Bmw expects to boost its profits from its two-year-old car rental venture

Article by Christian A., on January 29, 2013

BMW is planning for its two-year-old car rental venture to already be profitable this year. BMW is hoping that this venture of leasing cars by the minute will beat that of Daimler’s by its campaign to attract consumers who don’t want to own a vehicle and are looking for other options.

Last week, DriveNow GmbH, BMW's car-sharing venture with rental company Sixt, will restrict expansion in order to earn more money, according to the partnership's managing director Andreas Schaaf. DriveNow has been set up in four German cities since it began in May 2011. DriveNow now hopes to put up another site in this country and in another area in Europe in 2013. When interviewed in Berlin, Schaaf said that expansion could be done faster but it aims to show that this business could be profitable.

He explained that profitability of each city is determined and that there are few economies of scale. City-based services are being ramped up by Daimler and BMW in order to attract drivers who just don’t want to be vehicle owners. Consulting company Frost & Sullivan said that by 2020, the membership in car-sharing services could surge 20-fold to nearly 15 million people in Europe by 2020. This will surpass the 2012 sales of 12.5 million cars in the region.

Because of this growth potential, Avis Budget Group Inc. has been prompted to make a $491 million bid for Zipcar Inc. earlier this month. Marc-Rene Tonn, an analyst at Warburg Research in Hamburg, said that the participation of rental companies is evidence that car-sharing “can and should be” a business that’s profitable.

He also said that the auto companies are positioning themselves to respond to the shifting behavior of urban consumers. DriveNow’s earnings plan is comparable with a 2014 break-even target date that Daimler determined for its Car2go service, which provides one-way rentals of two-seat Smart models by the minute. Last week, Daimler revealed that Car2go has earned a profit in three of the 18 cities where it runs.

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