Sustainable Development, Business and Society Final Assignment

New Type of Car Sharing in Japan

INSTITUT SUPRIEUR DE GESTION INTERNATIONAL MBA PROGRAM MAKI MATSUMOTO JULY, 2011

EXECUTIVE SUMMARY In this paper, the current market situation and problems of existing car sharing in Japan will be discussed, and then the possibility of a new car sharing service will be analyzed. The Japanese car sharing market is growing rapidly, and there is more potential opportunity to expand. Also, the cities, especially in metropolitan areas in Japan, are becoming denser and denser, as a large number of tower residential buildings have been built in the last few decades. The main idea of the new car sharing is that the each service network is limited within residents in a tower building, and cars shared is not provided by the car sharing company, but residents who own cars in that building. The main benefits would be;
1.

For users:
(i)

Easy access for users to shared cars, just take an elevator.

(ii) Various car type is available (iii) Face to face communication is possible with car owners 2. For car owners: (i) Able to reduce financial burden of owning cars

(ii) Face to face communication is possible with car users 3. For the company: (i) No large initial investment is needed for the company

(ii) Able to start with one site, and then expand after appropriate analysis

One critical issue need to be solved is the insurance policy problem. In order to successfully implement this new business, it is essential for the new entrant to include insurance re-writing service, as limited driver clause they already have and required paper works will prevent potential offerer of cars to enter this new car sharing net work.

TABLE OF CONTENTS
Executive Summary...................................................................................................2 Table of Contents.......................................................................................................4 Overview - Car Sharing in Japan.................................................................................5 History....................................................................................................................5 Current Market........................................................................................................5 Growing Fast........................................................................................................5 More potential Growth.........................................................................................6 Problems.................................................................................................................7 New Car Sharing in Japan...........................................................................................9 Business opportunity..............................................................................................9 Benefits..............................................................................................................9 Potential Risks and Problems............................................................................11 Issues to be solved...............................................................................................12 Conclusion and recommendation.............................................................................14 References...............................................................................................................15 Appendix..................................................................................................................16

OVERVIEW - CAR SHARING IN JAPAN HISTORY In Japan, car sharing began in late 1999 as a social experiment lead by Ministry of Land, Infrastructure, Transport and Tourism, and Ministry of Economy, Trade and Industry. Unlike the other western countries, where the initial idea of car sharing was to reduce the number of cars owned, it started in Japan mainly to demonstrate and to test new technologies, such as Intelligent Transport Systems and electric cars. In 2002, Orix Auto Co, and NEC Co., established a joint venture called CEV Sharing Co. and started Orix Car Share, to test whether the car-sharing business model used in other countries could be successfully applied in Japan1. In 2003 and 2004, some small companies entered into the market, and in 2005, Mazda Rent A car, a major rent a car company at that time, started car sharing service called CarShare24. Now owned by Times 24 Co. Ltd. , the leading company in parking business, this car sharing service changed name from CarShare24 to Times Plus and still operating as the number one company in this industry. Many other companies, both large and small, entered into this growing market. (Appendix)

CURRENT MARKET GROWING FAST In the last few years, car sharing market has shown rapid growth in Japan. According to the research by Foundation for Promoting Personal Mobility and Ecological Transportation, 31 car sharing companies are offering the service, 4,174 cars and 79,993 members are in the car sharing market in Japan as of January 2011, 31. (Appendix)

JFS Newsletter Car Sharing in Japan: Growing in Popularity, Integrating into Transport Systems No.76 (December 2008) 5

The number of cars tripled from the previous year and the number of members is growing even faster, increased by 450% in 2011.
Figure 1 Growth of number of cars and subscriptions

Source : Foundation for Promoting Personal Mobility and Ecological Transportation

MORE POTENTIAL GROWTH Market is not only fast growing, but more potential growth can be expected in this market. First of all, potential growth opportunity for the market can be seen from the number of car sharing subscription over total population. It is still only 0.06% in Japan, while in Switzerland, where car sharing first started, more than 1.22% of total population is now members of carsharing services. In other words, there is a huge room for further growthin Japan.

the U.S.

# of # of Total Member As of cars members Population /population % 8,120 448,574 309,140,000 0.15 2010.7

Canada Switzerland UK Japan

Transportation

2,285 2,350 2,259 3,911

67,526 93,700 112,928 73,224

31,610,000 7,700,000 61,400,000 127,692,000

0.21 1.22 0.18 0.06

2010.7 2010.6 2010.1 2011.1

Source: CarSharing.NET, Mobility CarSharing, Car plus, Foundation for Promoting Personal Mobility and Ecological

Another is, as car sharing is more and more recognized by Japanese people, new type of car-sharing system is also growing. Nowadays, some of the tower residential building offer car sharing service within the dense community. For example, The Tokyo Towers, built in Tokyo on 29,700m2 land space in the center of Tokyo, offers car sharing service in corporation with Orix Car Sharing. In this 58 stories twin towers, there are 2,799 apartments but only 1,024 parking spaces are provided. When apartments were sold in 2008, more than 1,200 families asked for the parking slots, meaning approximately 200 families were not able to obtain space for their cars and needed to find parking space outside the building, or give up their cars. So, Orix Car, a subsidiary of Orix Real Estate who was one of the developers of the towers, decided to offer car sharing service within the towers and over 600 families expressed considerable interest for being a member. Although exact number is unknown, approximately 50 or even more residential buildings seem to be offering similar services today, especially metropolitan areas in Japan.

PROBLEMS Although there are so many merits in car sharing from environmental point of view, there are also some practical problems. One of these is the location of the car. The number of car stations is increasing rapidly, yet it is still limited and requires users some time to actually get to the points of cars. The car sharing services offered to residences in the residential building are not the case as cars are located in the same building, but there is other problems such as people are not always able to reserve a car when they need, as the number of car shared is limited. For instance, previous case of The Tokyo Towers, only four cars are offered to share. Also, car stations are

usually located in the public parking areas, so users are responsible for any damages until the next user. Some users are afraid of any charges claimed by the car sharing company for unknown damage after returning the car to the parking spot. Again, this is not the case for the service within the residential building, as parking spaces in the tower buildings are usually located in the underground level or closed area with security. Limited car station points, limited number of the car and responsibility problem are probably also common in other countries. However, there are some problems particular to Japan. One of the main issues is that the Japanese people are not used to share things with strangers, as the Japanese culture is highly corrective with closed community spirits. People would share with people in the community they belong, but have hesitation to share with others who belongs other communities.

NEW CAR SHARING IN JAPAN BUSINESS OPPORTUNITY In this section, new type of car sharing is introduced and analyzed; sharing unoccupied car within tower residential buildings among people who live in that buildings. The main idea is to ask residences of a tower building who already own cars, contracted parking lots, not use their cars on daily basis, and have interests in sharing unoccupied cars to cover their fixed costs such as parking fees, taxes, and insurances. BENEFITS In this model, possible benefits are; 4. For users: (i) Easy access for users to shared cars As a car is located in the same building, there is no additional transportation need to get a car, as they generally have to only go down to the parking level by an elevator from his or her apartment. Also, as parking is located secured site with usually surveillance cameras and sometimes even security guards, responsibility problems also can be solved. (ii) Various car type is available Unlike existing car sharing companies that usually offer certain type of car, the users can choose from a number of cars types as each owner have different preference on their cars. (iii) Face to face communication is possible with car owners This model enable users to know car owners since both users and owners of cars are member of the same community, and repeated usage would

create repeated communication, or even closer relationship. This communication and relationship will bring a sense of reassurance to users.
5.

For car owners: (i) Able to reduce financial burden of owning cars In addition to the purchase price of a car, owners need to pay some fixed expenses such as parking fees, tax, and insurance. These costs are quite expensive, for example, monthly parking fee in tower building is approximately USD200 to 400 in Tokyo metropolitan area, and it will be a great help for owners from financial point of view. (ii) Face to face communication is possible with car users This model enable owners to know car users since both users and owners of cars are member of the same community, and repeated usage would create repeated communication, or even closer relationship. This communication and relationship will bring a sense of reassurance to owners.

6.

For the company: (i) No large initial investment is needed for the company The barrier to enter into the car sharing market is relatively low as this is still new market. However, the two leading companies, Orix Car Sharing and Times Plus, are dominant in the market, as members of these two represent 75% of total members and provide 60% of cars shared in Japan. Also, existing car sharing business model requires new entrants substantial initial investment such as leasing cars, obtaining parking places, and advertising to the wide population in the operating area. In this already difficult market condition, sharing unoccupied cars within a tower building can provide access to a large number of cars already placed in the building without large capital investment. Also, no large amount is

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required on advertisement and PR, as this business model will be offered within dense community, so only concentrated information giving process is needed to be acknowledged. (ii) Able to start with one site, and then expand after appropriate analysis Starting with one building as an experiment, then analyze situation, problem, and then improve for the second site. In this way, the company could minimize the risk of failure of startup business. POTENTIAL RISKS AND PROBLEMS
1.

For users and owners

(i)

Might cause sour relation in case of trouble

If a severe trouble or an accident occurs and could not solve properly, the owner and user relationship within closed community could have reverse results, as there is no way to escape from damaged relationship one established, unless either of them move out from the building. (ii) Insurance issue In Japan, car owners are obliged to buy insurance policy for car and driving. In general, when a car owner buy insurance policy, he or she limits the number of drivers of that particular car only to family members in order to reduce insurance premium. This means that if the car owner let someone else, who is not listed as a possible driver of the car in the contract, drive his car, and if he had an accident, insurance will not pay to cover any damage caused by. Therefore, it will be necessary to change the contract if the owner wants to share his unoccupied car within the tower building. 2. For the company: (i) No such a business exists in Japan

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As this is a new business model for car sharing within tower building that ask owners to share excess capacities they have, it is uncertain that this model is accepted or not. Also, according to Hofstead analysis, Japanese people have high uncertainty avoidance ratio so that there is a risk that this whole scheme is not easily accepted to the people in Japan.

ISSUES TO BE SOLVED Among above potential risks and problems, the most critical one would be the insurance issue. Under Japanese law, all registered cars must be covered by Compulsory Automobile Liability Insurance (CALI). This insurance is very similar to that are mandatory in other countries. Although this compulsory insurance is very effective, it is not adequate in providing coverage for the insured, and it does not cover any repair or replacement for damage to the car itself. Thus, majority of car owners buy private insurance policies in order to cover this shortage. According to the General Insurance Association of Japan,, nearly 80% of car owners buy these voluntary auto insurance policies in Tokyo metropolitan area, as of March 20092. The insurance premium is determined by the type of car, number of listed driver, and age and accident histories of these drivers. In order to reduce premiums, many car owners limit drivers of the car. Although it is not difficult to change the contract and expand drivers to unlimited, and this additional cost would be covered by charging extra fee to the users of their cars in case of offering their cars to car sharing networks, it is still few paper works to be done and this could be a possible hurdle for owners to enter into the service. In other words, it is essential for new entrant of this new type of

Ownership of Voluntary Automobile Insurance, The General Insurance Association of Japan, 2009 http://www.sonpo.or.jp/archive/statistics/syumoku/pdf/index/kanyu_jidosha_ken.pdf 12

car sharing to provide rewriting insurance service as well as offering information network and other related service to potential car offerer.

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CONCLUSION AND RECOMMENDATION As seen previous sections, the Japanese car sharing market is growing rapidly, and there is more potential opportunity to expand. In addition to existing general car sharing, there is a possibility to launch new style car sharing business in Japan; sharing unoccupied cars within a tower residential building, as this new business model would reduce or solve current problems that existing car sharing business confronts. In order to successfully implement this new business, it is essential to include insurance re-writing service, as limited driver clause they already have and required paper works will prevent potential offerer of cars to enter this new car sharing net work.

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REFERENCES Foundation for Promoting Personal Mobility and Ecological Transportation http://www.ecomo.or.jp/environment/carshare/carshare_graph2011.1.html CarSharing.NET http://www.carsharing.net/ Mobility CarSharing Switzerland http://www.mobility.ch/de/pub/standorte.cfm?staoid=-1 Car Plus http://www.carplus.org.uk/

JFS Newsletter Car Sharing in Japan: Growing in Popularity, Integrating into Transport Systems No.76 (December 2008)

http://www.japanfs.org/en/mailmagazine/newsletter/pages/028678.html

Ownership of Voluntary Automobile Insurance, The General Insurance Association of Japan, 2009

http://www.sonpo.or.jp/archive/statistics/

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APPENDIX
Name of Business Orix Car Share Our Car Mobi-System Ayato Carsharing System Eco Nori Club Shiki Carsharing CarCherry Chokomo Club Tims Plus Windcar Catela Car Share Kanazawa Kinokanoke vs club Car share Shikoku Ecolo Car Sharing QuiCar Careco Caresharing Club Withree Eco rentA Guliver Care Share Mates Leo Guliver Car Sharing Nissan Car Sharing Club Sallato Car Sharing Actio e-drive i share Eki-spres Cariteco Sanfuku Car Sharing Machinori-kun Casual Rent a Car Total Start Date Apr-02 Feb-03 Nov-03 Apr-04 Apr-04 May-04 Dec-04 Jan-05 Feb-05 Mar-05 Nov-05 Nov-06 Apr-07 Mar-08 Mar-08 May-08 Jan-09 Mar-09 Mar-09 Apr-09 Nov-09 Jul-09 Aug-09 Oct-09 Oct-09 Nov-09 Nov-09 Nov-09 Dec-09 Jan-10 # of car stations 888 1 34 3 4 1 6 7 936 95 37 11 1 7 45 6 389 9 3 9 500 1 9 2 33 6 28 5 3 5 3,084 # of cars 1,274 3 300 5 8 1 10 10 1,256 119 48 12 2 7 67 9 407 12 6 9 500 2 9 2 33 11 32 5 5 10 4,174 # of members 30,000 30 1,860 60 140 5 100 168 29,719 1,958 1,487 109 6 165 800 55 7,769 130 0 120 3,100 10 60 12 1,000 0 750 63 70 247 79,993

Source: Foundation for Promoting Personal Mobility and Ecological Transportation, As of Jan, 2011

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