October 27, 2017

Sustainability of car2go abandoning smart cars

Carsharing company car2go announced last week that it would be replacing all of its smart cars in Portland with Mercedes-Benz CLA sedans and GLA crossovers. For most of this year, the company has been operating a mixed fleet comprising the CLA, GLA, and smart fortwo, much as they have been doing in Seattle. The switch away from smart cars appears to have been motivated at least in part by competition from BMW’s ReachNow service, which entered the free-float carsharing market with BMW and MINI branded vehicles.

We can make a few observations about the potential implications of this changeover for equity, environmental, and economic sustainability.

Some key characteristics of the vehicles in question (for model year 2017) are summarized in the table below (all GLAs in the car2go fleet are equipped with 4MATIC all-wheel drive):

	smart fortwo	Mercedes-Benz CLA	Mercedes-Benz GLA 4MATIC
Manufacturer’s Suggested Retail Price (Base)	$14,650	$32,400	$34,850
car2go Rental Price (per Minute)	$0.35	$0.45	$0.45
Seating Capacity	2	5	5
On-road Fuel Economy (mpg)*	35	29	26
Test Cycle Fuel Economy (mpg)*	50.2	38.5	34.3
Test Cycle GHG emissions (g CO2/mile)*	177	231	260
Footprint (sq. ft.)	30.8	44.9	44.9
EPA 2017 GHG Target (g CO2/mile)	195	212	257**

* Fuel economy data were obtained by downloading EPA’s Fuel Economy Guide datafile. Test cycle GHG emissions were calculated by dividing 8,900 g/gal by the test cycle (“combined unadjusted”) fuel economy. 8,900 g/gal is the CO2 intensity of fuel implied by EPA’s conversion between adjusted (“on road”) fuel economy and adjusted CO2 emissions.
** The GLA 4MATIC is legally classified as a non-passenger automobile for regulatory purposes, and so is subject to looser fuel economy and GHG standards.

 

Emissions will increase, but not as much as you might think

At first glance, the greenhouse gas emissions of the CLA and GLA are considerably higher than those from the smart fortwo – 54 g/mile and 83 g/mile higher, respectively. However, most auto manufacturers these days are constrained by fuel economy and greenhouse gas standards. These standards apply to the sales-weighted average emissions (or fuel economy) of each automaker’s fleet. So, any increases in the emissions of car2go’s fleet will have to be balanced out by decreases in emissions among other vehicles sold by parent company Mercedes-Benz.

Of course, it can’t be that simple. Greenhouse gas standards for automakers are set based on the sales mix of differently sized cars and trucks that the company sells. Smaller vehicles (as measured by the area enclosed between the 4 wheels, known as the footprint) are subject to lower CO2 emission targets than are larger vehicles. The company’s overall target is based on its overall mix. The red line in the graph below shows the CO2 emissions targets for model year 2017 cars, as established in the 2012 rulemaking. The target for a smart fortwo (footprint = 30.8 square feet) is 195 g/mile, while that of a Mercedes-Benz CLA (footprint = 44.9 square feet) is 212 g/mile. The GLA 4MATIC is legally classified as a non-passenger automobile under federal rules, and so is subject to a looser target of 257 g/mile despite being the same size (and indeed being built on the same platform) as the CLA. For each CLA that replaces a smart fortwo, Mercedes-Benz’s emission target is relaxed by 17 g/mile. For each GLA 4MATIC, the standard is relaxed by 62 g/mile. Thus, when we consider the regulatory environment, the effective increase in emissions is 17 – 62 g/mile, which is less than 54 – 83 g/mile that we get from simply comparing per-mile emissions.

This makes regulatory compliance harder for Mercedes-Benz

As shown in the figure above, the smart fortwo (177 g/mile) is located below the emissions target curve (195 g/mile for a car of its size). This means that every smart car that Mercedes sells provides a net benefit toward meetings its corporate emissions standard. In contrast, the CLA (231 g/mile) is located above the emissions target curve (212 g/mile for a car of its size). The GLA is also slightly above its target emissions level. This means that each smart car that is replaced with a CLA or GLA makes is harder for parent company Mercedes-Benz to comply with its CO2 emissions targets.

The fact that smart cars are net contributors to regulatory compliance is likely a part of why Mercedes built the initial car2go fleet around them. (Low cost, distinctive appearance, and ease of parking are also good reasons.) But with increased competition from ReachNow, the smart cars may have become more of a liability than they are worth.

Prices are going up, but so is value

Eliminating the smart fortwo from the car2go fleet will eliminate a low-cost option. Travelers who would have used the smart car will see their cost of travel increase by $0.10 per minute. I’m not sure what the distribution of car2go usage is, but I would guess that 10 trips per week and 20 minutes per trip would be a fairly heavy user. This is about 860 minutes of use per month, so this price change would increase costs by $86 per month for such a user. This is significant, particularly for lower-income households.

On the flip side, the $0.45/minute price of a CLA or GLA is about 30% higher than the price for a smart car, but the Mercedes-Benz vehicles cost about twice as much to purchase, and offer a commensurate increase in comfort. In this sense, premium vehicles are being made available to a much broader market than would typically have access to them, for a fairly modest increase in the per-minute price.

Why reduce choice?

Why, you might wonder, doesn’t car2go just continue to offer both types of vehicles? To provide Portlanders a car for every purse and purpose, in the words of Alfred P. Sloan? After all, a heterogeneous fleet allows “right-sizing,” the matching of vehicle capabilities to a trip’s needs, which is key to reducing the amount of money and energy wasted on transportation.

One possibility is that there really isn’t much of a market for smart cars when a Mercedes can be had for another 10 cents per minute. Consider the quote from car2go’s GM in Portland, Ken Hills: “What we’ve really seen is just a clear preference for these cars… They’re being chosen by our members more often, and they’re really being used for much longer trips.” I am skeptical, however, that there is no demand for a basic, no-frills vehicle that can get someone from A to B as affordably as possible.

Another possibility is that this is an unintended consequence of permitting practices by the City of Portland. If the city has a hard cap on the number of cars that it permits car2go to deploy (as many cities do), then the company must make sure that it is deploying not just profitable vehicles, but the most profitable vehicles. Mr. Hills doesn’t say that the smart cars were unprofitable, and the company operated them for years. But if the company can get greater utilization and higher profits out of Mercedes-Benz vehicles, and is forced by regulations to choose between those and smart cars, then the choice is obvious. This would be unfortunate indeed, but it wouldn’t be the first time that quantity regulation had served to drive up transportation prices, and disadvantage low-income residents.