Car rental by the minute gaining traction in Europe

Daimler AG is flooding Berlin with Smart cars to claim a greater share of Europe's burgeoning rent-by-the-minute urban auto market.

The maker of Mercedes-Benz cars installed the largest fleet of its Car2go short-term rental service in the German capital last month, overwhelming Bayerische Motoren Werke AG's DriveNow offerings two-to-one. The pursuit of Berlin drivers is part of a broader effort to win over urban consumers and boost sales from services as the allure of car ownership in cities wanes.

"It's natural that competition shows up," said Robert Henrich, Car2go's chief. "It shows that we have the right business idea. Our intention is clearly to remain the leader."

Daimler and BMW are ramping up city-based services that allow drivers to rent by the minute, tapping a growing customer base. Car-sharing membership in Europe is projected to surge to about 15 million people by 2020 from 700,000 at the end of last year, according to consulting group Frost & Sullivan. There were 13.6 million cars sold in the region last year.

For Daimler the Car2go service, which like DriveNow costs 29 cents a minute in Berlin, is part of a strategy to retake the luxury-car lead from BMW by the end of the decade. Achieving the goal rests on its success in expanding its appeal, especially with younger drivers.

"Car-sharing is like a test drive that's paid for," said Stefan Bratzel, director of the Center of Automotive Management at the University of Applied Sciences in Bergisch Gladbach, Germany. "It offers a chance to open the door to customers that might not have considered a car and helps the image."

Car-sharing has gained appeal with middle-class consumers like Julia Zabel. The 43-year-old engineer sold her Audi A4 in 2009 after moving to Berlin's Friedenau neighborhood, where public transport is plentiful among the pre-war apartment buildings and parking is not.

"We're so well-connected here with the train and buses that my husband and I decided it didn't make sense," Zabel said. "We don't see any need to own a car as long as we live so central."

She signed up for DriveNow in November to help with shopping and make ferrying around her 4-year-old son more comfortable during Berlin's cold, wet winter weather.

"The auto manufacturers are targeting mobility services as congestion, ownership costs and changing attitudes toward cars slow sales growth in mature markets like Europe and North America," said Vishwas Shankar, an automotive and transportation analyst at Frost & Sullivan, who is based in Chennai, India. "They're building for the future."

After Daimler started up the Car2go service in Ulm in southern Germany in 2008, BMW responded last year with DriveNow, a joint venture with rental company Sixt AG. The Munich-based company plans to overtake Daimler in services, matching the top position it has held in luxury-auto sales since 2005. BMW sold 1.67 million cars last year, outpacing the 1.38 million deliveries of Smart and Mercedes models.

"Our vision remains clear: to be the leading provider of premium products and premium services for individual mobility," BMW Chief Executive Officer Norbert Reithofer said last week.

BMW's DriveNow, which also operates in Munich and Dusseldorf, has a lot of catching up to do. Car2go has expanded to 12 cities, including electric-vehicle fleets in Amsterdam and San Diego, and plans to add an average of one a month this year to expand to 20 markets in Europe and North America, where it will compete with the likes of Zipcar Inc. The Daimler startup, which intends to break even in two years, targets 50 cities in Europe and 30 in North America by 2016, Henrich said. Car2go has 85,000 customers to DriveNow's 27,000.

Both services differ from station-based car-sharing by allowing customers to start and end a rental anywhere in the service area, making one-way trips the norm. The cars are accessed and tracked electronically.

The head-to-head matchup in Berlin marks a key test of Car2go's ability to retain its lead. The Daimler unit is being aggressive. Car2go's 1,000 white-and-blue Smart cars, which rivals Paris's Autolib' as the world's largest car-sharing fleet, swamp DriveNow's 500 BMW and Mini vehicles. Car2go's service area of 250 square kilometers (97 square miles) is also more than double DriveNow's 120 square kilometers, even after an expansion following its rival's rollout.

The availability of cars and the big business area won over Jan Preiss. The 40-year-old doctor signed up for the service to get to the hospital where he works and avoid the hassle of parking his 1997 Mercedes E-Class on Berlin's crowded streets. His membership marks a return to car-sharing after getting the vehicle as a gift.

"The Mercedes is always hard to park," said his wife, Kim, who chiefly uses public transport to shuttle around with her three kids. "Every day we're thinking of selling it. There's plenty of Car2go cars in our neighborhood."

Car2go's focus on the two-seat Smart may ultimately limit the service's appeal. BMW has an array of sportier four-seat vehicles, ranging from the Mini convertible to the BMW 1-Series hatchback and X1 compact sport-utility vehicle.

"Car-sharing also has to be cool," said Michael Fischer, spokesman for DriveNow in Berlin. "Car-sharing was a niche, green service. We want to be sustainable, but lifestyle is also important."

DriveNow has about 9,500 members in Berlin and sees potential to grow to 80,000 in the next two to three years, said Fischer. Globally, the service has the ambition of signing up 1 million customers by 2020. The first non-German city will probably be added later this year, he said.

Because of the Smart's lack of space, Car2go probably won't be an option for DriveNow-user Zabel.

"The Smart's very small," she said. "You can't take a lot with you."