Flexicar

My suburb is dotted with flexicars.

Pay a once-off 30 dollar joining fee, a 70 dollar annual insurance fee, and an hourly rate between 9 and 15 bucks, and you get a car.  Petrol and insurance included.  When you book online you get a code that pops the car doors open.  The keys are on the console.

In Melbourne they are very much an inner city thing.  The northenmost is in Brunswick  the southernmost is in St Kilda.  It’s only in these burbs that the economics of parking are so bad that sharing a car with someone else could make sense.

Except don’t say the sh-word.  Flexicar emphasises the flexi.  American car share companies  found that many people have a negative view of the concept of sharing. “Do we call hotels ‘bed-sharing?”  They also found people aren’t motivated by thinking about the environment.

In America, the flexicar concept is a big one.  There, it is run by a company called Zipcar, and it is in 64 cities.  There are 1300 zipcars in New York alone; hundreds in San Francisco, and even 3 in Alabama.

In contrast to the enviro-communal origins of car sharing, Zipcar now offers BMWs, and has annual revenues of over a hundred million dollars.

They want to change people’s relationships with their cars.

They are going after college kids, who can’t afford a car, and hoping they can break the traditional rite of passage of buying a car at the end of college.  The graduates tend to move to the cities where zipcar is going strong.  By hitting these early adopters, they hope to do what Apple has done, and make the alternative mainstream.

I read the flexicar website and loved it.   The environmental benefits were amazing.  I wondered ‘Why isn’t everyone into it?’  I read their page on how the  the costs are so low compared to car ownership, and even better than taxis. I shook my head in disgust at the masses’ ignorance.   Then I did the math again myself…

Assume a ten-year-old Toyota Corolla.

I looked up the price of a 2001 model, $5760, and the price of a 1999 model, $5130.  The difference is depreciation. That’s $630 or about $315 a year.  For completeness sake, let’s include foregone interest on the 5k, say another $300.

Assume a tank of petrol every 6 weeks.  Nine 45-dollar tanks a year.  $400 a year, or 307 litres.  At 9L/100km that’s 3400km.  Assume it’s mostly city driving, so an average of 30km/h, thats a hundred and ten hours, or 2 hours a week.

Assume no parking fees at home

Assume a conservative 250 bucks on services and repairs a year, because those Toyota Corollas run so smooth.

Registration is $650.

No insurance.

Total annual cost is $1915 a year, or $37 a week for two hours driving.

If they go on the Flexicar plan, they will spend a hundred to join (which also covers insurance).  The plan that gives a hundred pre-paid dollars of driving a month has a rate of $11.25 an hour.  The weekly cost will be 22.50 plus 1/52nd of the joining fee  (2 dollars).  $24.50 compared to $37.  So there seems to be a flexicar saving of about $12.50 a week!

But.  The Flexicar plan falls down because the two hours of driving aren’t all you pay for.  The car has to go back to where you picked it up from.

Say the two hours of driving a week represents 3 trips of 20 minutes each way, one each to the supermarket, a soccer match, a friend’s house.  With Flexicar you also pay for the time the car spends sitting at your destination (say, 30 minutes, 1.5 hours, 3 hours).  The price of these 5 hours is another $56.25.

The 24.50 plus 56.25 = $80.25 a week.  The cheap Corolla is looking better and better.

(Apparently though, the average person spends $239.44 a week on their car.  More modestly, the RACV says that if you have a car that costs 16 grand and you drive it 15,000 km a year, it costs you $114 a week.  That’s 42 kilometres every day, though.)

So Flexicar only seems to work efficiently for certain kinds of trips where you aren’t stopping long at the destination, for example, shopping trips where you know what you want, dropping things off at certain places.

It is also probably economical for people who would never dream of owning a cheap ten year old Corolla.  New cars depreciate fast,- somewhere round $2000-3000 a year.  Also for people considering a car loan.  The rate I assumed for interest foregone was 6 percent on a term-deposit.  If you borrow you’re looking at more like 15%, which on a loan of 20k would be another 60 a week.

Lastly, if you have to pay for parking at your home, then the flexicar could quickly become economical.

These exceptions to my (very reasonable) model must apply to plenty of people, because flexicar is going gangbusters.  The best thing about it is that the more it grows, the better it gets.  If you go to the flexicar website, you will see they have nearly a hundred cars in Melbourne, and only three in Sydney.  The ‘network effects’ mean that the more flexicars there are around, the better the service they can offer.  So instead of growing a little bit in each city, they’re throwing all their weight into one.

The cost structures mean the company needs to be big to make money.  When Zipcar first started getting really seriously corporate, they tripled their fleet.  This means that we can hope that Flexicar will not only have more cars nearby soon, but that prices will also come down.

Have you used flexicar, dear readers?  Would you?  Let us know your views below.

Published by

thomasthethinkengine

Thomas the Think Engine is the blog of a trained economist. It comes to you from Melbourne Australia.

7 thoughts on “Flexicar”

  1. Thomas the Think Engine,
    your maths is too conservative. Apparently (based on anecdotal evidence) small cars refill weekly, medium cars fortnightly. Of course this is based on how much you drive and varies greatly.
    But, one might assume that one would not rent the flexi car daily, as this limits convenience and maximises expenses. But one may drive their own car daily, say to work. It’s kinda a different market. And therefore I’m unsure if comparing actually reflects people’s driving habits.
    but i like the idea of zip car targeting college students as this may change their habits and expectations from the time they can legally drive. nice one

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    1. Hi Fiona

      I think you’re right. I can’t imagine driving two hours a week and filling up every 6 weeks. Maybe the fuel efficiency assumption I used is wrong?

      But I think assuming minimal mileage makes sense, because these cars only get competitive for people who really do drive very little, so that avoiding the fixed costs becomes competitive.

      Someone else also pointed out that since the flexicars come with insurance, and my assumed model doesn’t, then I’m comparing apples and oranges. I personally wouldn’t insure a 5k car, but I’ll take that criticism.

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  2. Starting first with your comment “I personally wouldn’t insure a 5k car” – what about 3rd party? You’d have to pay for that at a minimum. Even if your car is only $5k, what happens when you smash it into a $100k+ new BMW? I have a $5k car and pay around $300 a year i think for 3rd party with fire and theft cover.

    I live in the inner suburbs and would be the target market for flexicar, except i have no interest in it and enjoy the freedom of owning my own car. i only use it on weekends and occasionally in the evenings. it also pretty much only gets used with two people in it, as i would otherwise ride.

    I don’t think your maths otherwise is that far off. I probably fill the tank around once a month for about $50.

    and what do you do if you want to go away for a weekend? how does flexicar work then? say, if you pick up a car on friday at 5pm and return it 48 hours later – do you pay the hourly cost still? that would be massive, and that’s probably one of the main uses for my car.

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    1. Hi Tom

      I agree. I don’t use my car for consistent short trips. I’m likely to not use it for a month, then drive it 300 km in one weekend.

      The day rate for flexicar is 75 bucks on the plan I described in my post. So that kicks in if you’re doing 7 hours or more. That seems comparable with a mid-size car from Budget, but remember that flexicars are available on the street corner near you, and you don’t pay for petrol.

      I think that compulsory basic 3rd party insurance is included in your rego. any insurance you pay for would maybe provide superior 3rd party insurance and also fire/theft.

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  3. Hi Thomas. Kimberly from Flexicar here. Good to hear the discussion on us :)

    Yes we’re going gangbusters – which is very exciting. We’ve been gaining momentum, especially in the past 2 years, as our #1 way of finding new customers is old customers. So more members means, well, more new members! We’d LOVE to have the coverage of zipcar one day so that Flexicar would become viable for more people…

    Also, as you point out, Flexicar isn’t for everyone.

    Lots of our members don’t have (or have sold) a car as they don’t want the sunk cost, don’t use their car enough or are keen cyclists/public transport lovers.

    Many members also report once they get rid of a car, and join us, they drive less. Because they “see” the cost of driving, they only use a car when they need one. The average Flexicar member only drives 650km a year. The average aussie drives 15,000! So Flexicar isn’t necessarily about being “like for like” with car ownership. It’s about pushing people a little to live a little healthier and greener…but not totally have to give up a car.

    We don’t suit people that need to use their car to get to work every day, or need to drive long distances all the time. We also can’t service people well unless we’re in their suburb / on their train or tram line. Yet.

    And you’re right on the enviro benefits – original members had this as their main driver, for newer members it’s a good “extra”.

    Overwhelmingly, cost saving is why members join. The “variable” cost of car ownership is really only the petrol. The rest is pretty much the same whether you drive twice a week or every day. And if you’re only driving twice a week, Flexicar starts to look very attractive against the cost of running/depreciating a new car.

    Just a few other comments if you are interested.

    NEW VS OLDER CARS

    Around 1 million new cars a year are sold in Australia – that’s a lot of car turnover…and not as many people driving 10 year old Corollas as we’d think!

    MATH NOTES

    – As the only staff member who owns a car (as I’m yet to get Flexicar to my suburb and I’ve also got the bonus of crap PT), I dream of only $250 in service and repairs!

    Most cars should be serviced 1-2 times a year (based on your driving KMS) and you don’t get away from many services for less than $500. If you also manage to buy a lemon, like me, you could be up for massive repair bills. Mine this year have totalled $4,500?!?! Yes, I’m selling it, but I’m not the only person with stories like these.

    My boss here loves it of course, she thinks I’m the perfect case study for why to get rid of a car!

    – If your insurance company values your car are $5k or more you HAVE to have comprehensive insurance. On my last clunker (yes, I have bad car juju), the insurance was $900 a year. If your car is under $5k you have to have third party insurance. This is rarely under $300.

    CONVENIENCE

    There are many, many people out there that use PT to go to work, taxis when they’re drinking, walking to the shops…but still have a new car that sits in the driveway, used only a couple of times a week. THESE are the people for whom Flexicar would work. But they like the “convenience” of their own car. However, it’s a pretty exxy convenience! When members want to get a mortgage, or get a family, we start to make a lot more sense to these people…

    Anyway, enough from me!

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  4. Hi Kimberly, thanks for commenting!

    I have a car that I may be getting rid of very soon. I called the RACV out and after a quick look, the mechanic suggested a new $360 starter motor…

    This could be the nudge I need to join flexicar!

    I am a big fan of the concept of flexicar, and am sure that if the economics of it work for a lot of people then it can be a success. As you point out, most people really can’t restrain themselves when it comes to car expenditure. Many people rationalise the marginal extra cost and end up buying more and more expensive cars over their lifetime.

    One question though, is advertising the diminished amount of driving your members do a real selling point? I fear that emphasising that point could work against the image of optimal mobility you are trying to project.

    And lastly, will you guys give me a job?! I’d love to work for an organisation like yours.

    cheers,

    Jason

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