CiteeCar's Hybrid Car Rental Model: The Future For Car Sharing?

A new European startup, CiteeCar, is taking on both these manufacturers and other startups with a hybrid low-cost model. This company, hoping to be the Southwest AirlinesLUV +0.22% of car sharing, draws on the benefits of car rental–control of inventory and prices—while also drawing on the community benefits of car sharing. The cars people rent by the hour are owned by a financing company but managed by CiteeCar, but they are maintained and parked with a peer “host” who doesn’t work for CiteeCar.

“We approached the logistical side as the rental business would,” says CiteeCar CEO Bill Jones. “And we approached the community side of the business like a peer-to-peer business would.”

CiteeCar, based in Luxembourg, buys Kia Rios and agrees to sell them back to Kia after one year. By keeping them for one year instead of three or more as rental car companies often do, the cars stay high-quality, Jones says. CiteeCar finances the purchases through a third-party, so technically the financing company owns them and CiteeCar leases them. The model could be a quick way for manufacturers to jump into car sharing without building their own system like Daimler or BMW, or buying in, like Avis did with ZipCar.

Like ZipCar, CiteeCar then rents the cars out to its members. But CiteeCar’s key difference is the “CiteeHosts.” These hosts have their own parking space and host a car. In exchange for this, they get free use of the car for a certain number of hours per month. CiteeCar vets these hosts–there is a strong demand to become one–to select people who not only are in good locations but also who would be good evangelists for the company. These hosts then recruit many of their neighbors and friends in the area to become members as well.

People who are not hosts pay €5 per month for membership plus €1 per hour of driving plus €0.20 per kilometer. For example, CiteeCar says a 2-hour trip to pick someone up from the airport at 40km costs €10, while a 5-hour trip to Ikea at 15km costs €8, and an all-day 9-hour family outing at 80km costs €25.

CiteeCar launched last December and is in three cities: Berlin, Hamburg and Munich, with 360 cars. It’s quickly expanding to a fourth city this year and plans to launch in another country next year. The demand is high, because car ownership among the under-30 demographic is dropping in Europe and Germany in particular, Jones says. “Car ownership is becoming less and less attractive.”

CiteeCar has the benefits of car rentals because it can maintain high quality cars–which may not always exist with peer-to-peer car sharing. Because CiteeCar has its own fleet, it can also control inventory and geography–so that areas that have the strongest demand will have more cars. That can be a problem in peer-to-peer models where there aren’t always enough cars available in the highest demand areas. The one-year model also keeps the CiteeCar’s costs low, because the second and third year can get expensive with maintenance.

“We finance the depreciation for 12 months,” Jones says. “That gives us a fixed monthly holding cost and no risk for remarketing the cars. We keep the fleet young. This is the way Hertz and others historically used to buy fleets.”

Meanwhile, CiteeCar has the benefits of peer-to-peer car sharing through its hosts. The second-biggest cost with car sharing is parking. Not only is parking scarce in many dense cities, it is also expensive. CiteeCar gets free parking from its hosts. For CiteeCar, the trade off is worth it. The hosts get 100 credits per month, where 1 credit is worth about 1 hour, depending on the time of day. ”Giving cars away for free might sound crazy, but it actually solves one of the biggest pain points for car renters: the cost of parking,” says Mark Tluszcz of Mangrove Capital Partners, which incubated CiteeCar. ”(It’s) the perfect example of giving something away for free in order to give a large group of consumers a service at a near impossible price point.”

CiteeCar’s peer-to-peer parking helps the company scale quickly. Most car-sharing companies in Germany use city-regulated spaces for parking, which require long approval times and can be expensive. “Our model is based on scaling rapidly,” Jones says. “It really only makes sense once we’ve got a sizable fleet of cars.”

In terms of capacity, most cars are only used about 40% of the time, but CiteeCar turns that 60% of idle time into usage. And consumers get the benefits of peer-to-peer car sharing as well, with local access and a civilian (not a corporation) hosting the car. “60% of the time you expect the car to be standing idle. We think about that as currency. We turn that into usage credits for people who provide parking spaces.”

One surprise is how the hosts have become key evangelists. Some are active on social media and online forums promoting the company. ”It’s not just the parking the provide, they’re also the eyes and ears on the street when we’re not there,” Jones says. “They also become our most efficient recruitment channel. They tell their friends to become users of the cars. They become an extension of the company we’ve never really anticipated. They almost act like an extension of our marketing or customer service activity.”

While other sharing economy companies like Airbnb have customers or hosts who become active evangelists for the company, CiteeCar’s hosts are different because they get a benefit as hosts of the cars. CiteeCar also is speaking to businesses that have parking spaces that could become hosts. In this scenario, businesses would use the cars during weekdays but individuals could use the cars on weekends.

The word of mouth, without active recruiting, is so strong that CiteeCar now has a wait list of 1,500 people who want to become hosts. Hosts have their drivers’ licenses and parking situation verified. They’re also interviewed to make sure they are good representatives for the brand, Jones says.

CiteeCar, which Jones dubs ”urban car rental” rather than car sharing, has advantages over peer-to-peer, which often requires the car owner to hand over the keys in person. With CiteeCar, members receive a card that opens the car and the keys are in the glove compartment. There’s also a fuel card to pay for gas that is covered by CiteeCar. A black box in the car monitors the usage and charges users when they finish using the car. Cars must be reserved at least 10 minutes before using them through the website or a mobile app. Jones says 95% of bookings are done within an hour before picking up the cars. The cars are insured similarly to a traditional car rental.

CiteeCar’s model is different from some of the models launched by other car manufacturers such as Daimler’s car2go and BMW’s DriveNow, Jones says, because his is not run by the manufacturer. The others focus more on providing a commuting option, whereas CiteeCar is more of an alternative to ownership, Jones argues.

CiteeCar was originally founded by Mangrove Capital Partners, the venture firm that first backed Skype and founded by Tluszcz. “We started CiteeCar because we could not find any company to invest in that had figured out the economics of making car sharing economically viable,” Tluszcz says. “With CiteeCar, we think we have cracked it.”

While cars and phone calls are quite different, there are some parallels with Skype. ”CiteeCar has some of the same characteristics as Skype,” Tluszcz says. “Give something away for free which has tremendous value, in this case its cars, and you will be able to leverage this into a very profitable business.

CiteeCar is also inspired by RyanAir and EasyJet , the European versions of Southwest Airlines. Those airlines’ rock-bottom prices made it much more attractive to take short flights and CiteeCar hopes to do the same for car sharing. The number of people using car sharing in Europe is still small but Jones believes that low prices will draw in many more.

“The (airlines’) behavioral shift was driven by the single-minded focus on price point,” Jones says. “Car sharing in Europe is on the cusp of that shift. Everybody knows it’s good for the environment. It makes sense to use this if you’re living in the city when you need it rather than to own it.”