially/environmentally conscious population makes for the ideal target market. Historically, low vehicle ownership rates were the best metric of economic viability in the industry, making Ottawa the perfect candidate at 410 per 1,000 people. Due to density and area, “city zone” coverage in Ottawa will be higher than most alternatives on a percentage basis. This improves customer convenience and satisfaction. Car2Go should focus on acquiring new parking arrangements and free floating agreements with municipalities in order to maximize competitiveness and user-satisfaction. If management builds around these key success factors, Car2Go can conquer new markets and increase profits well into the future.