Low Returns Force Russian Car-Sharers to Become Dealers

By Roma Nazarov

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24th December 2019

Since 2016, Russian car-sharing operators have got their teeth into a good range of money-making opportunities.

They sold partner programs for fleets, re-fueling services and even used cars. Some of the earlier ideas had failed to answer their hopes. Circulation of partner programs is shrinking after a short period of moderate interest because most potential partners were scared-off by high levels of vehicle theft and vandalism. Remarkably, in 2018, large operators Delimobil and BelkaCar abandoned their projects upon studying the market.

Youdrive, the fourth biggest player, was the only one to gather a considerable pool but its size was on the decline lately. “Fleet management is the most risky part of the sharing business,” said Ruslan Yunisov, editor-in-chief at Rentcarus.ru. After several years of testing the ground, the operators remain cautious sellers in the advertising market. “Car-sharing as well as taxi businesses need to promote their own brands,” said Dmitry Shapochkin, CEO at Ocean Taxi. “Besides, authorities put strict requirements on exterior of the vehicles.” Another problem is finding an appealing product: “We had tried to sell phone chargers, ice cream as well as other goods but were never able to interest the clients.”

Less wheels, higher fares

Year after year, Russian car-sharing operators used to come to investors in need of covering their operational losses. A CrunchBase’s new report shows that the investment volume is down after peaking in 2018 so, presumably, the operators will continue to search for more opportunities to diversify their sources of income.

The 2019’s autumn season has brought Youdrive’s two new pilots. In September, the company had presented a small fleet of electric three-wheel motorcycles. The idea to offer more transport modes must have been inspired by the company’s earlier success in the kick-sharing market in 2018.

Both two and three-wheelers markets gave the company an ability to shun a fares war, an annoying issue in the car-sharing market that empties the pockets of all operators. By contrast, rental fees in the two-wheelers market are impressively high – 50% from a typical car rental fee. In the tricycles project, the company was again able to charge fees higher than in the care, given the fact that a double-seat trike costs one-third of a passenger car’s price and requires less maintenance.

Yunisov believes that kick- and trike-sharing provides the company with reputational benefits and a small but positive flow of money. “It’s a small market,” he said. “Only a few people are ready to use the service on a daily basis because of the fares and poor environment.” Yet, Youdrive representatives had on several occasions shown satisfaction with outcomes of both kick-sharing and trike-sharing pilots.

Besides, each new transport mode comes with less investment required thanks to expertise in the car segment, said Mikhail Sedykh, founder at developer of car-sharing software Cariot. Youdrive could save $150,000 to $200,000 and five to seven months on software platform development.

Youdrive crazy

Since the explosive growth of car-sharing in Russia started in 2016, Moscow authorities’ decision to limit lifespan of shared cars to three years is putting the operators before the necessity to figure out what to do with hundreds of used cars.

In the mid-October, the most controversial Youdrive’s idea was introduced. Booking a Smart car via the company’s app, users saw a note on the screen saying that this car was available for sale. Upon taking a drive they could initiate a purchase with a single click if they liked the vehicle. It is not known yet if the pilot was successful but should the company sell its 300 smart cars purchased in 2016, it could cover 82M rubles lost in 2018.

Youdrive competitor Delimobil questioned the moral issue by stating that “car-sharing’s mission is to shift the paradigm from owning an automobile to using it”, as cited by business edition RBC.

Yunisov thinks that the cars are in a too bad condition to interest drivers even with the proposed 40% discount: “Buying a used car is a lottery. In this case, the chance of winning is especially weak.” The cars suffer from high levels of wear and tear because an estimated 4% of car-sharing users in Moscow could be classified is a ‘vandal’ driver.

“It should concern nobody but the company and its potential clients to regulate the value of these cars,” said Vadim Donchenko, scientific director at the Scientific and Research Institute of Motor Transport (NIIAT). Unified rules should be applied to all cars in the market, whether shared or privately owned: “Each car is thought to be safe as long as it can pass the mandatory annual technical inspection.” Neither Delimobil or Youdrive would respond to requests for a comment on these issues.