The car club that's joined the fast lane as drivers go without their own set of wheels
It's a cheap and green alternative to ownership. Brett Akker, co-founder of Streetcar, tells Sarah Butler why business is booming
Sunday 16 November 2008
Brett Akker is trying not to look too pleased. But there is no skirting round the point that the economic downturn is proving rather good for business.
Akker, 33, is the co-founder of Streetcar, the car-club business where members pay an annual fee for a smart card that gives them access to cars parked in their neighbourhoods. These can be hired on an hourly, daily, weekly or monthly basis with a minimum of 30 minutes' notice. It is a business model whose time has come. Carplus, the charity that promotes car-club use in the UK, claims that anyone who drives fewer than 6,000 miles a year could save up to £3,500 annually by giving up their vehicle and joining a club. As the economic downturn bites so people are re-examining their monthly outgoings, and the message is hitting home that hiring rather than owning a vehicle can bring big savings, as well as offering the "green" credentials of only driving when it's really necessary.
Streetcar is certainly benefiting. Its membership has surged this year against the backdrop of economic uncertainty, rising petrol prices and increased car taxes.
Akker says: "If you asked people a couple of years ago about the cost of their car they, probably wouldn't have been able to tell you. But the economic climate and petrol price increases have meant that people are thinking about the full cost of car ownership, including fuel, parking, finance and insurance.
"London and other cities have got good public transport and most people don't want to own a car which they use once or twice a week and the rest of the time it is sitting outside their house depreciating."
Overall membership of car clubs in the UK has more than doubled in the past year, according to Carplus, and there are now more than 50,000 people using 1,500 vehicles. Streetcar says there was a particularly sharp rise in numbers after the Chancellor unveiled increases in motoring taxes in March. The company reports that membership has leapt from 27,537 to 43,000 since then.
Similarly, City Car Club, its biggest rival, has enjoyed year-on-year growth of 93 per cent so far this year and now has 8,000 UK members in seven UK cities including London, Edinburgh and Bristol.
Carplus is predicting the market will grow 11-fold in the next four years – an expansion that is partly being driven by local authorities wanting to tackle congestion. Transport for London has already ploughed £1.5m into helping local boroughs set up car-club parking bays.
The strong growth of the market, and potential for more of the same in the future, has drawn new competition from international car-rental company Hertz, which is set to launch its own car-club operation next year.
However, Akker says that the new financial awareness among British motorists, and the increasing interest in more environmentally friendly forms of transport, will continue to drive Streetcar's own rapid expansion, which has seen it triple in size annually for the past few years. He says there is "plenty of room" for rival firms.
Next year, Streetcar, which operates in six cities, intends to double membership and the number of cars available for hire – en route to a target of 250,000 members by 2012. It is also adding 20 vehicles a month to its separate van-hire service, which was launched last year. Akker says that for large organisations, Streetcar can replace pool-car operations.
The company has been able to step up its expansion, having slipped under the credit crunch wire to raise £6.4m from private equity firm Smedvig Capital last summer.
Akker and his partner, Andrew Valentine, did consider taking the company public last year, but Akker says the current environment is clearly not right and no funds are needed in the near future because the firm will be profitable and still comfortably cushioned by the funds from Smedvig. In the latest accounts filed at Companies House, for the year to the end of September 2007, Streetcar reported a loss of £3.12m – a massive increase on the £726,000 loss a year before. However, sales more than quadrupled to £4.7m. Akker says the business now has sales of £15m and that it will be close to break-even this year.
Even so, Akker and Valentine could face their toughest competition since they launched the business four years ago. The pair, who met at Durham University, had agreed that at some point they would go into business together, though at first they went their own ways with Akker employed in sales and marketing at Mars and Valentine working in management for P&O Nedlloyd. But both held on to the idea of being their own boss and in 2003 they began discussing potential business ideas. During this time, they came across an article on car clubs.
They then spent six to nine months researching the idea before launching a trial with eight cars in four locations in south London in April 2004. The start-up was funded by £60,000 in savings plus financing to pay for the cars. They had signed up their 100th member by June of that year and felt confident enough to hire their first employee in August.
Streetcar is by far the biggest car club in the UK with around 1,000 cars. City Car Club owns 350 and Zipcar, the US-based giant, has fewer than 200 in the UK, all in London. Akker estimates that Streetcar controls about 75 per cent of the market in the UK and more than that in London.
However, the arrival of Hertz may spur other big car-rental companies to enter the market and the US giant could use its bigger scale to undercut Streetcar on price. But Akker says he is relaxed as car clubs represent "a different market and concept" given the much shorter-term rentals and the social aspect of replacing car ownership, which brings strong links with local government. Mainstream car rental, by contrast, operates using big depots spread out thinly, and most cars are hired for more than three days.
Avis, Hertz's rental rival, was one of the first companies in the UK to try car clubs with the launch of Urbigo in 2002. That venture closed two years ago for lack of interest and perhaps suffered from being only a peripheral experiment for Avis.
Streetcar now employs 90 full-time staff and has grown so dramatically that it will move to new premises close to its current Wimbledon home later this month. Its cars are now financed by Barclays and Bank of Scotland.
Perhaps one of the biggest challenges facing Streetcar and its rivals will be maintaining service levels in a burgeoning market. Akker says this is "absolutely crucial" as 40 per cent of Streetcar's members find out about the service through word of mouth.
With big companies such as Hertz set to challenge the entrepreneurial standard-bearers, it will now be more important than ever for the car-club industry to ensure that members feel too content to leave.
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