Dismantling the Misconceptions of Car OwnershipTue, 09/15/2015 - 15:32
Q: What led to Carrot’s foundation and what aspects of the market made Mexico ready for this service?
A: Cars are truly underutilized assets, in many cases spending approximately 90% of their lifetimes parked. Over a period of many years, people spend a fortune on maintenance, insurance, gas, parking, and even financing. Therefore, car sharing presents a real alternative to the expense and hassle of ownership. When I first saw the business model in Boston I thought it was really innovative, especially for cities where people cannot afford to own a car, or simply do not want one because of the traffic conditions. When Carrot began operating in 2012, there were not many car sharing services in developing countries. Today, we are already operating in various college campuses and we are present in Mexico City, Monterrey, Puebla, and Guadalajara.
Q: What were Carrot’s initial growth expectations when the company was founded?
A: In the beginning, we thought that 200 vehicles after ten years would be a great accomplishment. After starting a pilot program with three vehicles in Colonia Condesa, Mexico City, people started talking about the project, leading to the city’s former Mayor, Marcelo Ebrard, agreeing to have an official launch with 20 of our vehicles. Thanks to the media coverage from that event, the demand was gratefully overwhelming, forcing us to grow to 40 cars. Now, we have five different vehicle models and we will close the year with 150 available cars, bringing us very close to our initial expectations in only three years. Carrot is growing much faster than first predicted; we already generate profit and we have around 6,500 customers. We are developing an aggressive growth strategy for Mexico, as well as devising a game plan to expand into other Latin American countries. Furthermore, in March 2014, we started our second round to reach 300 vehicles by March 2016, and we will be closing this year with 12,000 clients. Mexico City still has an 8,000 vehicle potential for car sharing, so we will be focusing a lot on growing our car base there. Guadalajara’s size and attractiveness has led us to building a growth plan for that city, and there are also great opportunities in every Latin American country that has a large city and good infrastructure. We are currently analyzing Buenos Aires, Santiago de Chile, and Bogota as possible locations for Carrot. There is still no competition for car sharing in Latin America, and we are in a unique position given our knowledge of the market.
Q: How has Carrot helped to educate Mexico’s consumer base about the benefits of car sharing?
A: Mexico still has the mentality that ownership of a car equals success. Even though this is difficult to change, we have implemented three different strategies to try to combat it. The first is instructing the public about the hazards of owning a private vehicle, and to show there are more effective ways to move around the city. Secondly, we actively seek out media coverage, evidenced by around 400 published articles about Carrot. These focus on the innovative part of the service, its impact on urbanism, and its entrepreneurship value. The third strategy we have is related to Mexico’s megatrends as a market. Currently, the average driving speed in Mexico City is 14km/h, sometimes even less in some regions. If the country continues growing at the rate it is, then this will soon become less than 10 km/h.
Mexico City’s subway moves approximately 8 million people daily, with 15% of them belonging to a middle- to high-income bracket. This shows that this segment is starting to see public transportation as an efficient alternative to owning a car. There is also a megatrend for people to live closer to work instead of traveling over long distances. Additionally, Mexico City has recently been making some of the largest investments in public transportation seen globally. Even so, the government needs to invest a lot more to develop a safer city where pedestrians and cyclists can feel comfortable, meaning there have to be more efficient travel alternatives available for all citizens, such as subway lines and BRTs. Once these have been introduced, the total cost of ownership for private vehicles should be raised through taxes, gasoline, or any other method. People need to start learning how to combine all available mobility alternatives and realize that the most efficient way to utilize a car is by using it less.
Q: How have clients responded to the electric vehicle option and how many trips have been made with these cars in Mexico?
A: Around 5% of our trips have been made with electric vehicles, while hybrid vehicles have had much more success, at around 25%. EVs are tough vehicles for car sharing, especially in a country like Mexico where charging infrastructure is practically nonexistent. Our plan is to have more electric vehicles in our fleet, but that project is still in the early stages in Mexico. At the moment, the government does not have any plans regarding charging infrastructure, which is why we built our own charging station specifically for our customers. However, given the large investment needed, we will not be pursuing this opportunity much.
Q: How have companies like Uber affected Carrot’s business penetration in Mexico?
A: I think they have actually helped us. We have had 36 months of continuous growth in sales, trips, and active users, even seeing acceleration in our results during the first half of 2015. Nowadays, there is not a month that goes by during which we do not see more trips and more active users. In the end, any kind of service that gets people out of their private vehicles eventually helps us to grow. While we could consider Uber and traditional taxis as potential competition, in reality they are used for different purposes. Uber has helped the mobility ecosystem in Mexico, as more people are realizing that they have a new alternative. Carrot compliments this service by providing vehicles for longer or more specialized trips. Our biggest competition actually comes from people who buy cars, because the chances of them using alternative methods of transportation are really low.
Q: How do you pick the OEMs you work with and which product segments are you currently using in your fleet?
A: At the beginning, the Secretariat of Environment and Natural Resources (SEMARNAT) told us that the most fuel-efficient vehicle in the market was the Nissan March, so we chose Nissan because of this small, convenient car. With that in mind, Toyota later approached us and we immediately fell in love with the Toyota Prius. After that, we realized there was an opportunity in the market for premium cars, leading to the introduction of the Audi A1 to our portfolio.
We recently added SUVs, but we do not have an exclusivity agreement with any brand. Additionally, we also started offering cargo vehicles in January 2014, which has been a great business generator so far. We have several e-commerce site clients that use our cargo vehicle service when they have an emergency delivery. While we were first unsure about the opportunities in this segment, we have had tremendous success with it, even though it took us a while to get these vehicles on the street.
Q: What level of resistance or support does Carrot receive from OEMs in Mexico?
A: The most important factor is that this is a niche project targeted mostly at young people between 25 and 35. Most people in this age range are really satisfied with the service, but once they start a family, they might realize that car sharing stops being as convenient. It is a fact that this age group has less driving licenses than ever, and is consequently buying fewer cars. Every OEM is struggling to target this segment, meaning that car sharing offers a great way to get to know the vehicles before they are ready to buy. In that sense, car sharing works as the best test-drive for any vehicle. Furthermore, we have detected that around 65% of our customers who drop the service to buy a car, do so with one of the models they have already used with Carrot.